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Week Ahead: Recession Fears, Falling Yields To Weigh On Stocks; Bitcoin Lower

By Investing.com (Pinchas Cohen/Investing.com)Market OverviewOct 06, 2019 08:25AM ET
www.investing.com/analysis/week-ahead-recession-fears-falling-yields-to-weigh-on-stocks-bitcoin-lower-200470932
Week Ahead: Recession Fears, Falling Yields To Weigh On Stocks; Bitcoin Lower
By Investing.com (Pinchas Cohen/Investing.com) ??|??Oct 06, 2019 08:25AM ET
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  • Stock rally for two days straight led by tech on increasing stimulus bets
  • Stocks continue to fall on a weekly basis, pressured by trade and string of negative economic data
  • Expect increased volatility during the first full trading week of October along with equity declines. A string of negative economic data and falling Treasury yields could pressure what might turn out to be a technical top for the S&P 500.

    Though the S&P 500, Dow Jones, NASDAQ and Russell 2000 all gained as last week's trading activity came to a close, on a weekly basis, stocks still extended a selloff. As well, for a third consecutive week, cyclical sectors led the selloff, while yields slumped over the same period.

    Back-to-back negative economic reports, including from ISM, unnerved traders, resurrecting the narrative that the U.S. was set to join the global economic slowdown. Red flags were raised in particular when the ISM manufacturing PMI contracted for a second straight month. While the services index dropped as well, it remained in positive territory.

    However, the case for continued growth was made on Friday when the monthly nonfarm payrolls report was released. Though job creation came in below expectations and average hourly earnings slipped, the U.S. unemployment rate fell to 3.5%, its lowest since 1969. This, more than anything else is what the Fed looks for, as a spur continued consumer spending growth, and what the country's GDP relies on.

    Nevertheless, speculation still runs high for another interest rate cut this month, even as the jobs release calmed growth fears, creating a dissonance in the market narrative. Lately, the market has been selling off on positive economic data, which is seen to reduce chances of additional Fed cuts, while rallying on negative data releases, viewed as increasing the outlook for lower rates.

    The current narrative persists however, on expectations of further cuts after Fed boss Jerome Powell said on Friday that the economy “faces some risks” but is “in a good place” overall.

    SPX Heading For a Top?

    Over the shorter term, on Friday, the S&P 500 advanced for a second day, the best performance in seven weeks—led by the Technology sector after reports out of Japan were released that sales of Apple's (NASDAQ:AAPL) newest iPhones beat expectations.

    SPX Daily
    SPX Daily

    From a technical perspective, the S&P 500 is in the midst of a return move before topping.

    U.S. 10-Y Treasury Daily
    U.S. 10-Y Treasury Daily

    Yields on the U.S. 10-year Treasury note declined for the seventh straight day on Friday, falling to within 6 basis points of the Sept. 3 low, the lowest since July 2016. We're once again seeing a short-term dichotomy between bonds and stocks, which—if our S&P chart analysis above follows through— will correct itself within the medium-term.

    DXY Daily
    DXY Daily

    Though still well above its uptrend line since June, the dollar fell for a fourth day on Friday. However, the RSI is warning the price might fall below its uptrend line, as momentum provides a negative divergence in the form of a developing descending triangle.

    BTC/USD Daily
    BTC/USD Daily

    Bitcoin broke the downside of a rising flag, bearish after the sharp preceding decline, and doubly bearish after completing a descending triangle.

    Oil Daily
    Oil Daily

    Oil rebounded on Thursday, bouncing off the lows since June, closing higher on Friday, toward $53.

    Week Ahead

    All times listed are EDT

    Tuesday

    8:30: U.S. – PPI: expected to remain flat at 0.1% MoM.

    Wednesday

    10:30: U.S. – Crude Oil Inventories: likely to plunge to 1.567M from 3.100M.

    14:00: U.S. – FOMC Meeting Minutes will be released, providing greater clarity on the votes for the Fed's most recent interest rate decision.

    Thursday

    4:30: UK – Manufacturing Production: predicted to fall to -0.1% from 0.3%.

    8:30: U.S. – Core CPI: probably edged down to 0.2% from 0.3% during September; the headline rate is expected to remain flat at 0.1%.

    Friday

    8:30: Canada – Employment Change: seen to plunge to 7.5K from 81K in September

    Week Ahead: Recession Fears, Falling Yields To Weigh On Stocks; Bitcoin Lower
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    Week Ahead: Recession Fears, Falling Yields To Weigh On Stocks; Bitcoin Lower

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    Comments
    Velarie Lee
    Velarie Lee Oct 06, 2019 9:26PM ET
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    S&P covered the upper gap. Now it’s going to cover the lower gap.
    mayur vejani
    mayur vejani Oct 06, 2019 12:51PM ET
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    Gbpusd will out perform
    Kenneth Carlson
    Kenneth Carlson 3 hours ago
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    We know this not to be true.
    Mxolisi Mchunu
    Mxolisi Mchunu Oct 06, 2019 11:09AM ET
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    USD is strong
    Sabelo Khehla Dlamini
    Sabelo Khehla Dlamini Oct 06, 2019 11:09AM ET
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    Yeah broe i saw that and Am holding on se kwi gold
    SN Kumar
    SN Kumar Oct 06, 2019 11:08AM ET
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    more volatility to come if not this week by 14th for sure
    Sylent Rage
    Sylent Rage Oct 06, 2019 9:29AM ET
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    are we saying that the Canadian dollar will go down?
    Jason Patcher
    Jason Patcher Oct 06, 2019 8:51AM ET
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    isn't it Boeing that is dragging down the the ISM, if so, not a big deal. Dollar should go down with the fed extending QE till November 4. With healthy labor markets will be fine excluding impeachment headlines and or brexit.
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