In the latest trading session, stock markets experienced a decline as investors reacted to Federal Reserve Chair Jerome Powell’s remarks regarding elevated inflation and monitored the rise in the benchmark U.S. 10-year Treasury yield. The Dow Jones Industrial Average fell by 0.75%, concluding at 33,414.17, while the S&P 500 and Nasdaq Composite also saw drops of 0.85% and 0.96%, respectively. Powell’s comments indicated a cautious approach to interest rate adjustments, resulting in a 97% probability of rates remaining unchanged at the upcoming policy meeting. Rising bond yields further added to market unease. Despite strong quarterly earnings reports from some S&P 500 companies, all major indexes are poised for weekly losses. In the currency market, the US dollar retreated, influenced by Powell’s speech and yield spreads between different countries’ bonds. The week ahead will be influenced by Japan’s Consumer Price Index (CPI), UK retail sales, and developments in the Israel-Hamas conflict.
Stocks experienced a decline on Thursday as investors closely examined statements from Federal Reserve Chair Jerome Powell and monitored a crucial development in the Treasury bond yield. The Dow Jones Industrial Average fell by 250.91 points, marking a 0.75% drop, concluding at 33,414.17. Simultaneously, the S&P 500 saw a decrease of 0.85% to reach 4,278, and the Nasdaq Composite ended 0.96% lower at around 13,186. Powell acknowledged that inflation remains elevated and may necessitate slower economic growth, while also acknowledging some recent progress in curbing price increases. He stressed that despite these positive developments, inflation remains too high, emphasizing the need for more sustained progress in this regard. Investors interpreted his comments as a signal that the Federal Reserve is unlikely to adjust interest rates at its upcoming policy meeting, with a 97% chance of rates remaining unchanged as per CME Group’s FedWatch tool. Nevertheless, there is lingering uncertainty about the Fed’s long-term rate strategy, causing market volatility.
Rising bond yields also had a bearing on the market’s performance, with the benchmark U.S. 10-year Treasury yield approaching the significant 5% level, last seen in 2007. Additionally, quarterly earnings reports were a point of interest, with more than 15% of S&P 500 companies having already reported this earnings season. Among these, over 74% have surpassed Wall Street’s expectations. Notable moves in individual stocks included Tesla’s 9% decline after it missed analysts’ Q3 earnings and revenue estimates and CEO Elon Musk’s warning about the Cybertruck’s cash flow. Conversely, Netflix shares surged 16% after exceeding third-quarter earnings estimates, largely due to strong ad-tier subscriptions. Beyond the tech sector, AT&T saw a 6% increase following better-than-expected Q3 results, while Blackstone faced an 8% decline due to a weaker-than-anticipated report. As the week concludes, all three major indexes are poised for losses, with the Nasdaq down 1.7%, the S&P 500 down 1.2%, and the Dow down 0.8%.
Data by Bloomberg
On Thursday, the stock market experienced a mixed day with varying sector performances. The overall market saw a decline of 0.85%. Some sectors, such as Communication Services (+0.33%) and Energy (-0.13%), showed modest movements, while others, like Consumer Discretionary (-2.20%) and Real Estate (-2.44%), faced significant declines. Financials (-1.25%) and Materials (-1.08%) also had notable losses, contributing to the overall negative trend. The Health Care (-0.96%), Utilities (-0.93%), Industrials (-0.90%), Consumer Staples (-0.77%), and Information Technology (-0.44%) sectors all experienced moderate decreases in their respective values.
In the latest currency market updates, the US dollar faced a significant retreat, driven by short-term US yield movements in response to Federal Reserve Chair Jerome Powell’s recent speech. Powell’s comments hinted at a reluctance to raise interest rates unless compelling data suggests a sustained reversal in inflation trends. The EUR/USD pair notably gained 0.46%, building on earlier increases despite widening spreads between German bund and US Treasury yields. This development raised concerns about the potential economic repercussions of higher Treasury yields and the rapidly narrowing 2-10-year yield curve, reaching its tightest level since September 2022. These indicators are perceived as potential warnings for the US economy in the long term, particularly impacting interest rate-sensitive sectors. In the currency market, EUR/USD’s movements near the pivotal levels of October’s high and 23.6% of the July-October decline at 1.0640-43 became crucial.
