PCE inflation and Powell are likely to be key for Wall Street this week
Selling pressure may resurface in global equity markets this week as the outlook continues to deteriorate in China. The impact of the zero-covid policy appears to be intensifying on the Chinese economy, as the profits of the country’s industrial companies fell 3.0% year-on-year in the first ten months of the year, from 2.3% in the first nine months of the year, despite numerous stimulus measures announced by the authorities since the spring.
In addition, the outlook worsens as the country just registered a new daily record for pollution this weekend and protests have broken out in many major cities, including Beijing and Shanghai, following a video broadcast on social networks. Social media showed a woman screaming in a burning apartment tower in Urumqi, the capital of Xinjiang region.
The deterioration of the global economic outlook can be seen in recent weeks’ drop in oil prices, which the stock markets are currently unaware of. The price of the WTI barrel just broke through major support around $77 and is now trading at an 11-month high.
Developments in China will be watched very closely by market operators pending the release of PCE inflation and Jerome Powell’s speech at the Brookings Institute on Wednesday. The Fed chairman could take advantage of this intervention to dampen the euphoria of market operators, as he did in Jackson Hole in late August after a relatively similar recovery in the stock market.
S&P 500 Daily Price Chart – Key Levels