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• The S&P 500 has recorded three consecutive weekly losses since its recent all-time high level of 5,265 printed on 28 March 2024.
• Last week’s decline of -3.05% was its worst weekly performance since early March 2023.
• A clear break below its upward-sloping 50-day moving average put its medium-term uptrend phase in jeopardy.
• The current multi-week corrective decline sequence may be extended further as its key market breadth indicator (% of component stocks above 50-day moving average) has not reached an oversold region.
• Watch the first key medium-term support at 4,800 on the S&P 500.

The price actions of the S&P 500 have tumbled by -5.95% from its current all-time high of 5,265 on 28 March 2024 to hit a recent low of 4,953 last Friday, 19 April coupled with a break below its 50-day moving average that previously supported the S&P 500 from 3 November 2023 to 15 April 2024.

A clear break below an upward-sloping 50-day moving average after a lengthy period acting as support for its price actions, suggesting that the medium-term uptrend of the S&P 500  from its 27 October 2023 low of 4,104 is in jeopardy of transiting into a multi-week corrective decline sequence. In addition, last Friday’s weekly decline of -3.05% has been its worst weekly performance since 6 March 2023.

The weak state of market breadth on the S&P 500 has not hit an oversold region

Fig 1: Market breadth indicator of S&P 500 as of 19 Apr 2024 (Source: TradingView, click to enlarge chart)

The percentage of S&P 500 component stocks that are trading above their respective  50-day moving averages has plummeted after a bearish divergence condition flashed on the week of 25 March 2024 at around 71% to hit the 35% level as of last Friday, 19 April.

Based on historical data since the start of the ongoing long-term secular uptrend phase of the S&P 500 from March 2009, prior medium-term corrective down move sequences tend to end when the market breadth indicator (percentage of S&P 500 stocks above 50-day moving averages) hit an oversold level of between 9.15% to 2% (see Fig 1).

Hence, we have not reached such a “capitulation condition” yet for a potential significant bullish reversal trigger on the S&P 500.

The weekly RSI momentum indicator of the S&P 500 has not reached a parallel support

Fig 2: S&P 500 major trend as of 19 Apr 2024 (Source: TradingView, click to enlarge chart)

The recent three weeks of corrective decline have taken form right after the S&P 500 hit the 5,240/5,285 medium-term pivotal resistance zone (see Fig 2).

Thereafter, the weekly RSI momentum indicator exited from its overbought level (below 70) after an extreme overbought level of 79.04 was almost met on the week of 25 March 2024. The current reading of 55 has not reached a key parallel support of 36 which suggests that the current 5.95% corrective decline of the S&P 500 from its all-time high may still have room to extend further to the downside.

The first medium-term support of the S&P 500 to watch will be at the 4,800 level with intermediate resistance now at 5,088

EURGBP extends strong rally into second straight day and hit the highest in 4 ½ months on Monday, as the pound was hit by dovish comments from BoE officials, who shifted their initial view and expect inflation to ease further and remain around the central bank’s 2% target for next couple of years.

The pair was up 0.38% this morning, in extension of Friday’s 0.7% advance, which generated several bullish signals on break and close above Ichimoku cloud (top at 0.8587) and 200DMA (0.8604).

Fresh bulls cracked next pivotal barrier at 0.8631 (Fibo 61.8% of 0.8714/0.8498), with sustained break here to add to bullish signals and further strengthen near-term structure for extension towards target at 0.8663 (Fibo 61.8%).

The price so far do not show any signs of fatigue despite overbought conditions, though some corrective action should be anticipated in coming sessions.

Broken 200DMA reverted to solid support (0.8605) which should keep the downside protected.

Res: 0.8640; 0.8663; 0.8700; 0.8715.
Sup: 0.8605; 0.8580; 0.8572; 0.8550.

Brent crude oil prices fell to a four-week low of 86.50 USD on Monday, influenced by several contributing factors. The primary cause of the decline was a reduction in geopolitical tensions as Iran's rhetoric toward Israel showed signs of de-escalation. This change is significant given that Iran is the third-largest OPEC oil producer, with substantial exports to China and other countries, making stability in the region crucial for global oil markets.

