Week Ahead: Will U.S. Equities Continue Rising? USD Fall Further?
Investing.com | Aug 26, 2018 08:33
- Powell's remarks lift US equities to new records
- However, he disappointed dollar investors, leading to a selloff
- Treasury yields completed a massive H&S pattern, as gradual rate hikes have been priced in
The S&P 500, NASDAQ Composite and Russell 2000 each hit fresh new records on Friday, while the Dow edged up, gaining 0.52%, all propelled higher by remarks from Fed Chair Jerome Powell which reassured investors that the US central bank intends to stay the course toward gradual interest rate normalization.The US dollar fell.
But the Powell equity pop may end up being just a temporary fundamental driver. Market technicals indicate that a bearish counterattack could be in the works for the week ahead. The dollar's technicals signal a potential return to its uptrend in the coming week's trade.
h2 Bull Trap in the Works?/h2Friday's activity extended the uptrend for equities—for the first time since January—with stocks now up 7% year-to-date. In his speech at the Jackson Hole symposium Powell also said that he doesn't expect inflation to increase after having hit the Fed's target.
The S&P 500 rose 0.62 percent to a fresh record close and all-time high, with all sectors except Consumer Staples (-0.13 percent) gaining. Communication Services (+1.46 percent) outperformed, followed closely by Materials (+1.3 percent), demonstrating that bullish sentiment outweighed trade war jitters, at least on Friday. The benchmark index's weekly gain was 0.86 percent, led by Energy shares (+2.66 percent).
While the solid candle demonstrated that the bulls were in control of the supply-demand balance, the fact that it was just a mere 0.05 percent above Tuesday's shooting star suggests that the bears kept prices from escalating higher. As such, beware of a bull trap.
The coming days may be crucial in determining the veracity of the uptrend, as at the very least a solid, long green candle will likely trigger stops and extend the rally. Conversely, a long red candle may reveal that the bears are mounting a counterattack in an attempt to push prices back down.
Though the Dow Jones Industrial Average jumped 0.52 percent on Friday, it gained only 0.47 percent for the week. The export-reliant mega cap index is the only primary US gauge not to have hit a fresh record at the close of the week's trade. It's still 3.24 percent off its late January all-time high.
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The NASDAQ Composite leaped 0.86 percent on the final day of trade for the week, to a fresh record high and close, for the first time since July 25. The tech-heavy index added 1.66 percent on a weekly basis.
The Russell 2000 advanced 0.5 percent Friday, making a new dual record as well. The small cap index outperformed on a weekly basis, with a 1.93 percent price increase.
The dollar fell for the sixth time in seven days. After having dropped almost two percent from its 97.00, mid-August peak, to the 95.00 level on August 22, the price returned to the bottom of a rising channel. Therefore, the price is expected to continue its uptrend and challenge the 97.00 peak. A fall below 94.00 would signal a reversal.
The yield on the 10-year Treasury crossed below its uptrend line for a second time this past week, falling below the neckline of a massive H&S top, since February. It found support at the July lows, for now.
h2 The Week Ahead/h2All times listed are EDT
h3 Monday/h3UK markets closed for Summer Bank Holiday
4:00: Germany – IFO Index (August): business climate index to rise to 101.9 from 101.7.
8:30: US – Chicago Fed National Activity Index (July): forecast to fall to 0.13 from 0.43. Markets to watch: US indices, USD crosses
h3 Tuesday/h310:00: US – CB Consumer Confidence (August): the Conference Board's index is expected to drop to 126.5 from 127.4.
h3 Wednesday/h31:00: Japan – Household Confidence (August): expected to rise to 43.4 from 43.5.
The USD/JPY pair completed a bullish, falling wedge, suggesting the broken uptrend line since March will be challenged from the downside.
2:00: Germany – GfK Consumer Confidence (September): expected remain a 10.6.
8:30: US – GDP (Q2, 2nd estimate): forecast to fall to 4.0% from 4.1 percent. PCE Prices expected to remain flat at 1.8, and Core PCE prices to remain steady at 2%.
10:00: US – Pending Home Sales (July): forecast to fall to 0.4 percent from 0.9 percent a month earlier.
10:30: US – EIA Crude Inventories (w/e 24 August): stockpiles to fall by 1.5 million barrels from a 5.8 million barrel drop a week earlier.
Oil headed for its first weekly boost in two months amid prospects of tightening supplies from the North Sea to the Middle East. Technically, Friday’s advance blew out Thursday’s hammer, extending the breakout of the downtrend line since July 10.
h3 Thursday/h33:55: Germany – Unemployment Change (August): forecast to fall to -8K from -6K%.
In a mirror image of the Dollar Index, the euro found resistance at the top of its descending channel.
8:30: Canada – GDP (Q2): expected to drop to 0.1 percent MoM for June from 0.5 percent; 0.6% QoQ from 0.3%, while the annualized rate rises to 3% from 1.3%.
8:30: US – Personal Income and Spending (July), Initial Jobless claims (w/e 25 August): income to hit 0.3% MoM from 0.4%, and spending to remain at 0.4%, in line with last month. Initial claims to increase to 214K from 210K. Markets to watch: US indices, USD crosses
19:30: Japan – Unemployment (July): rate expected to remain flat at 2.4%.
21:00: China – Manufacturing and Non-Manufacturing PMI (August): manufacturing PMI to rise to 51.0 from 51.2, while non-manufacturing to fall to 53.8 from 54.
h3 Friday/h35:00: Eurozone – Unemployment Rate (July), Inflation (August): unemployment rate forecast to fall to 8.2% from 8.3%, while CPI forecast to remain steady at 2.1% YoY, core inflation to remain flat at 1.1%.
9:45: US – Chicago PMI (August): forecast to fall to 63 from 65.5.
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