Dow Gains Despite Fed Concerns, Nvidia Surges, and Global Currency Movements Unfold | Daily Market Analysis

Key events:

• Eurozone - CPI (YoY) (Jan)
• USA - Initial Jobless Claims
• USA - S&P Global US Manufacturing PMI (Feb)
• USA - S&P Global Services PMI (Feb)
• USA - Existing Home Sales (Jan)               
• USA - Crude Oil Inventories

The Dow recorded gains in Wednesday's session, experiencing a late uptick as investors engaged in dip-buying towards the close. This positive momentum persisted despite the release of the Federal Reserve's meeting minutes for January, revealing concerns among members about the prospect of premature interest rate cuts.

The Dow Jones Industrial Average posted a 0.1% increase, gaining 47 points, while the S&P 500 index also saw a 0.1% rise. Conversely, the NASDAQ Composite experienced a 0.3% decline, marking a more than 1% intraday drop.

The minutes from the Federal Reserve’s January 30-31 meeting indicated a lack of urgency among policymakers to shift toward rate cuts. The discussions highlighted concerns about "upside risks" to inflation, signaling a cautious approach.

The minutes further emphasized the uncertainty surrounding the duration of maintaining a restrictive monetary policy stance. This suggests that a sooner rate cut is not currently favored by the Federal Reserve. Treasury yields remained close to session highs after the minutes' release, with the 2-year Treasury yield, a rate-sensitive indicator, increasing by 4 basis points to 4.655%.

In a separate development, Nvidia issued a robust forecast, anticipating a threefold surge in quarterly revenue. This exceeded estimates and propelled the company's shares up by 10% in after-hours trading. Nvidia attributes this significant growth to the soaring demand for its leading artificial intelligence chips. The company's data center chips and graphics processing units (GPUs) are experiencing heightened demand, particularly as businesses strive to enhance their AI capabilities. Nvidia's dominance in the global AI chip market, with customers like Microsoft, contributes to its positive outlook.

Gold prices experienced a slight increase in Asian trading on Thursday, maintaining a position largely within a recent trading range. The Federal Reserve's signals pointing towards the likelihood of higher US interest rates played a significant role in shaping the precious metal's trajectory. Despite a temporary relief in bullion prices due to a sharp fall in the dollar from three-month highs, the potential for further losses in the greenback seemed limited, given the close proximity of Treasury yields to recent peaks.

Gold navigated within a trading range of $2,000 to $2,050 an ounce, a pattern established over the past month. While the prospect of higher interest rates curbed additional gains in gold, concerns about deteriorating global economic conditions, particularly with Japan and the UK entering a recession, limited the downside for the precious metal.

The Australian Dollar extended its winning streak on Thursday, initiated on February 14, propelled by positive preliminary Australian Purchasing Managers Index data. This data indicated a notable return to growth in private sector activity in February, marking the end of a five-month downturn. The services sector experienced robust expansion, but the manufacturing sector faced challenges due to increased interest rates, resulting in the most significant decline in output since May 2020. The AUD could encounter obstacles from softer Aussie money markets as the S&P/ASX 200 Index records its third consecutive decline amid subdued sentiment. Caution expressed in the Federal Open Market Committee  Minutes regarding interest rate cuts and the Reserve Bank of Australia's meeting minutes projecting no imminent rate cuts contribute to the cautious outlook.
 

The Japanese Yen saw a slight decline against the US Dollar for the second consecutive day on Thursday, remaining below mid-150.00s during the Asian session. Concerns about potential Japanese intervention to support the domestic currency and the risk of escalating geopolitical tensions in the Middle East played a role in limiting JPY losses. The anticipation that the Bank of Japan is unlikely to deviate from its accommodative regime in the face of a recession in Japan contributed to the challenging environment for a meaningful appreciation of the JPY. The generally positive sentiment in equity markets could also diminish demand for the safe-haven JPY. Dip-buying around the US Dollar, supported by Wednesday's hawkish FOMC meeting minutes, adds to the likelihood of a near-term appreciation for the USD/JPY pair.

Traders are now turning their attention to the US economic docket, including Weekly Initial Jobless Claims, flash PMI prints, Existing Home Sales data, Federal Reserve Governor Philip Jefferson's speech, and US bond yields, which could provide fresh impetus to the USD/JPY pair.