On the demand side, US crude oil inventories rose 2.7 million barrels for the week, nearly double what was anticipated. This unexpected increase has put additional pressure on oil prices.

Furthermore, global economic uncertainties and concerns that the Federal Reserve may maintain elevated interest rates for an extended period also impact the outlook for oil demand. Heightened interest rates tend to strengthen the US dollar, making oil, priced in dollars, more expensive for holders of other currencies. However, the current stability of the US dollar is providing some support, preventing even steeper declines in oil prices.

Technical analysis of Brent

On the H4 chart, Brent established a consolidation range at around 87.87. The downward breakout from this range initiated a correction wave to 84.48. After reaching this target, the market may see a rebound towards 92.00, potentially continuing towards 95.00. This bullish scenario is supported by the MACD indicator, currently below zero, suggesting that the lows may soon be updated.

The H1 chart shows that Brent is forming the fifth correction structure towards 84.48. Once this level is reached, there may be potential for a rebound to 87.87 (testing from below). A successful breakout from this range upward could lead to further growth towards 90.50, with a possible continuation to 92.00. The Stochastic oscillator, currently below 20, indicates readiness to initiate a new growth structure towards higher levels, supporting the possibility of an upward trend resuming after the correction.

Summary

• We share the market's overwhelming expectation that the Federal Open Market Committee (FOMC) will leave the fed funds target rate unchanged at 5.25%-5.50% at the conclusion of its April 30-May 1 meeting.
• Stubborn inflation and resilient economic activity through the first few months of the year have left the FOMC little reason to ease policy in the near term. A chorus of Fed officials, which tellingly include a number of “doves,” has indicated that there is no hurry to cut rates at this time.
• An update to the Committee's economic projections will not be released at the end of next week's meeting, but the post-meeting statement and press conference will likely offer some clues on how the FOMC expects the policy path to evolve over the coming meetings.
• Since the FOMC's March 20 meeting, we (along with markets) have pushed back our expectations for when the FOMC will start to ease policy. We currently expect the FOMC to first cut the fed funds target rate by 25 bps at its September 18 meeting, followed by another 25 bps point cut at its December 18 meeting.
• We anticipate the FOMC to announce a change to its ongoing balance sheet runoff program at its upcoming meeting even as it leaves the fed funds rate unchanged. We expect the Committee to announce that, beginning in June, runoff of Treasury securities will be capped at $30 billion/month compared to the current runoff cap of $60 billion/month. The $35 billion monthly runoff cap for MBS, however, is likely to remain in place. The pace of MBS runoff, at $15-$20 billion per month, is already running well below the current cap.
• If we are off in our timing and the FOMC does not announce a slower pace of runoff on May 1, we would expect an announcement at the subsequent meeting on June 12. We anticipate this slower pace of QT running until year-end 2024. At its trough, we look for the central bank's balance sheet to be roughly $6.9 trillion.
• We do not believe slowing the pace of QT will have a material impact on the level of interest rates. The outlook for the federal funds rate will be far more critical to determining the level and shape of the yield curve in the months ahead, in our view.

Recent Data to Keep FOMC on Hold

The Federal Open Market Committee (FOMC) will hold its next policy meeting on April 30–May 1, and market participants overwhelmingly expect the Committee will maintain its target range for the federal funds rate at 5.25%-5.50%, an expectation we share. At the beginning of 2024, markets were essentially priced for a 25 bps rate cut at the March 20 meeting and a similar-sized reduction on May 1 (Figure 1). In the event, the Committee voted unanimously at its March meeting to keep rates on hold, and we look for another unanimous decision on May 1 to maintain the current target range. What has changed to induce the FOMC to keep policy unchanged so far this year rather than to ease as many investors had expected just a short while ago?

In short, inflation has been stickier and the economy more resilient than many observers had anticipated at the beginning of the year. The year-over-year change in the core PCE deflator, which Fed officials believe is the best measure of the underlying rate of consumer price inflation, slipped below 3% at the turn of the year while the deflator's 3-month annualized rate of change moved to only 1.6% (Figure 2). Although the year-over-year rate has continued to edge lower, the 3-month annualized rate has risen, indicating that progress toward the FOMC's target of 2% has stalled. Furthermore, data on real economic activity have generally been stronger than expected. For example, the economy created an average of 276K jobs per month in Q1-2024, up from 212K per month in the fourth quarter of last year. Stronger-than-expected data have led most forecasters to revise up their expectations for GDP growth this year. The consensus forecast for U.S. real GDP growth in 2024, as measured by the Blue Chip Panel of Economic Forecasters, was 1.6% in January. The Blue Chip forecast for this year now stands at 2.4%.

