Equities report: Fed decision day

The US Equities markets appear to be recovering in general despite being currently in the reds for the week. In todays’ report we are to discuss the Fed’s interest rate decision today and the upcoming US-China trade talks. We are to conclude the report with a technical analysis of S&P 500’s daily chart for a rounder view.

Fed decision day

The Fed’s interest rate decision is set to occur later on today. The majority of market participants are currently anticipating the bank to remain on hold with FFF implying a 98.1% probability for such a scenario to materialize. Therefore, our attention now turns to the bank’s accompanying statement, in addition to Fed Chair Powell’s press conference following the bank’s decision. Before we get into what may play out in Powell’s presser and the banks accompanying statement, let’s take a look into last weeks financial releases and in particular the NFP figure for April and the US Core PCE rates for March, which are the Fed’s favourite tool for measuring inflationary pressures in the economy. The Core PCE rates showcased easing inflationary pressures and with the NFP figure showcasing a more resilient labour market than what was expected by economists, pressure on the Fed to aggressively cut rates may have eased. In our view, we would not be surprised to see the Fed implying that they may remain on hold for a prolonged period of time, which in turn could aid the dollar whilst potentially weighing on the US Equities markets. Yet, with inflation seemingly easing, some dovish elements could be incorporated into the banks' accompanying statement. Moreover, we would be interested to see if there will be references in the accompanying statement on the recent US trade policy and how that may factor into the bank’s economic outlook for the US economy.

US-China trade talks to occur over the weekend

As this paragraph's title states, US-China trade talks are set to occur in Geneva this Saturday according to a report by Reuters. Per the same report the U.S Treasuy Secretary Scot Bessent and chief trade negotiator Greer are set to meet China’s economic tsar He Lifeng in Switzerland for talks in regards to trade. The apparent progress between the two nations following the “trade” hostilities over the past month, may have been a well-received announcement as it may imply a deal may occur between the two nations. In turn such a possibility may alleviate market concerns for the global economy and in particular the possible impact on the US economy, hence the announcement by the White House on Tuesday may aid US stock markets. However, should trade talks break down over the weekend, it may negatively impact the US stock markets in the upcoming week. In our view, one meeting may not be enough to thaw the trade relationship between the two nations. In conclusion, the announcement that trade talks will occur over the weekend may have been well received, yet should no apparent progress be made, it could have negative implications for US Equities in the coming week.

Technical analysis

US500 daily chart

• Support: 5485 (S1), 5150 (S2), 4845 (S3).

• Resistance: 5810 (R1), 6135 (R2), 6425 (R3).

The S&P500 appears to be moving in an upwards fashion. We opt for a bullish outlook for the index and supporting our case is the RSI indicator below our chart which currently registers a figure near 60, implying a bullish market sentiment in addition to the MACD indicator and the upwards moving trendline, which was incepted on the 7th of April. For our bullish outlook to occur we would require a clear break above the 5810 (R1) resistance line with the next possible target for the bulls being the 6135 (R2) resistance level. On the other hand for a sideways bias we would require the index to remain confined between the 5485 (S1) support level and the 5810 (R1) resistance line. Lastly, for a bearish outlook we would require a clear break below the 5485 (S1) support line with the next possible target for the bears being the 5150 (S2) support line.