Weekly Focus: Fed Signals and Non-Farm Payrolls

The upcoming two week will frame the future of the stock market until the end of the year. The first week will be driven by monetary decisions and macroeconomics as investors will most likely be guided by these policy decisions made by the central banks and by  macroeconomic data.

The second week will be more political as the elections in the United States will primarily sketch the market landscape. The divided Congress in the U.S. could be less useful for the market as cyclical movements of the economy have not yet been considered properly.

Focusing solely on U.S. politics could also be misleading as the monetary story is of more importance as investors are seen to be praying for the Federal Reserve (Fed) to slow down its interest rate hike trajectory. Investors have accepted the 75 basis points interest rate hike by the Fed this week as a given, but are hoping that Fed Chief Jerome Powell will send out signals that the central bank will scale back the hike to 50 basis points or even to a 25 bp hike in December. This move is seen to be necessary in order for the market to stay afloat.

The position of investors is clear, but what Powell will eventually do remains uncertain. Flirting with the market could be a wise thing for Mr. Powell to do in order to support the market ahead of the November elections and to secure more room for the Fed in December in case inflation will slow down. What is needed for this message to be delivered? The Fed should declare that its decisions will be strongly affected by incoming macroeconomic data. So, if inflation does not slow down by December the Fed may raise its interest rates by 75 basis points. Otherwise, interest rate hikes could be lower, and this will make investors happy. Other data is seen to be less important at the moment as the rhetoric of the Fed this Wednesday is likely to be the only guiding star for the market.

The S&P 500 index hit primary targets of the aggressive upside formation at 3850-3950 points and is currently rolling back. Whether it will experience further spikes to the next upside targets at 4100-4200 points or slip down below the upside formation will be decided by the Fed. Downside targets are far below at 2000-2200 points.

The oil market is heavily dependent on geopolitics. The Organisation of the Petroleum Exporting Countries and allies (OPEC+) clash with the United States pushed prices above $90 per barrel of Brent crude benchmark and they are likely to remain above this level. Any downside movements to the $88-90 level are likely to happen after the elections in the United States on November 8. So, an aggressive downside scenario with primary target at $75-85 per barrel is intact. Long-term expectations that suggest Brent crude prices will dive towards $50-65 per barrel should be rescheduled to the end of January 2023.

Gold prices are moving within the mid-term downside formation. Prices have already reached primary targets at $1620-1720 per troy ounce. Extreme downside targets are located at $1350-1450 per ounce and could be reached by the end of 2022. But even these downside movements are too uncertain to open trading operations.

The money market continues to experience elevated volatility. So, it is better to place orders considering longer perspectives and there are two signals that could be considered. First is the short position for the USDJPY from 148.000-148.500, and the second is short position for AUDUSD from 0.63700-0.64200. Both perspectives have a significant potential to reach up to 5000 points with a large stop-loss order span. Although these are risky operations and should be conducted in November at low volumes.