Fed Officials Indicate Little Urgency to Ease Policy

Sticky inflation and resilient economic activity give Fed policymakers little reason to ease policy in the foreseeable future. Fed Chair Jerome Powell noted on April 16 that “given the strength of the labor market and progress on inflation so far, it is appropriate to allow restrictive policy further time to work.” Recent comments by other Federal Reserve officials indicate that they too are in no hurry to cut rates. For example, Raphael Bostic, who is the president of the Federal Reserve Bank of Atlanta and a voting member of the FOMC this year, recently stated “my outlook for 2024 is one cut toward the end of the year.” San Francisco Fed President Mary Daly, also a voting member of the Committee who many observers consider to be “dovish,” recently said “there's absolutely, in my mind, no urgency to adjust the policy rate.” When a well-known dove is expressing skepticism about the need to ease policy, one should probably not expect a rate cut anytime soon.

As is customary for the April/May meeting, the FOMC will not release a Summary of Economic Projections (SEP) at the conclusion of this upcoming meeting. Therefore, market participants will need to rely on the post-meeting statement and Chair Powell's comments during his press conference for clues about the FOMC's outlook for monetary policy. The statement the FOMC released at the conclusion of its March 20 meeting noted that “economic activity has been expanding at a solid pace,” and that “job gains have remained strong, and the unemployment rate has remained low.” The statement went on to say that “inflation has eased over the past year but remains elevated.” Recent data indicating that economic activity generally remains resilient and that inflation has been sticky suggest to us that meaningful changes to that part of the post-meeting statement are not likely on May 1. We do not think the Committee will want to indicate that an easing of policy is imminent via a dovish statement.

As discussed in our recent U.S. Economic Outlook, we do not believe the FOMC will have the confidence it needs at its next two policy meetings (i.e., June 12 and July 31) about a return of inflation to the Committee's 2% target to cut rates at those meetings. If, as we forecast however, payroll growth slows in coming months and the 3-month annualized rate of change in the core PCE deflator settles back down, then we look for the FOMC to cut rates by 25 bps at its September 18 meeting and by another 25 bps in the fourth quarter. But if inflation remains elevated and/or the economy remains resilient in coming months, then the timeline for the commencement of Fed easing likely would be pushed back even further, perhaps into 2025.

Quantitative Tightening Set to Begin Its Next Phase

Although the FOMC likely will not change its target range for the federal funds rate at the upcoming meeting, we expect the Committee will announce some changes to its balance sheet runoff program, commonly referred to as quantitative tightening (QT). On June 1, 2022, the FOMC began allowing a maximum of $30 billion of Treasury securities and $17.5 billion of mortgage-backed securities (MBS) per month to roll off its balance sheet. In September 2022 these caps were increased to $60 billion and $35 billion, respectively, and they have subsequently remained unchanged. This passive runoff has driven a decline in the Fed's balance sheet from a peak of nearly $9 trillion in Q2-2022 to $7.4 trillion today. As a share of GDP, the Fed's balance sheet has shrunk materially, but it still remains larger than what prevailed on the eve of the pandemic (Figure 3).

Recent comments from Chair Powell and other Fed officials suggest the Committee expects to slow the pace of runoff “fairly soon,” a phrase we take to mean that a decision is coming at the May 1 meeting. The logic for slowing runoff is fairly straightforward: the ultimate “equilibrium” size of the Fed's balance sheet is uncertain, and a prudent risk management policy calls for a slow-but-don't-stop approach as the Fed feels out the optimal size for its balance sheet. The minutes from the last FOMC meeting noted that “slower runoff would give the Committee more time to assess market conditions as the balance sheet continues to shrink.”

