Looking back to previous week, Wall Street experienced an impressive 8-day winning streak, marking its best performance in two years. However, the streak was abruptly halted by a hawkish speech from Jerome Powell. The S&P 500, Nasdaq 100, and Dow Jones formed bearish engulfing days on Thursday in response to Powell's warnings that the Federal Reserve might tighten policy further if necessary. Bond yields also saw a rebound, particularly the 2-year yield, which is sensitive to monetary policy expectations. The Reserve Bank of Australia (RBA) raised its cash rate, but the lack of a firm commitment to future hikes disappointed traders.
As traders reflect on the past week's developments, attention turns to the upcoming week's calendar. The market is on high alert for the inflation report, with Powell's hawkish stance still fresh. Additionally, concerns about a potential government shutdown loom large if the debt ceiling is not raised by Friday.
One of the key themes for the upcoming week is the looming threat of a US government shutdown. The specter of a shutdown has become more frequent, and as the November 17th deadline approaches, discussions about a resolution become crucial. The new Republican House Speaker, Mike Johnson, is expected to reveal plans to avoid a catastrophe in the next couple of days. However, history suggests that talks could extend to the final hour, impacting risk appetite.
The technical analysis of the S&P 500 reveals a potential swing high following Powell's hawkish speech. The index had rallied over 7% before Powell's remarks, but the bearish engulfing day indicates a shift in sentiment. Traders will closely watch key technical levels, including gap resistance, October highs, the 4400 handle, and a bearish trendline. Closing the bullish gap around 4320 may be a focal point, with further downside potentially targeting the 200-day EMA and lower bullish gap.
With Powell's hawkish comments still reverberating in the market, the focus shifts to next week's US inflation report. Rising price pressures could lead to a market repricing of the potential for another interest rate hike. Core CPI has been on the rise, with a 0.3% monthly increase for two consecutive months and an annual rate at 4.1%. The Federal Reserve's hawkish narrative may persist unless the inflation numbers surprise on the downside. Additionally, attention is drawn to Australian wage inflation and employment data, which could influence the Reserve Bank of Australia's future decisions. Finally, economic data from China and Japan, including Japan's expected GDP contraction and China's industrial production, investment, and retail sales figures, will provide insights into the global economic landscape.