Daily summary: Supply still dominates the market

• The major US indices began the month of May with declines, led today by the S&P 500 index, which lost 1.34%, while the Dow Jones was trading 1.24% lower. Not much better is NASDAQ, which falls over 0.78%;

• The European session today was again in a weak mood, DAX lost more than 1%. In turn, the Polish WIG20 dropped another 1.7% and is approaching the lows of February 24;

• The weakest industrial activity PMI reading since February 2020 came in from China today. There are growing fears of a recession in the 'Middle Kingdom', which could affect the global economy. The reading was 47.4 points. Scores below 50 points are considered a recession signal. The indicator will require careful observation in the next quarter, without a continuation of the weakening recession cannot be confirmed;

• The US PMI reading beat the March result and came in at 59.2 points versus 58.8 points for February. However, the ISM index came in below expectations at 55.4 points vs. 57.6 expected. At the same time, a weak employment reading was registered.

• Another disturbing reading from the economy could potentially loosen the Fed's policy and consequently add fuel to the stock market;

• Markets are looking forward to the FOMC meeting on Wednesday evening. At that time, we will learn the final word on a rate hike and the start of the Fed's balance sheet reduction. Analysts' consensus is unchanged, a 50bp hike (the highest in the 21st century). The only uncertainty is the form of QT, bulls are quietly hoping for an easing of FED policy in the face of weakening economic data and slowing GDP (decline by over 1% in Q1 2022 compared to almost 7% growth in Q4 2021).

• The stock market may be helped by the Fed's decision not to sell its balance sheet. Buyers are hoping to enter QT by not reinvesting as they have in the past;

• Amazon continues its discount, with the e-commerce giant's share price already slipping nearly 4% and losing more than 40% from historical highs;

• Stock valuations in the US banking sector are falling. Shares of Wells Fargo and Bank of America are losing ground, slipping back to price levels seen before the coronavirus pandemic

• Even the arms sector cannot resist declines today, with shares of Northrop Grumman and Lockheed Martin losing ground. A pullback is also observed among European arms companies German Rheinmetall, French Thales and Italian Leonardo;

• U.S. PCE price inflation hit a record 6.6% year-over-year in March, and after excluding food and energy, the PCE price index rose 5.2% year-over-year.

• The Chinese government has pledged additional support to the Covid-affected economy and is expected to meet economic targets;

• WTI and Brent crude oil prices today are trying to make up for declines and return to higher valuations, currently trading near 1% positive. NATGAS is also doing well and is back to the $7.5 area. The growth does not exceed even the ending heating season;

• The shares of American giants of the oil industry, Exxon Mobil, Chevron and Occidental Petroleum, are gaining,

• We observe a retreat in the precious metals market, gold reacts with declines to the hawkish voice from the FED. The price of bullion is slipping to the vicinity of USD 1860 per ounce, silver is trading at USD 22.6 and has already lost more than 15% from local peaks;

• The historically very strong dollar may weaken the US economy through loss of competitiveness;

• Weak sentiment on Wall Street is also reflected in the cryptocurrency market. Bitcoin falls below $38,500, Ethereum slips below $2,800, and Cardano loses too, with its price heading towards $0.75;

The session is going through today again with a clear advantage of sellers, the rebound in the markets in March turned out to be temporary. Investors quickly shifted their attention from the war in Ukraine to hawkish FED, galloping inflation and rising energy prices. Markets are now awaiting the Federal Reserve's decision, which may determine further market perception. It is worth mentioning, however, that a more dovish FED would be a big surprise for the markets. This scenario is not considered likely even in the light of weaker economic data and the Fed's previous declarations that it would follow the economic data and remain 'flexible'.

Until now, strong economic data has been the backdrop for central bankers' actions to fight inflation. However, in the face of weakening data, Fed bankers may back away from decisive steps for fear of stagflation and stunting the growth needed to maintain global order, competitiveness and dollar dominance, especially in the context of recent geopolitical developments and competition from China.

US500 chart, W1 interval. We can see that the price of the main US index has been moving in a dynamic uptrend since the bottom of the panic caused by the outbreak of the pandemic. However, at the beginning of this year the growth stopped at the level of 4800 points, currently we observe over 15% retreat from the peaks. The second wave of declines was not stopped by 23.6 Fibonacci retracement of the wave, which was an important support often quoted on Wall Street. Currently, the levels of 3800 points, which coincide with the 38.2 retracement, seem to be worth attention; the nearest significant support is located there. In turn, a more dovish narrative from the Fed on Wednesday could add fuel to the bulls and help the stock market rebound from the disastrous start to the year. Then, the scenario of going above the border of 4200 points, which at the moment is the closest resistance, would be possible. Source: xStation5