We expect the FOMC will reduce the runoff caps for Treasury securities to $30 billion/month while it leaves MBS caps unchanged, with the new caps effective starting June 1. Note that MBS runoff has been running at roughly a $15-$20 billion per month pace, so the $35 billion cap has not been close to binding (Figure 4). If we are wrong and the FOMC does not announce a slower pace of runoff on May 1, we would expect an announcement at the subsequent meeting on June 12. We anticipate this slower pace of QT running until year-end 2024. At its trough, we look for the central bank's balance sheet to be roughly $6.9 trillion (Figure 5).

Starting in 2025, we look for runoff to end and for the Fed to hold the size of its balance sheet flat for a couple of quarters. Such a move would allow the central bank to “grow into” its balance sheet, i.e., a flat balance sheet would still be shrinking as a share of the growing U.S. economy. At some point later in 2025, perhaps around mid-year or so, we expect balance sheet growth to resume to accommodate organic growth in Federal Reserve liabilities (e.g., paper currency and bank reserves). The Federal Reserve has continued to reiterate that it intends to hold primarily Treasury securities over the longer-run, and as a result we expect the FOMC will continue to passively reduce its MBS holdings in 2025 and beyond while replacing these MBS with Treasury securities, a move that would replicate what has occurred in the past.

Where does this leave bank reserves? Bear in mind that bank reserves are the key swing factor in the Fed's balance sheet. Commercial banks hold deposits at the Federal Reserve for a variety of regulatory and liquidity needs. The Federal Reserve aims to ensure that the amount of reserves in the system are “ample” but not overly abundant. Estimating the lowest comfortable level of reserves is a challenging endeavor and involves a mix of historical analysis, outreach to financial institutions and monitoring of money market conditions. Under our base case scenario, bank reserves decline in the coming quarters and eventually level off around 10.5% of GDP (Figure 6). If realized, bank reserves would be well below the pandemic peak but still comfortably above the amount that prevailed in September 2019 when a repo market blowup spooked financial markets.1 This analysis assumes paper currency in circulation continues to grow at trend, RRP balances are at low levels and the Treasury's General Account holds steady at $750 billion for the foreseeable future.

We do not believe slowing the pace of QT will have a material impact on the level of interest rates. If the Fed's balance sheet bottoms out a bit under $7 trillion as we expect, then runoff is already three quarters complete. Furthermore, the FOMC's communication with the public on this topic is well established, and financial markets should be well-prepared for the pending change. The outlook for the federal funds rate will be far more critical to determining the level and shape of the yield curve in the months ahead, in our view.

Endnotes

1 – For further reading, see Anbil, Sriya, Alyssa Anderson, and Zeynep Senyuz (2020). "What Happened in Money Markets in September 2019?," FEDS Notes. Washington: Board of Governors of the Federal Reserve System, February 27, 2020.

WTI oil price fell to the lowest in almost four weeks in early Monday, following a short-lived spike higher on Friday, sparked by Israel’s attack on Iran.

The sentiment changed quickly to negative on fading signals of escalation of the conflict and traders shift focus to fundamentals, with rise in US crude inventories adding to demand concerns and deflating oil prices, along with stronger dollar on fading expectations for Fed rate cut.

Bears probed again through pivotal Fibo support at $81.42 (38.2% of $71.40/$87.61 upleg) but need to register a daily close below this level to validate negative signal.

Rising negative momentum on daily chart and double bear-cross (10/20DMA and 5/30 DMA) weigh on near-term action, with sustained break of $81.42 trigger to open way for attack at next key supports at $80.00/$79.80 zone (psychological / 200DMA and $79.50 (50% retracement).

Broken 30DMA ($82.94) should ideally cap and keep fresh bears intact, while acceleration and close above $84.00/20 zone (round figure / converged 10/20DMA’s) would neutralize near-term bears.

Res: 82.53; 82.94; 83.78; 84.20.
Sup: 81.42; 80.70; 80.00; 79.50.

With 10 year US yields experiencing only a three-wave drop from a new high last week down to 4.5%, we should anticipate more gains here. This is likely to be positive for the Dollar, especially against the Jpy. Looking at the USDJPY hourly chart, we see a bullish impulse entering its late stages this week as we see price in fifht wave up. There's significant potential resistance at 155.50.

