Dow's Modest Decline, Financial Giants Shine, and Global Trends Unfold | Daily Market Analysis


Key events:

  • Australia - RBA Interest Rate Decision (Dec)
  • USA - S&P Global Services PMI (Nov)
  • USA - ISM Non-Manufacturing PMI (Nov)
  • USA - ISM Non-Manufacturing Prices (Nov)
  • USA - JOLTs Job Openings (Oct)

On Monday, the Dow concluded the session with a slight decline. However, it managed to pare some losses towards the close, despite weakness in the technology sector amid rising Treasury yields. The Dow Jones Industrial Average fell by 35 points, or 0.1%, while the S&P 500 experienced a 0.6% decline, and the NASDAQ Composite saw a 0.8% drop.

NDX, SPX, and DJI indices daily chart

Despite the broader market's downward trend on Monday, financial giants Morgan Stanley and Citigroup Inc stood out by posting their fourth consecutive day of stock gains. Morgan Stanley's shares increased by 0.40%, closing at $81.21, a noteworthy performance considering the overall market sentiment. However, the stock still lags significantly behind its February high of $100.99. Morgan Stanley's trading volume was subdued, with only 6.6 million shares changing hands compared to the 50-day average of 8.8 million.

Morgan Stanley and Citigroup Inc. stocks daily chart

Citigroup also experienced a modest uptick of 0.30%, concluding the day at $47.37. While the bank's stock remains $5.86 below its February peak, it outperformed some of its counterparts in a mixed day for financial stocks. JPMorgan Chase advanced by 0.73%, while Bank of America faced declines, and Wells Fargo secured modest gains.

JPMorgan Chase and Wells Fargo stocks daily chart

Investors are closely monitoring these developments, as they could signal underlying strengths or weaknesses within the financial sector, which may become more pronounced if the broader market continues to face headwinds.

European markets had a slow and mixed start to the new week, marked by weakness in the commodities sector that weighed on the FTSE100. The FTSE100 experienced a drag primarily due to weaknesses in basic resources and energy.

FTSE 100 daily chart

The AUD/USD pair experienced a decline below the psychological round mark of 0.6600 in the Asian trading session on Tuesday. This downward movement follows the monetary policy meeting of the Reserve Bank of Australia. Currently hovering near 0.6575, the pair shows a 0.70% decrease for the day.

AUD/USD daily chart

During its December monetary policy meeting, the RBA's board members opted to keep the interest rate unchanged at 4.35%. RBA Governor Michele Bullock emphasized that the necessity for additional monetary policy tightening would be contingent on data and evolving risk assessments concerning inflation returning to the target.

Bullock further articulated that maintaining the cash rate at the current juncture allows the RBA sufficient time to evaluate the repercussions of interest rate increases on demand, inflation, and the labor market.

On the USD front, Federal Reserve (Fed) Chair Jerome Powell has reinforced expectations that the central bank will refrain from further rate hikes in the December meeting and may commence rate cuts by March 2024. The CME FedWatch Tool indicates a 97% probability that the Fed will maintain the rate within the 5.25% to 5.50% range in the upcoming meeting. Additionally, there is a likelihood exceeding 50% that the Fed will reduce rates by 25 basis points in March of the following year, a notable increase from around 21% just one week ago.

The broader US dollar index is positioned slightly above its 200-day moving average, benefiting from uncertainties surrounding the feasibility of the priced-in "soft landing" for the US economy.

US Dollar Currency Index daily chart

The prevailing narrative of a weaker dollar aligns with the current US interest rate outlook. Futures markets reflect stronger anticipation of rate cuts by the Fed next year compared to other major or emerging market central banks.

On the other side of the globe, the Japanese Yen faced challenges in gaining significant traction on Tuesday. It oscillated between tepid gains and minor losses against the US Dollar during the Asian session. The Bank of Japan's board members downplayed speculations of an imminent shift in the policy stance and an end to the negative interest rate regime. Despite these assurances, investors appear convinced that the Japanese central bank will eventually start tightening its ultra-loose policy and conclude its yield curve control measures in the early months of 2024.

USD/JPY daily chart

This sentiment, combined with data revealing that consumer inflation in Tokyo – Japan's capital city – eased more than anticipated in November, has led traders to exercise caution, refraining from making aggressive directional bets involving the JPY.

Gold prices exhibit a marginal rise in Asian trade on Tuesday, stabilizing after surging to record highs earlier in the week. Persistent expectations of a less dovish Federal Reserve and increased safe-haven demand contribute to the support for the precious metal.

XAU/USD daily chart

A remarkable surge in gold prices occurred on Monday, with spot prices briefly reaching a lifetime high of $2,148.78 per ounce before a sharp pullback. Contributing factors include less hawkish signals from the Federal Reserve and heightened expectations of early interest rate cuts. Safe-haven demand increased following attacks on US vessels in the Red Sea, raising concerns of broader conflict in the Middle East. An unrelated attack on a prominent gold mine in Peru added to fears of potential supply disruptions in gold markets.

As markets await crucial US nonfarm payrolls data on Friday, recent optimism over early interest rate cuts by the Federal Reserve has somewhat tempered. Attention will now shift to the US ISM Services PMI scheduled for later on Tuesday. Additionally, the release of the Australian Gross Domestic Product for the third quarter (Q3) later in the week is anticipated, with expectations for it to remain steady at 0.40%.