SPX500 Supported by Upbeat Data & Improvement in Sentiment
SPX500 Analysis
The US index staged a relief rally in July and achieved its best monthly performance since late-2020, helped by lower expectations around the tightening path of the Fed and its less aggressive rhetoric.
The central bank delivered another outsized 75 basis points hike path last week and Chair Powell was reticent around the next moves, but said it "likely will become appropriate to slow the pace of increases".[1]
This week, policy makers tried to shift focus back to their commitment in bringing inflation down, with Ms Mester (voter) saying that "We haven't seen inflation cool at all" on Washington Post and that "we have more work to do" [2]. However, she did not say anything around the pace of tightening.
Prominent hawk and voter Mr Bullard on the other hand, reiterated his view today on CNBC for raising interest rates to 3.75% - 4.00% this year [3], which is markedly higher than the SEP 3.4% median projection [4]. Both officials, echoed Mr Powell, arguing that the US in not currently in a recession, despite the two consecutive quarters of contraction.
Sentiment had soured at the start of the week, from Sino-US tension's over Ms Pelosi's visit to Taiwan, but markets look past this today and focus on the improved PMI's and higher factory orders, while the less aggressive Fed along with the dismissal of recession fears,are a tailwind for the stock market.
However, the US central bank will have a hard time taking the foot off the pedal if inflation figures don't help towards this direction.
SPX500 finds support after its two-day weakness and this keeps the road open to the 4,200 area, although a recovery above 4,309 will need further conviction.
On the other hand, the poor weekly start casts some doubt over its recovery prospects and renewed pressure towards the EMA200 (at around 3,950) would not be surprising. However a strong catalyst would be required for daily closes below that level that would pause the upside momentum.
Nikos Tzabouras
Senior Financial Editorial Writer
Nikos Tzabouras is a graduate of the Department of International & European Economic Studies at the Athens University of Economics and Business. He has a long time presence at FXCM, as he joined the company in 2011. He has served from multiple positions, but specializes in financial market analysis and commentary.
With his educational background in international relations, he emphasizes not only on Technical Analysis but also in Fundamental Analysis and Geopolitics – which have been having increasing impact on financial markets. He has longtime experience in market analysis and as a host of educational trading courses via online and in-person sessions and conferences.
References
| Retrieved 03 Aug 2022 https://www.federalreserve.gov/monetarypolicy/fomcpresconf20220727.htm | |
| Retrieved 03 Aug 2022 https://www.washingtonpost.com/washington-post-live/2022/08/02/transcript-path-forward-us-economy-with-loretta-j-mester/ | |
| Retrieved 03 Aug 2022 https://www.youtube.com/watch | |
| Retrieved 04 Oct 2023 https://www.federalreserve.gov/monetarypolicy/files/fomcprojtabl20220615.pdf |
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