After a short downward gap at the opening of the session, US stock index futures are gradually approaching their annual highs that were reached yesterday. Futures on the S&P 500 index rose by 0.1%, while the tech-heavy NASDAQ showed a 0.2% increase. For almost a week, everything, starting from emerging markets and global bonds to the S&P 500, has advanced on evidence that the Federal Reserve has finally won the battle against inflation.
The MSCI World Index has jumped by 3.5% over the past five days, marking the largest growth since November. Bonds also rose during the week, with the 2-year US Treasury yield, which is most sensitive to short-term policy changes, falling by a full 30 basis points. There is also a significant sell-off in the US dollar as few believe in the Federal Reserve's tight policy. While rates may be raised in July, no one is betting on a hike in September anymore as economists assert that the victory over high inflation in the US has been achieved.
Bullish trading also reflects hopes that the US is following a scenario of rapid inflation reduction, while the economy remains fairly resilient, avoiding a recession. Today also starts the earnings season, with JPMorgan Chase & Co., Wells Fargo, and Citigroup Inc. among the first to report.
As for commodities, oil has been showing growth for the third consecutive week as supply disruptions in Africa and reduced shipments from Russia have created tension in the market. Gold is also having its best week in recent times.
Following the data this week, some economists have expressed the opinion that the Federal Reserve should now focus more on balance sheet reduction rather than further rate hikes. However, San Francisco Federal Reserve Bank President Mary C. Daly stated yesterday that it is still too early to say that enough has been done to bring inflation in the US back to its target level. Fed Chair Christopher Waller also noted that the US central bank will need to raise rates twice more this year to bring inflation down to the target level.
Meanwhile, the yuan rose after a statement from People's Bank of China Deputy Governor Liu Guoqiang who said that "China has sufficient foreign exchange reserves and will resolutely prevent sharp fluctuations in the yuan exchange rate. Although short-term currency movements cannot be accurately predicted, they will remain within their key levels."
As for the technical picture of the S&P 500, demand for the index remains strong. Buyers have a chance to continue the upward trend but they need to push the price above $4,515. From here, the price may surge towards $4,539 Another important task for the bulls would be to climb above $4,515, which would strengthen the bullish market. If the index declines amid lower risk appetite, buyers must assert their strength around $4,488. Its breakout will quickly push the price back to $4,469 and pave the way to $4,447.
