Weekly Summary: Debt Market Halted S&P 500 Decline

Through this entire week the S&P 500 broad market index was balancing on the edge of correction, but still trying to hold to 4360 points before inflation data in the United Stated and FOMC minutes came out. It would seem that rising inflation in September at 5.4% vs 5.3% in August and hawkish FOMC Minutes would drag the S&P index down to 4270 points, but suddenly bears got exhausted and retreated.

It looked like sellers’ gangers were suddenly stunned by their victory and terrified by the breakthrough of the important support level of 4270 points and the following almost mandatory plunge to 4000-4100 points. Frankly, the debt gangers were the first who shrug off the victory as the 10-year U.S. Treasuries’ yields stated to descend from 1.63%, a May 2021 high, to 1.50% on Tuesday.

As a result, Wall Street gained the best day since March 2021. The S&P 500 index jumped by 1.71% on Thursday, putting the correction on halt. Suddenly on the wake, bears started to mount their positions as 10-year U.S. Treasuries’ yields rose to 1.54% and the S&P 500 index is trying to restore its positions to 4435 points. However, since the yields are below the highs of the week, bears will have troubles to gain the upper hand. The earning reports of the leading U.S. banks, including traditionally underperforming Wells Fargo, beat the consensus by far providing investors additional reasons for optimism.

So, the correction in the U.S. stock market would certainly not be in sight this week. The next week may provide some room for the correction in the second half but only under two conditions both of which should be met. The first is that the S&P 500 index should not reach 4470 points and the second – the index should be below 4410 points. Only when these two conditions meet the scenario of the decline to 4315 and 4220 points will this be activated. In case of reaching the 4220 points level the index may dive even lower to 4000-4100 points.

Brent crude prices are moving sweepingly across the $79-84.80 per barrel area. The proximity of the price to highs of 2018 may provoke some spikes above $86.50 to $87-87.50 per barrel, the level that would create interesting sell opportunities.

The gold took full advantage of debt prices rebound bouncing from $1750 to $1800 per troy ounce. However, interest rates are likely to rise in the midterm. So, we may expect gold prices to dive below $1700 per ounce. Short-term movement could hardly be distinguished at the moment.

The FX market fell under strong pressure of declining yields of 10-year U.S. Treasuries pushing the Greenback down. The EURUSD almost touched the support at 1.14800-1.15000 and quickly rebounded to 1.16000. The nearest resistance now is located at 1.16500, where some short-term sell opportunities may be used. As for any further developments the euro should climb above 1.16500 to clear the pass for the rally towards 1.17400 and 1.18200. In the alternative scenario the single European currency would slid to 1.14000-1.14500.

GBPUSD edged above 1.37000 and is likely to return to this level by the end of this week. During the next week the pair may rise to 1.38000 if it holds above 1.13560-1.13620. This would be the area to look for buy opportunities.