Wall Street: steady gains wrap up a volatile week

Recession fears and relief rally stabilise a turbulent week

Wall Street wrapped up a turbulent week on a steadier note, with Friday's session proving relatively uneventful, lacking major economic reports or earnings releases.

The week began with fears of a looming recession and an aggressive unwind of the Japanese yen carry trade, which weighed heavily on markets. However, a stronger-than-expected ISM Services Purchasing Managers' Index (PMI) and initial jobless claims helped ease recession concerns, sparking a relief rally into the weekend.

Upcoming eventful week

This week is poised to be another eventful one with US consumer price index (CPI), retail sales, and a plethora of Federal Reserve (Fed) speeches on the calendar. Retail sales will be under the microscope and could be a potential flashpoint.

Retail sales data in focus

The all-important retail sales control group, which flows through into gross deomestic product (GDP), is expected to rise by 0.2% month-on-month (MoM) in July, following a robust rise of 0.9% in June. If we see weakness in the retail sales number, it will likely set growth alarm bells ringing again.

Elsewhere, inflation's progress towards the Fed's target has been key in providing the Fed with the flexibility to cut interest rates should downside risks to the labour market and growth increase. As such, this week's CPI data will also be closely monitored.

CPI

Date: Wednesday, 14 August at 10.30pm AEST

In June, headline inflation decreased by 0.1% MoM, against expectations of a 0.1% increase, allowing the annual inflation rate to drop to 3.0% year-on-year (YoY) - the lowest since June 2023. The core inflation rate for June rose slightly by 0.1%, leading to a reduction in the annual core inflation rate to 3.3%, which was below the anticipated 3.4%.

For July, analysts expect headline inflation to rise by 0.2% MoM, maintaining the annual inflation rate at 3.0% YoY. Similarly, core inflation is also expected to increase by 0.2% MoM, potentially reducing the annual core inflation rate to 3.2% YoY. The rates market is beginning the week with expectations of 37 basis points in Fed rate cuts in September, accumulating to 103 basis points by the end of the year.

US core annual CPI chart

Nasdaq 100 technical analysis

In last Monday's update, we noted the break below important support at 18,600, opening the way for a deeper decline towards the 200-day moving average, then at 17,643. Since then, the Nasdaq 100 has commenced a tentative recovery.

While it remains above a strong band of support 17,700/17,400 consisting of the 200-day moving average at 17,727 and uptrend support at about 17,400 (from the December 2022 low of 10,671), allow for the recovery to extend towards 19,500. A sustaines a break below support at 17,700/400, it would warn that a deeper pullback towards 16,000 is underway.

Nasdaq 100 cash daily chart

S&P 500 technical analysis

In last Monday's update, we noted that the recent sell-off had caused significant technical damage to the uptrend and warned that a deeper pullback was underway towards support at around 5250/5200. As events rapidly unfolded, this support region was broken on Monday, with the S&P 500 hitting a low of 5119 before commencing a tentative recovery into the weekend.

While the S&P 500 remains above last week's 5119 low, reinforced by the 200-day moving average at 5032, we allow for the recovery to extend towards 5400. A sustained close above the 5400 area would open the way for a stronger recovery towards the mid-July record high. However, if the S&P 500 were to reject resistance at approximately 5400, it would warn that the next leg lower has commenced, which would likely see a retest and possible break of last week's low of 5119.

S&P 500 daily chart

• _{Source: TradingView. The figures stated are as of 12 August 2024. Past performance is not a reliable indicator of future performance. This report does not contain and is not to be taken as containing any financial product advice or financial product recommendation.}