Dow Hits Record High as Investors Rotate Out of Tech Ahead of Fed Rate Cut | Daily Market Analysis

Key events:

• USA - CB Consumer Confidence (Aug)

The Dow ended Monday at record highs as cyclical stocks, particularly financials, gained momentum, reflecting a shift away from tech stocks in anticipation of a widely expected Federal Reserve rate cut next month.

The Dow Jones Industrial Average climbed 0.16%, or 65 points, to a new record of 41,240.52. Meanwhile, the NASDAQ Composite dropped 0.8%, and the S&P 500 declined by 0.3%.

Technology stocks began the week on a weaker note as investors moved out of growth sectors, with Nvidia slipping 1% ahead of its upcoming quarterly earnings report.

Apple saw modest gains as excitement builds for the company's product launch event on Sept. 9, where new iPhones and Apple Watch models are expected to be revealed.

In other news, Boeing Co shares fell nearly 1% after NASA announced that two astronauts currently aboard the International Space Station will return in February via a SpaceX-crewed flight, following issues with Boeing's new capsule.

Gold prices traded lower on Tuesday, impacted by a modest recovery in the US Dollar. Despite this decline, signals from US Federal Reserve Chair Jerome Powell at Jackson Hole, hinting at possible interest rate cuts, may support the precious metal. Lower interest rates typically favor gold by reducing the opportunity cost of holding non-yielding assets. Additionally, rising geopolitical tensions in the Middle East could further enhance gold's appeal as a safe-haven asset.

Meanwhile, the People's Bank of China paused its gold purchases in July for the third consecutive month. Traders are now awaiting August data for a new direction. Concerns about China's slowing economy and the demand for precious metals could weigh on gold prices, as China is both the largest producer and consumer of gold globally.

In currency markets, the Australian Dollar edged higher against the US Dollar on Tuesday, holding near Monday's seven-month high of 0.6798. However, the downside for the AUD/USD pair might be limited due to differing monetary policy expectations between the two central banks. Traders are now focusing on the Monthly Consumer Price Index data due Wednesday, which could influence the Reserve Bank of Australia's policy stance.

Recent minutes from the RBA showed that board members see a rate cut as unlikely in the near term. RBA Governor Michele Bullock also indicated that the central bank remains ready to raise rates again if inflation persists.

The GBP/USD pair inched higher as concerns over a broader conflict in the Middle East eased following a limited exchange of fire between Israel and Lebanon's Hezbollah. US Air Force General C.Q. Brown, chairman of the Joint Chiefs of Staff, commented on Tuesday that the situation has not escalated further after his three-day trip to the region. The risk-sensitive GBP/USD was trading around 1.3190 during Asian hours on Tuesday.

In the UK, the BRC Shop Price Index fell by 0.3% year-on-year in August, down from a 0.2% rise in July. This marked the first annual decline in British shop prices since October 2021, driven by summer sales of clothing and household items.

UK Prime Minister Keir Starmer recently cautioned that addressing Britain's challenges will take time, warning that "things will get worse before they get better." As Parliament returns from the summer break, Starmer is expected to emphasize that "change won't happen overnight," but he remains committed to tackling issues such as overcrowded prisons and long healthcare waiting lists.

In other currency news, the NZD/USD pair edged higher to near 0.6210 during Asian trading on Tuesday. The Federal Reserve's dovish stance and expectations of US rate cuts continue to weigh on the USD. The Reserve Bank of New Zealand has already begun easing, cutting its Official Cash Rate (OCR) to 5.25% in August. Traders anticipate further cuts by 25 basis points in October and November, which could pressure the New Zealand Dollar against the Greenback.

Geopolitical risks in the Middle East could also drive safe-haven flows, benefiting the USD. While US Air Force General C.Q. Brown noted that fears of a broader conflict in the region have lessened after limited exchanges between Israel and Hezbollah, he warned that Iran still poses a significant threat.

Lastly, the Japanese Yen continued to weaken against the US Dollar for the second straight day on Tuesday. However, the downside for the JPY may be limited by the hawkish tone from the Bank of Japan. BoJ Governor Kazuo Ueda recently stated that the central bank could raise interest rates further if economic conditions align with their projections.

Traders are now focusing on key US economic data, including the advanced Gross Domestic Product (GDP) Annualized for the second quarter (Q2) and the Personal Consumption Expenditures (PCE) Price Index, both due later this week.