On Thursday, the Nasdaq Composite achieved a record close at 16,091.92, its highest since November 2021, driven by a surge in tech stocks, particularly those involved in artificial intelligence. This uplift in the stock market saw the S&P 500 also reaching new heights, alongside modest gains for the Dow Jones, marking a continuation of Wall Street’s positive trend into its fourth consecutive month. The enthusiasm around AI and major tech companies has played a pivotal role in this rally, overshadowing concerns about inflation and economic slowdown. Meanwhile, in the currency market, the US Dollar Index saw an upward movement, influencing major currency pairs and setting the stage for watchful anticipation of upcoming economic data and central bank communications. This complex financial landscape, highlighted by tech stock surges and currency fluctuations, encapsulates the dynamic interplay between equity markets and global economic indicators.
Stock Market Updates
On Thursday, the Nasdaq Composite surged to a record close, marking its first since November 2021, by advancing 0.90% to finish at an all-time high of 16,091.92. This rise was significantly buoyed by a rally in tech stocks and chips. The S&P 500 also reached a new record, increasing by 0.52% to end at 5,096.27, while the Dow Jones Industrial Average saw a modest gain of 0.12%, closing at 38,996.39. This upward movement in the stock market concluded February trading on a high note, extending Wall Street’s positive momentum into a fourth consecutive month, despite concerns over the durability of the AI-fueled rally. The Nasdaq led with a 6.12% gain for the month, followed by the S&P 500 with a 5.17% increase, and the Dow with a 2.22% rise, marking its first four-month winning streak since May 2021.
The resurgence of the Nasdaq has been particularly fueled by a wave of enthusiasm for artificial intelligence, significantly lifting major tech stocks, referred to as the “Magnificent 7” (Alphabet, Amazon, Apple, Meta Platforms, Microsoft, Nvidia, and Tesla), and subsequently, the broader markets throughout 2023 and into this year. This rally comes after a challenging 2022 characterized by worries over rising interest rates and recession fears. In the specifics of the day’s trading, notable performers included Advanced Micro Devices, which saw a jump of more than 9%, and the VanEck Semiconductor ETF, which closed 2.2% higher. Despite the Federal Reserve’s preferred inflation measure remaining above target in January, it did not exceed Wall Street forecasts, suggesting that consumer spending remains strong. Additionally, while there were setbacks, such as Snowflake’s share drop following the announcement of its CEO’s retirement and disappointing revenue guidance, Okta experienced a significant rise of nearly 23% after reporting strong results.
On Thursday, the stock market witnessed a positive overall performance with all sectors combined showing a gain of +0.52%. Leading the gains were Communication Services and Information Technology, up by +1.20% and +1.17% respectively, demonstrating strong investor confidence in these sectors. Other sectors such as Consumer Discretionary, Real Estate, and Materials also posted notable increases, ranging from +0.79% to +0.90%. However, not all sectors fared as well; Utilities showed minimal growth at +0.04%, while Financials slightly declined by -0.01%. The Consumer Staples and healthcare sectors faced downturns, decreasing by -0.29% and -0.73% respectively, indicating areas of investor concern or profit-taking.
Currency Market Updates
The currency market experienced notable movements, with the USD Index (DXY) advancing above the 104.00 barrier, marking its third consecutive session of gains. This strength in the US Dollar influenced various currency pairs, notably pushing the EUR/USD pair to challenge the key support level at 1.0800. The anticipation of economic data releases, including the final S&P Global Manufacturing PMI, Construction Spending, and the ISM Manufacturing PMI, alongside speeches from several Federal Reserve officials, seems to underpin the dollar’s momentum. Furthermore, the currency market is keenly awaiting inflation figures from the euro area, alongside unemployment and manufacturing data, which could influence the EUR/USD trajectory in the coming sessions.
On the other side of the spectrum, the GBP/USD pair faced downward pressure, hinting at a potential move towards the 1.2600 region, influenced by a stronger dollar and upcoming economic releases from the UK. Meanwhile, the USD/JPY pair saw a decline to the 149.20 area, reacting to market speculations about a potential policy shift by the Bank of Japan. The AUD/USD pair also succumbed to the dollar’s strength, breaking below the 0.6500 support level amid concerns over China and forthcoming economic data from Australia. Additionally, the market focus is shifting toward China with the upcoming Manufacturing PMIs, which could have significant implications for the global currency markets, highlighted by a slight drop in the USD/CNH pair to the 7.2100 zone. Amidst these currency shifts, commodities such as WTI oil and precious metals like gold and silver displayed varied performances, adding another layer of complexity to the global financial landscape.
Picks of the Day Analysis
EUR/USD (4 Hours)
EUR/USD Dips Amidst USD Rebound and Rate Cut Speculations
The EUR/USD pair has seen a downturn for the third consecutive session, touching the 1.0800 level as the US Dollar gains strength, driven by renewed interest from investors. This movement is in sync with the rising US Dollar Index (DXY), surpassing the 104.00 mark, despite a drop in US yields. The Dollar’s resurgence, after a brief dip following US PCE data indicating disinflation, was bolstered by Atlanta Fed President Raphael Bostic’s remarks on the stubborn path to the 2% inflation target and the potential for a policy rate reduction in the summer. Concurrently, both US and German bond yields experienced a decline amid anticipations of a Federal Reserve rate cut, possibly in June, with a 52% probability as forecasted by the CME Group’s FedWatch Tool. This is paralleled by the ECB’s openness to initiating its easing cycle, hinted at for a June start by board member Peter Kazimir, amidst signs of waning inflation in Germany and ahead of crucial CPI data for the eurozone that could influence ECB rate cut timings.
On Thursday, the EUR/USD moved lower and was able to reach the lower band of the Bollinger Bands. Currently, the price is moving below the middle band, suggesting a potential upward movement to reach above the middle band. Notably, the Relative Strength Index (RSI) maintains its position at 47, signaling a neutral outlook for this currency pair.
Resistance: 1.0832, 1.0858
Support: 1.0812, 1.0783
XAU/USD (4 Hours)
XAU/USD Surge Amid Disinflation Confirmation and Rate Cut Speculation
Following the release of the Core Personal Consumption Expenditure (PCE) Price Index, which met expectations and indicated ongoing disinflation, gold prices experienced a significant increase of over 0.50% during Thursday’s North American trading session. This data release led to a decrease in US Treasury bond yields, inversely benefiting the price of gold, propelling XAU/USD to $2,046. The anticipation of the Core PCE report, showing a year-on-year deceleration in inflation for January, alongside a sharp decline in headline inflation, fueled expectations of potential rate cuts by the Federal Reserve. Market predictions, influenced by the CME FedWatch Tool, now foresee a higher likelihood of a rate cut by June, contributing to the bullish momentum in gold prices amidst a broader analysis of economic indicators such as Initial Jobless Claims and Pending Home Sales.
On Thursday, XAU/USD moved higher to reach the upper band of the Bollinger Bands. Currently, the price is moving just below the upper band, suggesting a potential higher movement to reach above the upper band and reach the resistance level. The Relative Strength Index (RSI) stands at 63, signaling a bullish outlook for this pair.
