FX.co ★ US stock market on October 18, 2021

S&P500

The US stock market is rising again after a correction has ended.

The US market closed last week with two days of strong growth. On Friday, the main indices increased: the Dow added 1.1%, the NASDAQ gained 0.5%, and the S&P500 was up by 0.75%.

Asian markets are also bullish: Japan's indices advanced by 1.8% on Monday morning.

Important data has come from China. The economy accelerated but not as fast as expected. China's Q3 GDP grew by 4.9% compared with the forecast of a 5.2% increase. Meanwhile, the country's retail sales soared by 4.4% in September, well above market expectations of a 3.3% rise. On a seasonally adjusted quarterly basis, GDP increased by just 0.2%, missing expectations for 0.5%. Notably, economic growth is slowing down in the United States after a sharp recovery in previous quarters. At the same time, China's consumer demand remains strong. For example, VW supplies to China have accelerated 3 times over 9 months.

Energy. Natural gas on the ICE exchange in Europe fell by 13% at the close of the previous week. However, it still trades above $1,000 per 1,000 cubic meters. The Serbian leader had to turn to Russia's President Putin with a request to help in negotiations with Gazprom on lowering gas prices. Serbia claims that Gazprom insists on a gas price of $790 under new contracts. Based on the previous contracts, the price was $270. It is a rather huge gap. At the same time, a representative of the European Commission said that he does not hold Russia accountable for the dramatic rise in gas prices. He believes that a sharp increase in global gas demand, mainly in China, is to blame. Coal prices in China have soared by about 5 times.

Crude oil is trading at year highs: Brent is at $84.90 and WTI is at $82. Amid high oil prices, experts report that OPEC+ is fulfilling an agreement to limit production by 115%. It was reported that some countries had not been able to increase production despite having quotas from OPEC.

S&P500 is trading at 4,471 in the 4,430-4,500 range. The US stock market turned bullish in the previous week after Congress had approved a $480 billion increase in the government debt limit and Biden had signed the bill. Thus, the US government resolved the debt crisis. However, this money will last only through the middle of December and then the crisis may arise again. Another reason for the bullish US stock market in the previous week was the Fed's decision to continue dovish monetary policy despite high inflation in the United States. The country's retail inflation has been at the level of 5% since April. However, despite its inflation target of no more than 2.5%, the Fed has promised to start tapering in November. Investors interpreted this as a signal for a new wave of market growth, which began in the middle of the previous week and lasts until now. This week is expected to be uneventful due to the lack of important reports in the macroeconomic calendar. On Wednesday, October 20, the Fed will present its report on the state of the US economy. It is usually published 2 weeks before the Fed meeting. Everyone expects the Fed to announce the beginning of tapering in November. Nowadays, bond-buying is at the rate of $120 billion a month. At the same time, the regulator plans to raise the interest rate as early as 2022.

The biggest media companies in the United States are already calling the global energy situation a new energy crisis, citing rising prices of oil and natural gas as well as their shortages.

USDX is trading at 94.10 in the range of 93.80-94.40. The dollar is increasing on Monday after falling last week. The price has returned in the range. The greenback has encountered support from the upcoming Fed monetary policy meeting.

USD/CAD is trading at 1.2400 in the 1.2350-1.2450 range. High oil prices are pushing the pair down. A new wave of decline is likely to begin.

Conclusion. The US stock market is expected to keep heading towards the year highs. At the same time, its upside potential is limited. However, indices may rise by 10% on speculative enthusiasm.