A week which will be resolutely punctuated by the American figures: inflation (CPI) on Tuesday, producer prices on Wednesday, retail sales on Thursday and the consumer confidence index on Friday. The resilience of consumers in the face of soaring prices will be scrutinized as well as the progress of the Fed in its fight against inflation. After a peak at 9.1% in June, a decline began in July with a publication at 8.5%. And for August, the consensus is for a further slowdown in prices to 8.1%.
Lower fuel prices, lower oil prices, slump in the real estate market, slump in food prices, drop in world transport prices, several factors point to less pressure on prices across the Atlantic. The question that legitimately arises: will an inflation figure potentially at 8.1% announced Tuesday in the United States be sufficient to prolong the rebound of nearly 5% in the SP500 which has been in place since Wednesday? last ?
Inflation lower than expected in the United States, the stock market jumps, the dollar plunges
We also note a decline in the dollar since the middle of last week, which some attribute to the ECB’s decision, but we note that the dollar is also falling against the pound, the yen and also the Swiss franc, so it is more of a move initiated by the dollar.
Not that it is a bit early to conclude that the American indices and the dollar have finally changed their trajectories for a long time, because the correction of the indices began in January and the rise in the dollar… at the beginning of 2021. But because we can legitimately ask yourself the following question: will a change in the dynamics of inflation automatically be the sign of a lasting rally on the US equity markets?
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It is the “speed of slowdown” of prices rather than the identification of the beginning of inflection which could play this role of real catalyst. Because at 8% or even 7%, the impact on the consumer can still be very significant. Remember that the latest US employment report shows annual wage growth slightly above 5%.
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Currently, the SP500 is trading at 4,080 points after bouncing off the slanting support through the June and July lows last week, from a technical analysis perspective. The index would have to rise to its peak in mid-August at 4,320 points and remain in this area for a few days to begin to conclude that the risk of a relapse is falling more permanently. For now, the index is moving between the previously mentioned oblique support and the 23.6% Fibonacci retracement of the entire post Covid rise, which is a real technical zone, worked on several times by the SP500.
A return to contact with the oblique support would signal the failure of the current rebound and would open the way to an extension of the fall on the Fibonacci below 3,810 points or even a return to the annual lows.
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Alexandre Baradez, market research manager at IG France