The S&P 500 soared to its highest level in over a year as traders anticipated that the Federal Reserve would refrain from raising interest rates during their policy meeting. The index closed at 4,338.93, surpassing its previous high from August and marking the best intraday and closing levels since April 2022. The Nasdaq Composite also experienced significant gains, reaching its highest point since April 2022, while the Dow Jones Industrial Average climbed to 34,066.33.
Market expectations indicate a high probability that the Fed will skip a rate hike this month, with investors pricing in a 72% chance of no increase. While the June hike seems unlikely, the central bank may continue raising rates in the future. Inflation data, expected to show a drop in May’s consumer price index, could support the notion that inflation is receding, reinforcing the case for holding rates steady. Many anticipate that the Fed will emphasize its commitment to controlling inflation and potentially implement a final rate increase at the July meeting before pausing for the rest of the year.
The recent surge in the S&P 500, which gained over 20% from its October low, has sparked optimism among investors, signalling the end of the bear market. The index has experienced a four-week winning streak, while the Nasdaq Composite has seen an even more substantial increase, rising 33% from its 52-week low. On Monday, technology stocks, including Amazon and Tesla, led the market’s upward trajectory, with each stock gaining over 2%.
On Monday, the overall market saw a positive trend, with all sectors collectively increasing by 0.93%. The Information Technology sector performed exceptionally well, with a significant rise of 2.07%. The Consumer Discretionary and Communication Services sectors also experienced substantial gains, growing by 1.74% and 1.20% respectively. The Industrials and Health Care sectors followed suit, showing modest growth of 0.69% and 0.46% respectively. The Materials sector and Real Estate sector saw smaller increases of 0.44% and 0.03% respectively. The Consumer Staples sector and Financials sector experienced minimal gains, with a rise of only 0.01% and a slight decline of 0.09% respectively. On the other hand, the Utilities and Energy sectors faced declines, with drops of 0.17% and 0.97% respectively.
Major Pair Movement
The dollar index initially declined but later recovered as Treasury yields rebounded in cautious trading ahead of the U.S. CPI release, as well as the Federal Reserve and European Central Bank meetings. The dollar and yields received a boost from a sizable $72 billion Treasury issuance, while billionaire investor Ray Dalio expressed concerns about a forthcoming financial crisis and suggested equities would outperform risky U.S. Treasuries. Following the auctions, EUR/USD remained largely unchanged, and the yield curve steepened, with 2s remaining flat and a 2.5 basis point increase in 10s.
Market expectations continue to support the Fed’s guidance of skipping a rate hike this week, with another 25-basis point increase likely in July and potential cuts starting in December, though significantly lower than initial projections in early May. The ECB is priced for a 25-basis point rate hike on Thursday, followed by another in July, and a rate cut is expected by April. Sterling experienced the most notable movement among major currencies, falling by 0.63% due to surging gilts yields and increasing UK political risk. The Bank of England is still seen as needing to raise rates by at least another 100 basis points to address inflation concerns, with average hourly earnings forecasted to rise in Tuesday’s April employment report.
Picks of the Day Analysis
EUR/USD (4 Hours)
EUR/USD Holds within Familiar Range as Market Awaits Key Economic Data and Central Bank Meetings
The EUR/USD pair saw a modest rise on Monday, remaining below the 1.0800 level while showing limited corrections and potential for upside movement. The upcoming US inflation data on Tuesday, alongside the Federal Reserve (Fed) and European Central Bank (ECB) meetings later in the week, are expected to shape the pair’s next direction. This week holds significant importance for financial markets, with the focus on the US Consumer Price Index (CPI) for May and the interest rate decisions from the Fed and ECB. Volatility and potential for erratic moves are expected, making stability more likely after the ECB meeting on Thursday.
According to technical analysis, theEUR/USD pair experienced an upward movement on Monday, with the price trading along and above the middle band of the Bollinger Bands. At present, the EUR/USD is still hovering around the middle band of the Bollinger Bands, suggesting that there is a possibility that the market is awaiting the next movement, but the overall sentiment remains bullish. The Relative Strength Index (RSI) is currently at 57, indicating that the EUR/USD is still in a bullish trend.
Resistance: 1.0808, 1.0847
Support: 1.0757, 1.0721
XAU/USD (4 Hours)
Gold (XAU/USD) Dips on Positive Market Sentiment, Investors Await Key Data and Central Bank Decisions
On Monday, spot gold (XAU/USD) prices fell to a daily low of $1,949.20 per troy ounce due to a more positive market sentiment driven by global stock recoveries. Investors are cautious as they await crucial data releases and monetary policy decisions from central banks, including the Federal Reserve (Fed). The unexpected rate hikes by the Reserve Bank of Australia (RBA) and the Bank of Canada (BoC) have raised doubts about the conclusion of the tightening cycle in the US. The upcoming release of the US Consumer Price Index for May will provide further insights, with expectations of a slight decrease in inflation. This week also features monetary policy decisions from the ECB, BoJ, and PBoC, shaping the overall market outlook.
According to technical analysis, the XAU/USD pair is trending lower on Monday as the market awaits today’s US inflation data. The XAU/USD is currently trading around the middle band of the Bollinger Bands, indicating a possibility of a slight upward movement throughout the day. At present, the Relative Strength Index (RSI) stands at 48, suggesting that the XAU/USD is in a neutral state and is awaiting further developments.
