Dow Reaches Record High on Rate Cut Hopes as Fed Chief Powell Expresses Confidence in Inflation Data | Daily Market Analysis

Key events:

• USA - Core Retail Sales (MoM) (Jun)
• USA - Retail Sales (MoM) (Jun)

The Dow closed at record highs on Monday, driven by increased expectations for a September rate cut following comments from Fed Chief Jerome Powell, who expressed greater confidence due to recent inflation data.

The Dow Jones Industrial Average climbed 210 points, or 0.5%, to a record closing high of 40,211.72. The S&P 500 rose 0.3%, hitting a fresh intraday record of 5,667.06, and the NASDAQ Composite gained 0.4%.

Goldman Sachs surged over 2% after reporting a more than doubling of profit in the second quarter, driven by higher fees from debt underwriting and strong performance in its fixed-income trading business.

Bank of America and Morgan Stanley are scheduled to report on Tuesday, followed by chipmaking giant ASML  on Wednesday and tech titan Netflix on Thursday.

Apple Inc. saw a rise of over 1% after Loop Capital upgraded its rating to buy, citing the tech giant's advances in artificial intelligence, which is expected to position Apple as a central hub for consumers using generative AI. Additionally, Apple's stock was boosted by signs of successful expansion into India, with Bloomberg reporting a 33% increase in annual revenue in the country, reaching $8 billion as of March 2024.

The EUR/USD pair is trading weaker around 1.0890 in early Asian trading hours on Tuesday, pressured by renewed demand for the US Dollar.

Market sentiment has shifted, with increased expectations that the Fed will cut interest rates in September. Fed Chair Jerome Powell noted on Monday that the central bank would not wait until inflation hits the 2% target before cutting rates, implying proactive measures could be taken to prevent inflation from dropping too low.

Fed Bank of San Francisco President Mary Daly added that while inflation is cooling, more data is needed before making a rate decision. Expectations of a Fed rate cut could weaken the USD, potentially benefiting the EUR/USD pair.

Conversely, the ECB is expected to maintain its main refinancing rate, the marginal lending facility rate, and the deposit facility rate at 4.25%, 4.50%, and 3.75%, respectively, at its Thursday meeting. The ECB recently cut rates in June for the first time since 2019, and analysts anticipate two more cuts this year in September and December.

The Japanese Yen continues to weaken on Tuesday after a surge last week attributed to suspected intervention by Japanese authorities. Data from the Bank of Japan suggests that between ¥3.37 trillion and ¥3.57 trillion may have been spent to curb the JPY's rapid depreciation.

The Australian Dollar is also declining for the second straight session, affected by a modest rebound in the USD driven by increased risk aversion. The AUD/USD pair faces additional pressure from China's economic slowdown and rising trade tensions, with the US and EU imposing new tariffs on Chinese electric vehicles (EVs). Despite this, the AUD remains close to its strongest levels, as speculation grows that the Reserve Bank of Australia might delay rate cuts or even raise rates again due to persistently high inflation.

Gold prices attracted buyers for the second consecutive day on Tuesday, marking the fifth positive movement in the last six sessions, climbing above $2,430 during the Asian session. Despite this, gold remains below its peak since May 20, reached on Monday, due to some renewed US Dollar buying. Additionally, the prevailing risk-on environment limits further gains for the safe-haven commodity.

Key events to watch include US Retail Sales for June and a speech by Federal Reserve’s Adriana Kugler on Tuesday, with the European Central Bank's interest rate decision coming up on Thursday.