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  • Weekly Summary: S&P 500 is Close to 4,000, COVID Strikes Biden

Weekly Summary: S&P 500 is Close to 4,000, COVID Strikes Biden

The U.S. stock market is trying to get as high as possible ahead of the Federal Reserve (Fed) meeting next week, where another 75 basis points interest hike could be decided. U.S. President Joe Biden tested positive for COVID-19 and is said to be experiencing mild symptoms while taking Paxlovid, a pill that is prescribed to patients with high risk of hospitalisation or death.

Biden’s sickness bears a great risk if he develops severe symptoms that may easily emerge considering the age of the President. This could be a good chance for elevated political tensions, namely between China and Taiwan. So, these kinds of issues should be clearly monitored. Investors should be prepared for the worst-case scenario.

The European Central Bank (ECB) unexpectedly made a wise decision to raise its interest rates by 50 basis points instead of the promised 25 points. This is clearly a bold step towards fighting record 8.6% inflation. Thus, an 11-year long test of negative interest rates is officially over. The ECB also announced an unlimited Transmission Protection Instrument (TPI) program that is designed to level up government bonds yields, especially for the South European nations. The rise of the interest rate is likely to greatly raise borrowing costs for countries like Spain, Portugal, and Italy. For such countries the European monetary watchdog promised to target the yields curve. The ECB hopes that the new instrument will never be activated. But these hopes could be dashed amid a curling cyclical crisis.

Along with the ECB’s decisions, new risks of banks pumping more money into the Eurozone’s economy were also delivered, meaning that inflation may be pushed even higher, as it is up to the ECB to decide which country’s debt needs to be supported and how much of it should be loaded to the regulator’s balance. The Euro lost ground on this news, but is unlikely to drop significantly to the U.S. Dollar as the latter has much more signals to decline.

The S&P 500 broad market index reached a resistance level at 3920-3930 points and continued to climb, changing its formation to the upside with a primary target at 4100-4200 points. Next week is looking positive for the index from a technical point of view. Corporate earnings reports from Microsoft, Google-parent Alphabet, Apple, Amazon, and Meta may contribute to the climb next week.

Crude prices were slightly up this week rolling back to $103-104 per barrel of Brent crude by the end of it. No clear occasions for crude prices to rise are currently seen. On the other hand, no reasons to decline are seen either. The data for crude reserves in the U.S. is flagging towards a further rise, but it has no major importance at this point. Thus, an upside scenario with Brent crude prices to rise towards primary target at $135-145 per barrel and extreme peaks at $160-170 is intact.

Gold prices have likely found a bottom in July as they have dropped to $1680 per troy ounce and recovered latter to $1720. Thus, the rest of the short positions that were opened at $1860-1880 should be closed. Long-term buy positions are not seen wise to be opened at the moment as gold prices may resume their decline at some point. So, it would be better to wait before opening new short positions.

The Greenback is weakening as the Euro gained to 1.02500, but rolled back to 1.01500 by the end of the week. The Euro was supported by the resuming gas supplies via North Stream 1 pipeline that was closed for its 10-day annual maintenance. However, a lot of Euro bulls have emerged in the market after the ECB raised interest rates. In such circumstances it would be difficult for the single European currency to continue to the upside. It would be better to wait for further developments to unfold. If the EURUSD closes this week above 1.00900, new buy opportunities could emerge next week.

GBPUSD continues towards the upside and is looking to close this week above 1.18900. If this attempt is successful it may be interesting to consider buy operations next week with a target at 1.21500-1.22500.