Fundamental analytics

The most important US inflation data coincides with Valentine’s Day

For long-term investors who have recently complained that stock markets are too expensive, and opening of medium- and long-term positions at such levels is dangerous, last week provided some basis for consideration.

On Friday, US indices completed the trading week more than 5% down the annual highs, the maximum decline had reached 10%, but Friday's close took place in the green after pullback to session highs. The past week was the worst for the US market by the result of two years. It interrupted the continuous bull market starting at the beginning of 2016, when the SP 500 consolidated above the psychological level of 2000 points. Analysts explain the recent sale-off and the growth of volatility by the growth in yields of government bonds, which makes the stocks less attractive in comparison with low-risk bonds of fixed yield.

However, a sharp correction last week did not change the optimistic view on the economy and corporate earnings. The latest data on US wages showed growth significantly above expectations. Higher wages raise expectations of rising interest rates. From the fundamental point of view, the reason for the downward movement these days is inflation, more precisely the expected inflation data, which risk being higher than forecasts. On Wednesday, the consumer price index (CPI) will be published. And this is the main information data of the week, the focus of the markets is on them, and before the data came out, the markets took a break and liquidate the additional risk.

Now the consensus forecast assumes that the consumer price index will reach the level of 0.4%. American markets opened in the red zone.

Oil remains under pressure. The growth of drilling activity in the United States has frightened the oil traders, who do not risk going long at current prices with current expectations.

Yesterday's OPEC report and verbal support by the statement of the Secretary that the countries had reached a new record in limiting extraction - could not break the situation on the oil market. The secretary of the cartel tried to calm the markets by saying that the growth in production in the US does not prevent the restoration of the balance in the oil market, but the figures of the cartel show the opposite. OPEC revised the forecast for the production of "black gold" for this year in the direction of increase due to the increase in the production of shale oil in the US. Reducing production from the cartel will not be able to block the current buildup of production by the United States.

Data from the United States is now the main driver for the oil market and so far the expectations of investors in this regard are pessimistic. Oil reserves in the US are likely to continue their growth, amid the start of the season of technical work by many refineries, which will reduce demand in the domestic US market.

On the chart, we see the continuation of the decline - the market cannot realize a single upward pullback. Bulls failed to break even the nearest resistance and now the price is moving down again. If we get the breakdown of local support at 62.00, this  will open for the path to the next support at 61.15.


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