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  • Weekly Focus: Inflation, FOMC Minutes, ECB and Corporate Reporting Season in the U.S.

Weekly Focus: Inflation, FOMC Minutes, ECB and Corporate Reporting Season in the U.S.

S&P 500 broad market index futures showed a modest increase of 0.1% to 5214 points this week, rebounding from a 2.0% decline observed last Friday when it dropped to 5147 points. Despite expectations for a continued downturn following the strong U.S. labor market report, the index managed to rebound by 1.1% and finish the week at 5208 points.

The robust March Nonfarm Payrolls report, which exceeded expectations at 303,000, along with a surprising decrease in unemployment to 3.8% from February's 3.9%, and an acceleration in average hourly earnings to 0.3% MoM, led to a surge in U.S. 10-year Treasuries yields to 4.40%. Analysts anticipate further increases, possibly reaching 4.50%. However, bets on interest rate cuts by the Federal Reserve (Fed) in June plummeted to 46.0%, marking a significant decline from the previous week's 66.0%.

The unexpected rise in the S&P 500 index on Friday resulted in unexpected losses for many short sellers. The index may potentially revisit its recent lows at 51247 points, with the extent of the decline dependent on forthcoming macroeconomic data, starting with the U.S. Consumer Price Index (CPI) for March. Despite expectations for a rise in CPI to 3.4% YoY from 3.2% YoY, other indicators, including core CPI, are expected to slow down. However, rising oil prices, up 6.0% for Brent crude benchmark in March, pose a significant threat.

The release of the FOMC Minutes on Wednesday will be closely scrutinized in light of the inflation data. The European Central Bank (ECB) will also announce its interest rate decision on Thursday, likely leaving rates unchanged but potentially positively impacting stocks. Additionally, the Q1 2024 corporate reporting season in the United States, beginning on April 12, may influence market sentiment.

Geopolitical risks, such as potential escalation in the Middle East following Israel's strike on Iran's consulate in Syria, remain a concern. However, experts anticipate a limited response from Iran, which would be favorable for the stock market. U.S. Administration is betting on it too, but there is always a wild card on the table. So, we should not exclude a major escalation in the Middle East.

Technically, the S&P 500 index has surpassed the final upside target zone at 4850-4950 points and entered a period of potential correction opportunities. Therefore, monitoring any reversal patterns that may emerge on the chart is advisable. The existing reversal pattern suggests a standard correction of 5-7%, with potential downside opportunities possibly emerging soon. The market is craving for correction, but when it could start remain unclear. May be it is has already started. If the S&P 500 index drops below 5050 points this scenario would become a primary one. The nearest resistance is at 5230 points, while support is at 5110-5130 points.

Oil prices are testing the resistance at $92.00 per barrel of Brent crude. If it fails to hold prices amid increasing geopolitical tensions in the Middle East it may continue up to the next resistance at $100 per barrel. From a technical standpoint, downward pressure prevails in the market, expected to continue throughout mid-May. Therefore, a breakthrough is unlikely. The nearest support is at $81.00-83.00 per barrel.

Gold prices, having reached mid-term upside targets at $2000-2100 per troy ounce, established a new all-time high close to the resistance level at $2300 per ounce. This level would be hard to breach. A technical period favorable for downside scenarios has commenced, expected to last until mid-April. The retracement of prices is highly likely. The nearest support is at $2200-2220.

The currency market is very volatile this week. However, it has no particular direction in the moment. Rising borrowing cost in the United States should support the Dollar. The EURUSD is trading around 1.08200. Betting on both the rising and declining EURUSD remains risky, with a return to the 1.11500-1.12500 area likely, but a drop to 1.05000 should not be excluded.