Chart of the Day US500 (S&P500)
US500 (S&P500) another leg to complete sequence – Probable Price Path
US-China noise levels ratcheted higher overnight – US president Trump said he does not want to speak to China’s Xi Jinping and would not renegotiate the phase one trade deal, while hinting the US could “save $500 billion” if he “could “cut off the whole relationship”. Meanwhile, he also threatened to replace board members of the Thrift Savings Plan, who have also delayed the plan to transfer roughly $50 billion to invest in global markets including EM and China. Notwithstanding US’ initial jobless claims rising by 2.98m (down from 3.18m in the previous week) and BOE’s Bailey and BOJ’s Kuroda joining in the bandwagon to push back against negative rates speculation, the S&P500 climbed 1.2%, led by banks and energy shares, while UST bonds bull-flattened with the 10-year yield lower by 3bps to 0.62%. The 3-month LIBOR eased further to 0.38563%. The Fed bought $305m of ETFs in its first day of its Secondary Market Corporate Credit Facility. The US Treasury will auction $20b of a new 20- year bond on 20 May.
Speaking at a virtual roundtable discussion on Thursday, Minneapolis Fed President Neel Kashkari said that in the initial days of the COVID-19 pandemic, there was hope that the economy would be able to bounce back quickly, but reality has turned out differently, adding that the V-shaped recovery is off the table. Separately, Dallas Fed President Robert Kaplan, in an online interview with local public TV station KERA on Thursday, said the US economy needs to reopen after extended shutdowns to slow the spread of the COVID-19 pandemic, but reopening must be gradual and with enough testing and other procedures that people feel comfortable to re-engage.
From a technical and trading perspective, the benchmark S&P500 has completed a three wave correction from the prior cycle highbulls have defended the 2758 equality objective setting the stage for the next leg higher to target the primary upside objective sighted at 3140/80. Bullish exposure should be rewarded on a breach of 2870 with a relatively tight invalidation below the overnight lows. Bulls will likely initially target a retest of prior highs at 2968 enroute to the pivotal decision point zone above 3140/80 where they will likely, at minimum, witness another profit taking pause if not a more extended corrective phase. A breach of yesterday’s lows would negate the bullish thesis and suggest a deeper correction to 2640/80 is underway
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