US data fails to impress markets

29 March, 2018

It has been a positive day for the American economy as US GDP was stronger than expected coming in at 2.9% (2.7% exp), show casing that the American economy is expanding at the present rate. At the same time housing sales beat expectations as they came in strong at 3.1% (2.0% exp) adding further weight that the American economy is expanding much better than previously thought.  This is likely though to weigh on the Fed who are quite keen to raise rates in the interim while the economy continues to remain upbeat. This of course could be broadly seen on stock markets today as US equities continued to dive lower on the back of the economic data, show casing the market's expectations that further rate rises are in the pipe line and they will have a flow on effect for equity markets obviously.

However, my original statement still stands around US equity markets, and in particular the S&P 500 which continues to be the focus. With any market there is that canary in the coal mine, and in this case it is absolutely the 200 day moving average at present, which is stopping any further bearish movement from drifting lower. If there is a bearish break then expect the S&P to fall further to a low to 2579 at this stage. With the potential to have a real crack at 2532 if things are really looking dire for equity markets. That being said the US equity bulls are still a potent threat and have defended the 200 day moving average, so there is the potential to move higher to resistance to 2628 and 2664 if things really get going. However, that seems unlikely given the data at hand, and also the Trump effect being long gone by now - in fact probably dampened by the political investigations.

One of the big questions with all of this volatility is gold which at present has always been seen as the traditional hedge. For the most part that has been true, but the strong USD coupled with markets being skitterish has struggled to see large movements. The overall expectation thus far has been gold will fire in a volatile climate, and I am inclined to believe that at present it is lagging slightly in the current market.

Looking at the chart it's clear to see it has taken some steep dives in recent days, but at the same time it is now putting pressure back on resistance at 1326 at present. The market potentially is looking to further extend to 1340 and 1357, but this will only appear if US equity markets fall under pressure again. In the outcome of a bullish rise in US equity markets then a dip lower to 1309 and the 100 day moving average is certainly on the cards.


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