Also, don't overlook the Bank of Japan's interest rate decision this Friday. Given the BOJ's concerns about the current weak status of the Japanese Yen, they may seek solutions to bolster the yen. Therefore, be mindful of potential limited upside and reversals in yen pairs. From a market perspective, we certainly expect that sooner or later, there will be some form of new retracement on USDJPY.

Market picture

The crypto market is moving upwards, encouraged by Bitcoin’s positive momentum. Total cryptocurrency capitalisation reached $2.44 trillion, up 1.6% in 24 hours and 0.8% in seven days.

Bitcoin added 1.9% in 24 hours to $66.4K, gradually adding since last Thursday. The price hasn’t moved much in recent days, balancing the positivity from the halving and the negativity from the Nasdaq index’s decline.

Bitcoin is sticking to a classic upside pattern with a 61.8% Fibonacci retracement from the last rally. However, it’s worth remaining cautious until the price breaks above the 50-day moving average, which is now at $67.4K.

Altcoins are repeating the positive dynamics of the first cryptocurrency, adding since the end of last week. Still, they fell harder a fortnight ago and are recovering very sluggishly so far. As a result, the share of Bitcoin in total cap reached a three-year high near 55%.

News background

On 20 April at 0:10 GMT, the fourth halving in history took place on the Bitcoin network on block #840,000. The ViaBTC mining pool mined the block, and it saw the miners’ reward drop from 6.25 BTC to 3.125 BTC. Commissions in the first block of the BTC network rose sharply to $2.4 million after the halving. The record commission is attributed to user activity in the Runes Protocol.

The first cryptocurrency may enter a “re-accumulation phase” after halving. Then, a “parabolic uptrend” will begin, according to an analyst at Rekt Capital. In his opinion, the movement of BTC now follows the same pattern as in previous post-halving cycles.

In a clarified lawsuit against Tron founder Justin Sun, the SEC said his frequent visits to the United States entitled him to legal action. According to the SEC, San spent more than 380 days in the US between 2017 and 2019.

Ethereum blockchain made a net profit of $365.46 million in the first quarter, up nearly 200% from the previous period’s $123 million, according to The DeFi Report. Total transaction fees reached $1.17bn.

Tether, the issuer of USDT stablecoin, added support for The Open Network (TON) blockchain. Via Telegram, Crypto Bot users can now deposit USDT on the TON blockchain. Withdrawals will appear in the near future. There will be no fees for USDT transactions within Telegram, and users can instantly send the asset to their contacts in the messenger without a wallet address.

Telegram will start rewarding content creators and allow the purchase of goods for cryptocurrency, said Pavel Durov, the messenger’s founder. According to him, Telegram has integrated blockchain at a deep level.

It was another rough week for the Aussie, pressured by strong US data, more hawkish Fedspeak and escalating Mideast geopolitical risks.

US data continued to impress with March retail sales (ex-autos and gas) rising 1.0%, materially stronger than expectations for a 0.3% gain. That, and more reserved Fedspeak around rate cut prospects, stressing patience, saw US10yr yields touch 4.69% last week, highs since November 2023. While the resilient US growth story and rising US rates kept the Aussie pressured last week, it was mainly rising Mideast risks that roiled it, at least temporarily.

As reports of an Israeli strike on Iran spread during Asia-Pacific trading on Friday US10yr yields fell more than 10bp at one stage, while Brent crude jumped almost US4/bbl and US equity futures were nursing early losses of around 2%.

Against that backdrop the Aussie slipped from around 0.6425 to new lows for the year at 0.6363. But as it became clear that key Iranian nuclear infrastructure facilities were untouched and Iranian officials were downplaying the event global markets quickly regained their composure.

The Aussie recouped losses and has started the new week back USD0.6400. Oil has also given back all of Friday’s squeeze.

But even as rising global market volatility often leaves the Aussie in the crosshairs it has not been the worst performing G10 currency lately. Month to date the Aussie is down 1.4%, but GBP and JPY have fared worse, with declines exceeding 2% against the USD. The ongoing squeeze in global commodity prices are helping shield the Aussie somewhat on crosses. The LME’s base metals index rose 5.3% last week taking its gains so far in April to 14%.

