The S&P500 stepped into the bearish consolidation zone after having cleared a major Fibonacci resistance, the 38.2% retracement on the summer rally. Nasdaq fell another 1% and tested the 50-DMA to the downside, where it found support, while the German DAX fell to the lowest levels since mid-July, and has given back more than 75% of the summer gains.
The US futures look better this morning, but the market sentiment will likely remain morose after Powell’s clear declaration that the Federal Reserve (Fed) will have no pity for the markets, and continue tightening its policy until it puts inflation on a sustainable path toward its 2% policy target.
At this point, it’s difficult to get a pricing that goes against the Fed.
Anyway, all that Fed drama doesn’t concern the energy stocks, which had a good session yesterday thanks to firmer oil prices. The barrel of US crude advanced past the 200-DMA, which is a touch below $97 per barrel. ExxonMobil (NYSE:XOM) jumped 2.30% to above $100 for the first time since mid-June, as Occidental Petroleum (NYSE:OXY) advanced to the highest levels since October 2018, and closed at $75 per share.
The European nat gas futures however slumped 20% yesterday, as Germany said its gas stores are filling up faster than planned.
But energy prices remain exorbitantly high, and governments are increasingly frustrated with the skyrocketing energy prices that hammer economies and households, while putting a lot of money in energy companies’ pockets.
As a result, European policymakers are now cooking new measures to stop the excessive rise in energy prices and decouple the price of gas from electricity. The measures will likely include taxes on excessive earnings. If this is the case, the energy companies could react by reducing output, with the risk of further deepening the energy crisis.
Germany and Spain will release the latest inflation update today. The euro is making a great effort to throw itself above parity against the US dollar, and stronger-than-expected inflation figures could help boost the European Central Bank (ECB) hawks.
Happily, it looks like the Powell pricing on the dollar is done for now, which means that we can also see some relief on the euro front. However, the topside will likely remain limited in the EUR/USD, and we expect to see the strong 50-DMA continue to hold near 1.0120.