Additionally, USD/JPY’s effort to reattain the 150 level faced challenges, retracting by 0.05% after a broader pullback in the US dollar following Powell’s speech. Despite this retreat, it was modest, as the decrease in 2-year Treasury yields and spreads over Japanese Government Bond (JGB) yields was somewhat offset by an increase in 10-year yield spreads. The attractiveness of these spreads is maintained due to the gradual pace of policy normalization by the Bank of Japan (BoJ). Meanwhile, the British pound experienced a 0.07% gain, albeit not reaching its earlier highs linked to 2-year gilts-Treasury yield spreads, as short-term US Treasury yields decreased in response to Powell’s statements. However, the pound still remains distant from recent recovery highs and key resistance levels compared to the EUR/USD pair, which surged to break its 200-day moving average for the first time since May. In the broader market, the US dollar index dropped by 0.34%, primarily due to the EUR/USD’s rise, but found support at the kijun level at 1.0594. For a more significant retreat to be signaled, the US dollar would need to close below the 30-day moving average at 105.87 and October’s low at 105.53, falling to a key Fibonacci level at 105.50.
Finally, it is noteworthy that Japan’s Consumer Price Index (CPI) and UK retail sales are anticipated as the final major data releases for the week. Moreover, risk sentiment and oil prices, particularly those of crude-related currencies, will be influenced by the Israel-Hamas conflict and its broader implications. Israel’s defense minister’s statement about troops entering Gaza is expected to have a significant impact on these markets.
The EUR/USD saw an upward trend on Thursday, aiming for its highest daily close in over a week, fueled by a weaker US dollar amidst market risk aversion. Nevertheless, it struggled to hold above the 1.0600 mark, signaling potential challenges ahead. Key events to watch include Germany’s upcoming Producer Price Index report and the European Central Bank meeting, with expectations of unchanged key rates. In the US, mixed economic data, Federal Reserve Chair Jerome Powell’s stance on rate stability, and concerns about inflation have contributed to the USD’s weakness, maintaining intrigue in the EUR/USD pairing.
Based on technical analysis, the EUR/USD was slightly lower on Thursday, pushing towards the upper band of the Bollinger Bands. Currently, the EUR/USD is trading just above the middle band, suggesting the potential for another lower movement. The Relative Strength Index (RSI) stands at 55, indicating that the EUR/USD is still in neutral bias.
Resistance: 1.0616, 1.0672
Support: 1.0561, 1.0502
XAU/USD Surge to Three-Month High as US Dollar Weakens Amid Middle East Tensions and Fed Chairman’s Speech
Gold prices remain on a bullish trajectory, with XAU/USD surpassing $1,970 per troy ounce, its highest level in three months. Initially, the US Dollar found support due to risk-averse sentiment driven by tensions in the Middle East and anticipation of Jerome Powell’s speech at the Economic Club of New York. However, the Greenback later weakened despite global equities’ poor performance and rising government bond yields, as investors interpreted Powell’s words to mean the Federal Reserve would avoid further rate hikes. Speculative interest turned against the USD during Powell’s speech, allowing XAU/USD to maintain its gains. Notably, the 2-year Treasury note yield dropped to 5.16% after reaching a multi-year peak of 5.25%.
Based on technical analysis, XAU/USD is moving higher on Thursday and able to reach the upper band of the Bollinger Bands. Currently, the price of gold is moving just below the upper band, suggesting a possible continuation movement. The Relative Strength Index (RSI) currently registers at 79, indicating a bullish bias for the XAU/USD pair.
Resistance: $1,985, $2,002
Support: $1,973, $1,947
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