But volatility can still roil Aussie this week. The Nasdaq fell 5.5% last week and US earnings season kicks into high gear with results from the big tech names a key focus.

The local and global economic data calendars will give participants plenty to chew on too.

Locally, the main focal point will be on Q1 CPI. Analysts see Q1 CPI rising 0.8%, compared to 0.6% in Q4, though base effects will see the annual pace easing to 3.4%, from 4.1%. Westpac’s forecast for the trimmed mean is 0.8% for the quarter, taking the annual pace from 4.2%yr to 3.8%yr, the slowest since March 2022.

Markets do not expect the RBA to cut ahead of the Fed, with a full -25bp RBA cut not priced until December, versus Fed pricing for a September/November start to rate cuts. But a softer than consensus Q1 CPI could galvanise the potential for RBA rate cuts before the Fed.

On the international side, advance Q1 GDP on Thursday and the March monthly PCE deflator on Friday likely underscore the narrative around ongoing resilient US growth trends and the stalling in disinflation.

In the Eurozone, flash April PMIs on Tuesday likely show further recovery green shoots, while Friday’s Bank of Japan meeting and fresh economic projections will be closely scrutinised for any hints around further possible monetary policy adjustments later this year and any commentary around excessive yen weakness.

Event risk

Tuesday

Japan, Eurozone, UK, US S&P prelim Apr manufacturing and services PMIs

Wednesday

Australia Q1 CPI

Thursday

US advance Q1 GDP

Friday

Japan BoJ policy meeting

US Mar PCE deflator

USDJPY keeps firm tone and continues to trade near pivotal 155 barrier, where strong offers cap the action on expectations that Japan’s authorities may intervene at this zone.

Technical picture on daily and weekly chart remains increasingly bullish, with strong positive signal generated on weekly close above important Fibo level at 152.60 (38.2% of larger 277.65/75.55, 1982/2011 downtrend), which would open way for stronger acceleration towards 160 zone (1990 high)., but with major requirement for sustained break of 155.00 trigger.

Rising 10DMA contained last Friday’s spike lower, adding to bullish near-term bias, though overbought conditions and strong headwinds at 155 barrier, warn that price action may stay in extended sideways mode.

Dips should hold above broken 152.60 barrier (reinforced by rising 20DMA) which reverted to strong support, to offer better opportunities to re-join bullish market.

Caution on sustained break below 152.60, which would weaken near-term structure and increase downside risk.

Res: 155.00; 155.77; 156.36; 157.73.
Sup: 154.42; 153.87; 152.60; 152.00.

On April 19, 2024, a halving occurred in the Bitcoin network, resulting in the reward for the mined block amounting to 3.125 BTC.

Historically, after the halving (which is associated with a reduction in supply), the price of Bitcoin heads to all-time highs. But, as Forbes reports, Goldman Sachs analysts warn against extrapolating the results of Bitcoin price movements after past halvings to the current moment. After all, back then, the halvings occurred during a period of loose monetary policy by the Federal Reserve, while this time the Fed is struggling with harsher-than-expected inflation.

JPMorgan analysts led by Nikolaos Panigirtzoglou are also cautious. “We do not expect Bitcoin price increases post halving as it has been already priced in,” they wrote.

However, this morning Bitcoin is trading above USD 66,000, the highest price in a week. Adding to the market's positivity are rumors that the Securities and Futures Commission (SFC) in Hong Kong is going to approve spot applications for Bitcoin ETFs.

Technical analysis of the BTC/USD chart shows that:

→ Bitcoin price made a double false breakout of the psychological level of USD 60,000 last week – April 17 and 18;

→ after this maneuver, the Bitcoin price confidently recovered into the consolidation zone, shown by a narrowing green triangle;

→ Bitcoin price today may be affected by the USD 66,500 level, which is the central axis of the consolidation zone, as well as the former support level (as shown by the arrows);

What about the longer term? The demand activity seen around the USD 60,000 level can be interpreted as a stable interest in the main cryptocurrency on the part of investors, which may ultimately lead to an attempt by the Bitcoin price to attack the USD 70,000 level near the upper border of the consolidation zone.

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