Dow Approaches Record High Amid Strong Bank Earnings and Inflation Concerns | Daily Market Analysis 

Key events:

• China - GDP (YoY) (Q2)
• USA - Fed Chair Powell Speaks
• USA - FOMC Member Daly Speaks

The Dow nearly set a new closing record, coming close after reaching an all-time high on Friday, despite a slight rise in wholesale inflation. Investors were buoyed by better-than-expected quarterly earnings from several major Wall Street banks.

The Dow Jones Industrial Average climbed 1.1%, ending just short of the record 40,003 set on May 13, although it achieved an intraday peak of 40,257.24. Meanwhile, the NASDAQ Composite rose 0.6%, and the S&P 500 increased by 0.5%.

The second-quarter earnings season kicked off robustly, with notable reports from JPMorgan Chase, Citi, and Wells Fargo.

JPMorgan Chase (NYSE: JPM), the largest US bank, surpassed Wall Street's earnings expectations. However, this was somewhat overshadowed by disappointing net interest income and higher-than-anticipated loan loss provisions due to rising interest rates.

Wells Fargo & Company (NYSE: WFC) lowered its net interest income outlook, causing its shares to drop over 5%. Citigroup Inc (NYSE: C) also saw its stock fall nearly 1% following its earnings report.

Investors are hopeful for strong profit growth from a diverse range of companies, which could extend the rally in US stocks beyond the tech sector. The tech-heavy NASDAQ experienced a nearly 2% drop on Thursday. This decline was driven by a shift in investor focus from large-cap stocks to smaller companies amid growing expectations that the Federal Reserve will cut rates in September.

Gold prices bounced back from an earlier dip during the Asian session, climbing to the upper end of its daily trading range. The commodity remains close to the peak it reached last week, the highest since May 22, and appears poised for further gains amid dovish Federal Reserve expectations. Market participants are increasingly convinced that the Fed will start cutting interest rates in September, which is seen as a positive driver for the non-yielding yellow metal.

Moreover, there is speculation that the Fed will reduce borrowing costs again in December, hindering the US Dollar from capitalizing on its modest recovery from a three-month low, thereby providing additional support for the USD-denominated gold price. US political uncertainty, following an alleged assassination attempt on former President Donald Trump, and China's economic troubles further bolster the near-term positive outlook for XAU/USD.

The Japanese Yen declined on Monday as the US Dollar gained strength. The Yen may experience volatility due to potential intervention by Japanese authorities. According to Friday's data from the Bank of Japan, it's estimated that Japanese authorities spent between ¥3.37 trillion and ¥3.57 trillion on Thursday to counter the Yen's rapid depreciation, as reported by Reuters. The Yen, which had been near 38-year lows, started to rally on Thursday as the USD weakened following data showing a moderation in US consumer prices for June.

The Australian Dollar also fell on Monday, trading near its six-month high of 0.6798 reached on Thursday. In China, a key trading partner for Australia, the Gross Domestic Product grew by 4.7% year-over-year in the second quarter, down from 5.3% in the first quarter and below the expected 5.1%. This weaker-than-expected GDP data from China could put mild pressure on the Aussie Dollar, potentially affecting the AUD/USD pair. However, the AUD might continue to rise as speculation increases that the Reserve Bank of Australia could delay joining the global rate-cutting trend or even raise interest rates again due to persistently high inflation in Australia, prompting a hawkish stance from the RBA.

The USD/CAD pair remained in positive territory for the third consecutive day, trading around 1.3655 during Asian trading hours on Monday. The pair's increase is supported by a stronger USD amid risk aversion.

However, expectations that the Bank of Canada will further cut interest rates exert some selling pressure on the Canadian Dollar. Meanwhile, continued gains in crude oil prices might limit the CAD’s potential losses, as Canada is a major crude oil exporter to the United States.