After finishing last week in the negative zone, the new week also seems to start on a strong negative note for the US stock market: today's trading day started with a gap down for futures on major US stock indices. Thus, the S&P 500 broad market index (reflected as CFD #SPX in the trading terminal) reached a local 4-month high of 4324.00 last week, and today it fell sharply and is testing an important support level of 4185.00. Its breakdown will mark the return of the S&P 500 to the medium-term bear market zone.
As follows from the minutes of the July meeting published last Wednesday, Fed leaders agreed on the advisability of raising interest rates by 75 basis points. Regarding future increases, they decided that it "will depend on incoming information." It is also possible that at some stage, "it would be appropriate to slow down the pace of growth." Nevertheless, the published minutes confirmed the intention of the Fed's leadership to decisively fight inflation, including by consistently tightening monetary policy. And this is an argument in favor of further strengthening of the dollar, also indicating a tightening (read, worsening) monetary conditions for American business.
Whenever the Fed has raised interest rates this year, its leaders have said that the US economy and labor market are in good shape and will withstand further rate hikes. However, the picture is not entirely clear, and the current situation in the US and global economies cannot be called normal, or normal against the backdrop of a sharp rise in energy prices, inflation and geopolitical tensions in the world.
Meanwhile, the deterioration of market sentiment at the beginning of the week gives the dollar a new impetus to growth. Thus, the US dollar index, which rose by more than 2% last week, having also broken through another local resistance level of 108.00, continues to grow at the beginning of the week, reaching a new local high of 108.41 as of this writing.
As we wrote in our previous review, "after the breakdown of the local multi-month high of 109.14, reached in mid-July, the mark of 110.00 will be the next DXY growth target" (the upper limit of this channel passes through it).
Thursday marks the start of the annual economic symposium in Jackson Hole, Wyoming, hosted and sponsored by the Fed. At the symposium, representatives of the world's central banks and academic economists discuss issues of the global economy and speak out about the prospects for the monetary policy of central banks.
Probably, the statements made by Federal Reserve Chairman Jerome Powell at this forum will confirm the tough intentions of the leadership of the American central bank to overcome high inflation, which will further strengthen the dollar.
According to the CME Group, market participants are pricing in a 48% chance of a 75 basis point rate hike in September.
But even a 0.50% interest rate hike suggests the Fed's continued tough approach to its monetary tightening cycle (usually, the Fed prefers to move in smaller increments, changing interest rates by 0.25% at a time).
Important macroeconomic indicators (Eurozone, UK, and USA) will be published tomorrow, and today, the only more or less important publication (at 12:30 GMT) will be the National Activity Index from the Chicago Fed, which assesses economic activity in general, as well as inflationary risks.