This week looks creepy after the S&P 500 broad market index lost 1.5% on Thursday alone, Crude prices fell by 5.2%, and 10-year U.S. Treasuries yields spiraled below 1.29%. Safe haven currencies like Swiss Franc and Japanese Yen are severely strengthening.
Even a single one of such movements could scare investors, but altogether they signal to leave risky assets immediately. And, this time it may be serious as the combination of falling stock market and crude prices along with the rising interest for the Yen and more over in the Swiss Franc, which is used only in emergency currency market situations, was not seen for a long time.
Even 5% correction of the U.S. stock market in May and 6% long-lasting correction in February of 2021 was not amplified by such coincidence. So, we may be heading towards global “Risk on” sentiment affected by a possible tapering of Fed’s monthly $120 billion bond purchase program.
The are no important macroeconomic data for today that should be released, except the U.K GDP data for May. But investors should certainly pay attention to the words of the Chairs of Bank of England, ECB, Federal Reserve as they may introduce some extra features of loose monetary policy or conditions for its tightening. And we have a bright example of ECB that has suddenly “adjusted” its inflation target to symmetrical 2%, showing its resolve of further economic downturn. In this paradigm ECB would not taper its bond buying programs amid stalling economic growth even if the inflation overshoots 2%. But we could also have a surprise from the Fed if it would announce tapering of mortgage-backed securities without any early warning.
Even if everything would go without any surprises on Friday but it is better to keep an eye cocked as market indicators point to the worse negative developments. And this negative scenario is more likely to evolve next week.
The S&P 500 index was testing a 4310 support level, but that might be just a test of the reversal pattern after the index slid to 4286 points in the end of June. If this scenario would be enforced the index may plunge to 4220 points.
Crude market is on the cutting edge of the correction as Brent crude prices fell from its highs at $78.20 per barrel to $72.40.The formal excuse for such decline is the struck meeting of OPEC+ that is now likely to resume in August, while some OPEC+ countries may increase production without noticing others. U.S. Administration also waved some concerns over rising crude and petroleum prices, which could mean its intention to lower them. But if we would look behind the curtain we may see a slowing down global economic recovery with car annual sales down by 14% in June, that may hamper the demand for crude. Nevertheless, technically we may see a resistance level for Brent crude prices at $75.40 with a possible reversal next week.