Stocks surged on Thursday as the latest inflation data came below expectations, leading to renewed optimism in the market. The S&P 500 and the Nasdaq Composite reached their highest levels in over a year, with the S&P 500 climbing 0.85% to 4,510.04 and the Nasdaq Composite advancing 1.58% to 14,138.57.
The Dow Jones Industrial Average also saw a modest gain of 0.14%, adding 47.71 points to close at 34,395.14. Notably, cybersecurity stock Palo Alto Networks saw a notable increase of 2.7%, while MGM Resorts and Alphabet rose 4.1% and 4.7%, respectively.
The positive market performance was attributed to the release of June’s producer price index (PPI) report, which indicated a smaller increase than anticipated. The PPI, measuring wholesale prices, rose by 0.1% in June, falling short of economists’ expectations of a 0.2% increase.
Furthermore, the core PPI, excluding volatile food and energy prices, also rose by 0.1%, below the anticipated level. The favourable inflation data further complemented the optimism generated by Wednesday’s consumer price index report, fueling investors’ confidence in the market.
On Thursday, the overall market experienced a positive trend, with all sectors showing gains except for the Health Care and Energy sectors. The communication services sector had the highest increase, rising by 2.32%. The Information Technology and Consumer Discretionary sectors also performed well, with gains of 1.49% and 1.08% respectively.
The Materials and Real Estate sectors saw moderate increases of 0.79% and 0.67% respectively. The Consumer Staples, Utilities, Financials, and Industrials sectors also showed positive but smaller gains, ranging from 0.38% to 0.37%. However, the Health Care sector experienced a marginal decline of -0.01%, while the energy sector showed a decrease of -0.45%.
Major Pair Movement
The dollar index experienced a significant decline of 0.7%, marking a weekly plunge of 2.4% and dropping below 100 for the first time since April 2022. This decline in the dollar was accompanied by a decrease in 2-year Treasury yields by 12 basis points. Market expectations now suggest that the Federal Reserve’s rate hike in July will likely be the last one before a series of rate cuts totalling nearly 200 basis points next year.
In contrast, the European Central Bank (ECB) is anticipated to raise rates by 50 basis points before implementing rate cuts of around 65 basis points in the second half of 2024. The positive sentiment toward the euro resulted in a 0.8% increase in the EUR/USD exchange rate, surpassing the key 200-week moving average and reaching its highest level since April 2022.
The anticipation of additional rate hikes and China’s stimulus measures contributed to a surge of 1.5% in the AUD/USD exchange rate. Despite concerns surrounding the situation, USD/CNH fell by 0.25%. The Swiss franc (CHF) experienced a 1% decline against the US dollar (USD), reaching its lowest level since the Swiss National Bank removed its 1.20 EUR/CHF floor in January 2015.
The USD/JPY pair, which had fallen by 4.3% in June, saw a modest increase of 0.34% on Thursday as it encountered support near the 138 expiry level. If the pair closes below the 38.2% Fibonacci retracement level of its advance in 2023, at 138.25 and 138, further downward pressure may be expected.
Additionally, gold prices rose by 1.1% following the departure of a member of the Bank of England (BoE), reinforcing expectations of aggressive rate hikes totalling 117 basis points to address the current economic challenges.
Picks of the Day Analysis
EUR/USD (4 Hours)
EUR/USDGains Momentum Amid Dollar Sell-Off and ECB’s Interest Rate Speculation
The EUR/USD currency pair extended its upward trajectory for the sixth consecutive day as the US Dollar experienced another round of selling pressure, driven by US inflation data indicating a slowdown. The negative momentum of the Dollar persists, potentially paving the way for further gains, although the extent of the rally suggests a potential consolidation or modest correction.
The European Central Bank (ECB) released minutes from its recent meeting, echoing President Lagarde’s comments about potential interest rate hikes beyond July if deemed necessary. Meanwhile, upcoming economic growth forecasts and trade balance data from the European Commission, along with declining US and Eurozone yields, continue to shape the market sentiment. The latest Producer Price Index figures highlighted a further slowdown in inflation, leading to additional losses for the Dollar, while the upcoming Consumer Confidence data is anticipated on Friday.
According to technical analysis, the EUR/USD pair is experiencing an upward movement on Thursday, pushing towards the upper band of the Bollinger Bands. Currently, the price is still near the upper bands of the Bollinger Bands, and the bands themselves indicate the potential for further upward movement.
This suggests that the price has the potential to reach the upper band of the Bollinger Bands. Additionally, the Relative Strength Index (RSI) is currently at 84, which is within the overbought area, indicating a bullish trend for the EUR/USD.
Resistance: 1.1291, 1.1382
Support: 1.1173, 1.1086
XAU/USD (4 Hours)
Gold (XAU/USD) Consolidates as Markets Remain Optimistic on US Inflation Easing
Gold prices held steady at $1,958 per troy ounce as financial markets maintained an optimistic outlook on easing United States (US) inflation. The release of the Producer Price Index (PPI) indicated a modest year-on-year and month-on-month increase of 0.1%. The core annual reading of 2.4% was lower than expected and the previous figure, reinforcing positive sentiment.
Despite the US Dollar’s decline, investors turned their attention to high-yielding assets, resulting in limited gains for gold. While Wall Street maintained modest gains, comments from San Francisco Federal Reserve President Mary Daly expressing the need for rate hikes impacted stocks, citing the economy’s momentum and uncertain wage growth’s impact on inflation.
According to technical analysis, the XAU/USD pair underwent a consolidating movement on Thursday, near the upper band of the Bollinger Bands. Suggesting the possibility of further upward movement.
This indicates the potential for the price to reach the upper band of the Bollinger Bands. Furthermore, the Relative Strength Index (RSI) is currently at 71, within the overbought area, indicating a bullish trend for the XAU/USD.
Resistance: $1,965, $1,981
Support: $1,946, $1,929
Economic Data
Currency
Data
Time (GMT + 8)
Forecast
USD
Prelim UoM Consumer Sentiment
22:00
65.5
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