Weekly Focus: U.S. Inflation, OPEC+, and Powell’s Rhetoric

This week starter relatively calm. The S&P broad market index is losing 0.1% to 4550 points. U.S. 10-year Treasuries’ yields are steady at 4.48%. The U.S. Dollar is weakening by 0.1%. Even crude prices are falling down by 0.4% to $80.00 per barrel of Brent crude.

There were no stress news during the last weekend, so markets are in a relative standstill. Some hope for the U.S. GDP data on Wednesday for the volatility to be increased, some hope for Federal Reserve’s (Fed) favorite PCE price index on Thursday in this regard. Traders are looking for the Organisation of Petroleum Exporting Countries and its allies (OPEC+), while most of investors will listen carefully to Fed’s Chair Jarome Powell statements this Friday. Some business activity data in China and inflation in the Eurozone will be published on Thursday, but this data will be overshadowed by the U.S. inflation-OPEC+-Powell triangle.

The S&P 500 index has entered a period of a potential reversal this week. It is very important for the index to pass through this period uneventful without any major sell-offs below 4350-4370 points. Otherwise, the Christmas stock rally could be spoiled by a huge decline of the index. However, most important and potentially market-moving events of this week are scheduled on Thursday and Friday. This will give investors less time to react on the negative data and rhetoric. PCE Price index is expected to slow down following weaker October CPI data two weeks ago. If PCE data will disappoint investors strong sell-offs could be initiated. Powell could also make some hawkish statement to undermine investors’ bets on interest rates cut in May 2024. Any particular decision seems not to be made so far, and would largely depend on PCE data that will be released this Thursday. If it will be in line with current expectations, Powell could be neutral. This would be a signal for the start of the Christmas rally.

The OPEC+ story will come in parallel. Large oil producer have to find a solution to keep prices above $83.00-85.00 per barrel. Saudi Arabia may announce an extension of its oil production cut by 1.0 million bpd beyond December 2023. Would it be enough to keep prices at these levels is not certain. Negative scenario suggest prices would dive towards the nearest support at $74.00-76.00 per barrel. This would be another reason for U.S. stocks to rally.

Technically, the S&P 500 index is moving within the upside formation with targets at 4450-4550 that have already been met. In case of an upside scenario for this week new targets at 4800-4900 points by the end of the year could become available.

Brent crude prices continue to consolidate below the resistance at $83.00-85.00 per barrel. The nearest support level is at $74.00-76.00 per barrel. This level will become a primary target in case prices fail to hold above the resistance.

Gold prices are moving inside the mid-term upside formation with targets at $2000-2100 per troy ounce that have already been met. Prices have not properly tested the support at $1910-1930 per ounce, and bounced towards the resistance at $1990-2010 per ounce. A breakthrough of this resistance may push prices to $2100 per ounce. Otherwise, a war premium is seen deflating with prices slowly moving down towards the $1830 per ounce mark.

The Greenback reached its primary correction targets at 1.08500-1.09500 against the Euro. Any further correction is largely associated with a Christmas stock rally. In this scenario, the EURUSD may rise towards 1.12000-1.13000. Alternatively, the Greenback could resume is strengthening towards the parity with the single currency.