Fed's Rate Cut Projections Boost Stocks, Gold Holds Firm Amid Geopolitical Tensions | Daily Market Analysis

Key events:

• Eurozone - ECB President Lagarde Speaks
• USA - Building Permits
• USA - FOMC Member Bostic Speaks
• USA - New Home Sales (Feb)

The S&P 500 saw minimal movement on Friday, yet it marked its most substantial weekly percentage increase of 2024 following the Federal Reserve's decision to maintain projections for three interest rate cuts by year's end. Both the Nasdaq and the semiconductor index closed slightly higher for the day, with the semiconductor index showing a notable weekly surge driven by ongoing optimism surrounding artificial intelligence.

The Dow Jones Industrial Average declined by 305.47 points, or 0.77%, settling at 39,475.90, while the S&P 500 saw a decrease of 7.35 points, or 0.14%, closing at 5,234.18. Conversely, the Nasdaq Composite rose by 26.98 points, or 0.16%, to reach 16,428.82.

During the early Asian trading hours on Monday, the price of gold maintained its position above the mid-$2,100s. The recovery of gold is supported by the increasing likelihood of the US Federal Reserve initiating rate cuts later in the year. Traders are eagerly awaiting the release of US Gross Domestic Product (GDP) figures for the fourth quarter (Q4) for fresh market direction, with expectations that it will remain steady at 3.2%. Currently, the price of gold is hovering around $2,168, showing a gain of 0.15% for the day.

Last week, the Fed opted to keep its benchmark interest rate unchanged within the 5.25% to 5.50% range for the fifth consecutive meeting following its March session. Fed Chairman Jerome Powell indicated the central bank's intention for three interest rate cuts in 2024, leading to increased investor demand for gold and consequent price appreciation. According to the CME FedWatch Tool, investors have priced in a 72% probability of the Fed commencing rate cuts during the June meeting, up from 65% prior to the rate decision.

Moreover, escalating geopolitical tensions in Ukraine may drive safe-haven flows, thereby supporting the price of gold. Over the weekend, an underground gas storage facility in Ukraine was targeted in the latest series of Russian missile attacks on power facilities. Ukrainian President Volodymyr Zelenskiy reported ongoing efforts to restore power supply in various locations, with Kharkiv, Ukraine's second-largest city, facing the most challenging situation, as per Reuters.

During the early Asian session on Monday, the AUD/USD pair found support above the 0.6500 mark. However, it slipped slightly amidst the continued strength of the US Dollar. Market participants are closely monitoring the release of Australia's monthly Consumer Price Index for February and the US Gross Domestic Product for the fourth quarter.

Fed policymakers signaled their readiness to reduce interest rates once they are confident that inflation is moving closer to the 2.0% target. Fed Chair Jerome Powell mentioned during a press conference that a sudden rise in unemployment might prompt the Fed to cut rates.

In contrast, China's Premier Li Qiang announced on Sunday that the nation's low inflation and central government debt ratio allow for ample macro policy space. China will issue ultralong special treasury bonds worth one trillion yuan to support investment and stabilize economic growth. Additionally, Chinese authorities will focus on preventing systemic risks and promoting the long-term, healthy development of the economy. Positive developments regarding Chinese stimulus measures and macro policy could bolster the Australia-proxy Australian Dollar against the US Dollar.

Market participants are keenly awaiting the release of Australian CPI inflation data on Wednesday, which is anticipated to show a year-on-year increase of 3.6% for February, up from 3.4% in the previous reading. On Thursday, the release of Australian February Retail Sales data and US GDP growth numbers for the fourth quarter is scheduled.

Additionally, the US is set to publish the core personal consumption expenditures price index, the Fed's preferred measure of underlying inflation, while markets are closed for Good Friday. The index, excluding food and energy costs, is expected to rise by 0.3% in February after recording its largest monthly increase in a year the previous month.

Last week, despite revising its economic growth forecast upwards, the Fed maintained its projection for three interest rate cuts this year, stating the need for more evidence of slowing inflation before easing. The economic calendar also includes data on new home sales, durable goods orders, revised GDP figures, and the weekly report on initial jobless claims. Various Fed officials, including Chair Jerome Powell, Atlanta Fed President Raphael Bostic, and Fed Governors Lisa Cook and Christopher Waller, are scheduled to make appearances throughout the week.