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  • Weekly Focus: Inflation and Retail Sales Will Prompt Investors

Weekly Focus: Inflation and Retail Sales Will Prompt Investors

The S&P 500 broad market index futures dropped by 0.2% to 5128 points this week. The benchmark closed in the red last Friday, dropping by 0.3%. However, the overall week was positive as the index closed the third consecutive week in positive territory. A reversal pattern has emerged on the charts, making investors worried ahead of the Federal Reserve (Fed) meeting next week.

The February U.S. labor market report rocked the market last Friday with unexpectedly high Nonfarm Payrolls at 275,000, much higher than the consensus of 198,000. This negative development was offset by lower-than-expected hourly earnings that rose by 0.1% MoM compared to the average estimate of 0.2% MoM. The unemployment rate jumped to 3.9% from its lows at 3.7%, reaching its maximum since October 2023.

Investors reacted positively to the cooling of the American economy. Bets on Fed interest rate cuts in May and June rose to 24.5% and 57.4%, respectively. U.S. 10-year Treasuries yields were close to the monthly lows at 4.05-4.06%.

The stock market needs lower inflation. Fed Chair Jerome Powell last week confirmed that policymakers need to be completely convinced that elevated inflation is vanquished. Thus, lower inflation would be key to interest rate cuts in June. Consensus suggests that consumer prices (CPI) would remain at 3.1% YoY and would accelerate to 0.4% MoM in February. Core CPI may slow down to 3.7% YoY from 3.9% in January. Monthly Core CPI could also decrease to 0.3% from 0.4%. Actual numbers should not exceed consensus, as other inflation components are already expected to add inflationary pressure. Producer prices are expected to accelerate to 1.2% YoY from 0.9% and remain unchanged at 0.3% MoM in February. Retail sales in the United States are estimated to recover with 0.8% MoM, up from a 0.8% MoM contraction in January. If expectations are missed, market sentiment could deteriorate dramatically. This is especially dangerous during the blackout period when Fed officials cannot comment on these numbers before March 20. Investors may act themselves to push the situation in either direction. Thus, producer prices numbers are extremely important.

The SPDR S&P 500 ETF Trust (SPY) reported net capital outflow of $2.2 billion last week after three consecutive weeks of net inflows. This may indicate investors are taking precautionary measures.

The S&P 500 has exceeded the final upside target zone at 4850-4950 points and missed potential correction opportunities. Betting on a rally before a correction could be risky, with reversal patterns indicating a standard correction of 5-7% within the next four weeks. The starting point of this correction is yet to be defined, but potential downside opportunities may emerge by the end of March. The nearest resistance is at 5190 points, while support is at 5090-5110 points.

Oil prices are retreating to the resistance at $81.00-83.00 per barrel for Brent crude. A breakthrough of the resistance of $83.00 per barrel will open a path to the next target at $87.00-92.00 per barrel.

Gold prices, having reached mid-term upside targets at $2000-2100 per troy ounce, established a new all-time high at $2195. The nearest resistance is at $2200 per ounce, while support is at $2010-2030. A technical period favorable for downside scenarios will start in mid-March.

The currency market was extremely volatile last Friday, leading the EURUSD to 1.09810. The pair may continue to 1.10000. However, it remains risky to bet on both the rising and declining EURUSD, with a return to the 1.11500-1.12500 area likely, but a drop to 1.05000 should not be excluded.