The stock market witnessed a robust surge buoyed by an optimistic response to the latest US inflation report. Major indices like the Dow Jones, S&P 500, and Nasdaq rallied significantly, with tech stocks, in particular, hitting record highs. The lower-than-expected CPI figures fueled hopes of a sooner-than-anticipated end to the Federal Reserve’s rate hikes, leading to drops in the dollar and favorable movements in various asset classes, including stocks and precious metals. The market’s reaction also triggered shifts in rate expectations, influencing currency pairs like EUR/USD, USD/JPY, and GBP/USD, while highlighting divergent rate trajectories between different central banks by December 2024.
Stock Market Updates
The stock market experienced a robust rally fueled by optimistic sentiments following a favorable U.S. inflation report. The Dow Jones Industrial Average surged by 489.83 points, marking a 1.43% increase, while the S&P 500 rallied by 1.91%, briefly crossing the significant 4,500 threshold. This surge, the most substantial since April for the broad-market index, was met with the Nasdaq Composite jumping by 2.37% to close at 14,094.38. These gains contributed to an already impressive month for stocks, with the S&P 500 and Dow marking increases of 7.2% and 5.4%, respectively, in November, while the Nasdaq soared by 9.7%, on track for its most significant monthly gain since January.
The market’s upbeat response was primarily driven by the latest Consumer Price Index (CPI) figures, which indicated a stagnant inflation rate, contrary to expectations of a slight increase. This lower-than-anticipated core CPI, stripping out food and energy prices, presented the slowest rise in two years. This development buoyed hopes that the Federal Reserve might conclude its rate-hiking campaign sooner than anticipated. As a result, fed-funds futures pricing suggested a likelihood of steady rates at the next Fed policy meeting, fostering a market environment that saw the 10-year Treasury yield drop below 4.5%. Technology stocks surged notably, with the Technology Select Sector SPDR Fund hitting a record high, and specific companies like Tesla experiencing gains of more than 6%. Additionally, sectors sensitive to rate hikes, like banks, including Bank of America and Wells Fargo, witnessed substantial jumps amid hopes that the economy could avoid a recession. Among individual stock performances, Home Depot’s impressive 5% surge based on better-than-expected third-quarter earnings led the Dow’s gains, while companies like Enphase Energy, Boston Properties, and SolarEdge Technologies each climbed over 10%, contributing to the S&P’s upward trajectory.
On Tuesday, the overall market saw a strong upswing with a notable gain of 1.91%. Real Estate emerged as the top-performing sector, soaring at 5.32%, followed by the Utilities and Consumer Discretionary sectors, which rose by 3.94% and 3.32%, respectively. Materials and Industrials also showed significant increases of 2.91% and 2.04%. Meanwhile, Financials and Information Technology experienced moderate gains of 1.94% and 1.92%. Communication Services followed suit with a rise of 1.42%, while Consumer Staples and Health Care showed more modest increases of 0.89% and 0.70%. Energy had the smallest increase at 0.54%, rounding up the day’s performance across sectors.
Currency Market Updates
The US dollar suffered a significant decline following the release of below-expected US CPI data, erasing lingering concerns of a hawkish Fed stance. The soft inflation figures prompted investors to recalibrate their projections for Fed rate cuts, moving the expected timeline to begin around May-June 2024 instead of June-July. Market sentiment now anticipates a substantial 98 basis points of Fed easing by December 2024, a stark shift from the earlier projection of -73 basis points prior to the data release. This adjustment in rate expectations heavily impacted the US yield curve, notably causing drops of 20 basis points in 2-7-year Treasury yields and 17 basis points in 10-year yields. The market reaction favored risk assets, with the S&P 500 surging by 1.9%, gold climbing 0.85% to $1,962, and silver rising by 3.4%.
The fluctuating dollar also influenced major currency pairs, with the EUR/USD gaining 1.6% as the Fed’s rate outlook aligned more closely with the ECB’s lower rate expectations. Conversely, the USD/JPY fell 0.75% as decreased Fed rate projections alleviated pressure from the US-Japan rate spread, impacting the pair’s positioning near its 2022 high. GBP/USD saw a rise of 1.76% to 1.2492, benefitting from compressed rate spreads. Sterling’s upward momentum above key resistance levels signals potential further gains, particularly as attention shifts to the UK CPI data for insights into the Bank of England’s potential actions amid the post-pandemic recovery. Meanwhile, the Australian dollar outpaced the Canadian dollar, bolstered by the RBA’s recent rate hike, while futures markets indicate a divergence in expected rate trajectories between the BoC and the Fed by December 2024.
Picks of the Day Analysis
EUR/USD (4 Hours)
EUR/USD Surges on Dollar Weakness Triggered by US CPI Data
The EUR/USD pair saw a substantial 200-pip surge following a Dollar selloff catalyzed by the release of stagnant US consumer inflation data. Despite the Eurozone experiencing a slight contraction, the Dollar’s tumble to monthly lows came as US CPI remained unchanged in October, sparking Treasury bond rallies and Wall Street stock gains. This shift strengthened the Euro against the Dollar, with expectations firming that the Federal Reserve might hold off on further rate hikes. The upcoming US Producer Price Index (PPI) release and October Retail Sales report are anticipated to provide further insights, potentially keeping the US Dollar vulnerable pending signs of easing inflation and consumer softness.
According to technical analysis, the EUR/USD moved higher on Tuesday, reaching above the upper band of the Bollinger Bands. Currently, the EUR/USD is trading just above the upper band, indicating the potential for a continuation move to widen the band further. The Relative Strength Index (RSI) is at 79, signaling a bullish bias for the EUR/USD.
Resistance: 1.0890, 1.0935
Support: 1.0835, 1.0772
XAU/USD (4 Hours)
XAU/USD Surges Amidst Dollar Decline and Inflation Data: Market Anticipates Fed’s Move
Spot Gold experienced a significant surge, propelled by a notable downturn in the US Dollar and an upswing in Treasury bonds. Climbing from $1,945 to $1,970, its highest in six days, XAU/USD rallied following the release of US inflation figures that triggered a strong market response, bolstering stocks and pushing the Dollar to multi-month lows. The Consumer Price Index showed a drop in annual inflation rates, below market expectations, easing speculation of a Federal Reserve rate hike before year-end. This led to a shift in market sentiment, advancing predictions for an earlier rate cut. With upcoming data releases on the Producer Price Index and Retail Sales, further evidence of softening inflation and consumer metrics might sustain Gold’s rally, reinforcing beliefs that the Fed’s tightening phase has reached its conclusion.
According to technical analysis, XAU/USD moved higher on Tuesday and managed to reach the upper band of the Bollinger Bands. Presently, the price of gold is moving just below the upper band, creating the possibility of further upward movement to push towards the upper band. The Relative Strength Index (RSI) is currently at 56, indicating that the XAU/USD pair is still in a neutral bias.
