Investors will be looking forward to the start of December next week where three full weeks of trading and plenty of data and central bank decisions take place before the Christmas break. The first week of the month, though, features limited high-impact data, meaning the focus will likely stay on the Russia-Ukraine peace talks and Japanese bonds, where the recent selling had caused all sorts of volatility in the prior couple of weeks before the relative calm this week. This has the potential to cause markets to turn volatile again, especially as valuation concerns in the AI driven tech sector haven’t gone away with markets remaining near recent records. So, the S&P 500 forecast could turn bearish again should the bond market selling resume.
As far as today’s session is concerned, well US index futures and most of European markets were trading higher shortly before the US cash open. Markets have been fairly quiet in the last couple of days due to Thanksgiving and now due to the earlier outrage at the CME preventing trading in most financial assets overnight. This was going to be shortened season anyway with US markets open just for half of the day and nothing on the economic calendar either, so the outage was certainly an unwelcome issue. Futures on US indices hadn’t moved much before the malfunction started overnight, and when trading resumed, they were up only modestly. Anyway, trading volumes look set to be quite thin across financial markets today - unless something dramatic happens, especially in the bond markets.
Russia-Ukraine peace talks to dominate agenda
While some focus will be on e-commerce spending during the Black Friday sales, which should give us an idea about the level of consumer health and confidence in the economy, the main driver is likely to be any further progress in the Russia-Ukraine peace negotiations. If so, this should weigh on energy prices and help the European currencies and stocks.
OPEC meeting is on Sunday
Another event to keep an eye on this weekend is the OPEC+ meeting on Sunday. Markets are expecting the group to hold production levels unchanged from January owing to concerns about excessive supply and weak demand, and, obviously, weaker oil prices. This outcome is expected and so should come as no shock to the oil market on Monday. Any surprises in terms of production hikes should be bad for oil prices as that would exacerbate market worries.
Watch Japanese bond markets
The recent selling in Japanese bonds caused all sorts of volatility in the prior couple of weeks with equities and the yen both dropping on mounting concerns about Japan’s fiscal position. That was before the relative calm this week, where the selling of JGBs paused and yields held steady. But this could be a temporary respite. Elevated inflation means the pressure is growing on the Bank of Japan to normalise its policy, while the government under the new Prime Minister Takaishi Sanae aims to spending a whopping 21.3 trillion yen in fiscal package, financed by yet more issuance of debt. This is worrying some investors who are concerns that increased spending by the government could strain Japan’s finances. Indeed, according Japan’s Ministry of Finance data, foreign investors sold Japanese bonds last week to the tune of 956.5 billion yen, their largest weekly net sale since October 25. Should the bond market rout continues, this will push up Japanese yields and borrowing costs for the government and raise serious concerns about Japanese assets, and potentially trigger a reverse carry trade that could hurt global markets.
Technical S&P 500 forecast
After a sharp 4-day recovery, our US SP 500 chart, which is derived from the underlying S&P 500 futures, has now entered a key resistance area around 6829/30. This area was the base of the breakdown a couple of weeks ago and we are back at the same level. A potential drop from here could target initial support at 6766, with 6715 being the next short-term support to watch. This will get volatile again should these levels fail to hold the market. On the upside, above 6829/30, there are not much further obvious resistance levels to watch apart from this month’s high of 6877, and then the prior month’s all-time high at 6922.
-- Written by Fawad Razaqzada, Market Analyst
Follow Fawad on Twitter @Trader_F_R
