Fluctuating Wall Street Indices, Rising Energy Stocks, and Monetary Anticipation | Daily Market Analysis

Key events:  

• Eurozone - CPI (YoY) (Aug)
• USA - Building Permits (Aug)

On Monday, the primary stock market indices on Wall Street experienced fluctuating movements, with energy stocks tracking the rising prices of crude oil. Investors were also in anticipation of the Federal Reserve's upcoming interest rate decision.

Among the sectors in the S&P 500, energy emerged as the top gainer, advancing by 1.1%, reflecting the firming of crude oil prices, which approached the $95-per-barrel threshold due to supply constraints.

The upward trajectory in crude oil prices raises concerns about persistent inflation levels, even as a series of recent economic data releases have been stronger than anticipated. These positive economic indicators have alleviated worries of an impending recession, but they haven't sparked fears of an interest rate hike in September.

The Dow Jones Industrial Average registered a minimal gain of 0.02%, equivalent to 6 points, while the Nasdaq exhibited stability with a marginal 0.01% increase. The S&P 500 ended the day with a modest gain of 0.1%.

Apple, listed on the NASDAQ as AAPL, saw its stock rise by over 1%. Some segments of Wall Street expressed optimism regarding stronger demand for Apple's newly introduced iPhone 15, especially for the premium iPhone Pro and Pro Max models, in contrast to the initial demand for the iPhone 14.

However, not all voices on Wall Street share the same enthusiasm about the iPhone 15's launch. Barclays, for instance, noted that early pre-order data indicated a challenging cycle for the iPhone 15 in China, with demand leaning toward the lower-priced version of the iPhone 15.

Once again, the GBP/USD pair closed below the 200-day moving average (SMA 200). What's noteworthy is that not only did it close below this level today, but it also closed below it last week.

The upcoming Bank of England decision scheduled for Thursday adds to the intrigue. While the market anticipates a 25-basis-point rate hike and an increase in quantitative tightening by the BOE, there's the possibility of dovish comments from the central bank, which could exert further downward pressure on the GBP.

Meanwhile, gold prices have been on an upward trajectory for three consecutive days, reaching $1930.00 per Troy ounce as of Monday. This rally appears to be driven by investors seeking a safe haven amidst uncertainties surrounding key events later this week.

Investors are particularly focused on the upcoming decision from the US Federal Reserve, widely expected to maintain the interest rate at 5.5% per annum. The primary point of interest will likely be the Fed's assessment of the economy and inflation, providing crucial insights into the central bank's future actions.

Adding to the demand for gold is the sudden depreciation of the yuan exchange rate, making the precious metal even more attractive as a safe-haven asset.

The dollar index is currently holding steady, maintaining its position just below a 6-month high on Monday.

When looking at the bigger picture, recent short-term movements have been characterized by a sideways pattern for the third consecutive week, with bullish momentum encountering significant resistance.

The direction of the dollar largely hinges on the actions of the Federal Reserve. If the Fed were to take a page from the European Central Bank's playbook and announce an end to its tightening cycle, potentially indicating the possibility of rate cuts starting in mid-2024, it could lead to a weakening of the dollar.

Conversely, one should not discount the possibility of a hawkish stance from the Fed. Recent data suggests that the US economy remains robust, with a tight labor market, and although inflation remains elevated, it's on a downward trajectory. This scenario could pave the way for one more interest rate hike by the end of the year, with the Fed maintaining higher interest rates for an extended period until inflation returns to its 2% target. In such a scenario, the greenback would likely benefit.

Switching gears to the Australian dollar, it continues to show a lackluster performance as the new trading week begins. In Monday's European session, AUD/USD was trading at 0.6438, reflecting a modest 0.11% increase.

The Reserve Bank of Australia has recently released the minutes of its latest meeting. The RBA opted to keep rates on hold for the third consecutive month, maintaining the official cash rate at 4.10%. This decision came in the final meeting under ex-Governor Philip Lowe, who noted that inflation had "passed its peak" but remained "still too high and will remain so for some time yet." This statement kept the door open to the possibility of further rate hikes. However, the market sentiment is leaning towards a more dovish outlook, with expectations of the RBA trimming rates at some point in 2024. Investors will be closely examining the minutes for any hints or clues regarding the RBA's future rate decisions.