Investor Caution Dominates Markets Ahead of Inflation and Fed Announcements | Daily Market Analysis

Key events:

• Switzerland - SNB Interest Rate Decision (Q3)
• USA - Durable Goods Orders (MoM) (Aug)
• USA - GDP (QoQ) (Q2)
• USA - Initial Jobless Claims
• USA - Fed Chair Powell Speaks 

The S&P 500 dipped on Wednesday as investors took a breather from the recent rally, awaiting key economic catalysts such as important inflation data expected later this week.

The Dow Jones Industrial Average dropped 293 points, or 0.7%, while the S&P 500 slipped 0.2%. In contrast, the NASDAQ Composite managed to gain 0.1%.

On Tuesday, both the S&P 500 and the Dow Jones hit new record highs, buoyed by optimism following last week's significant interest rate cut by the Federal Reserve.

Nvidia (NASDAQ: NVDA) saw its stock rise 2%, continuing its positive momentum amid reports that CEO Jensen Huang had completed his share sales under a trading plan, having sold over $700 million in stock.

Huang's stock sales had earlier raised concerns, particularly after Nvidia's quarterly results missed certain expectations and the company highlighted delays in its advanced AI chip production. Meanwhile, Meta Platforms Inc. (NASDAQ: META) rose 0.9% after debuting its first augmented reality glasses at its annual Connect event, along with multiple updates aimed at integrating AI into its platforms such as Facebook and Instagram.

The Australian Dollar recovered some of its recent losses against the US Dollar on Thursday, supported by contrasting monetary policy outlooks between the Reserve Bank of Australia and the Federal Reserve. Furthermore, the commodity-linked AUD found support from new stimulus measures announced by China, its largest trading partner, aimed at stimulating economic growth.

The RBA held its Official Cash Rate (OCR) steady at 4.35% on Tuesday, further supporting the Australian Dollar. RBA Governor Michele Bullock confirmed that interest rates would remain unchanged for now.

Similarly, the New Zealand Dollar edged higher against the USD during Thursday's Asian session, trading around 0.6260. This move was bolstered by fresh Chinese stimulus measures and a weakening US Dollar. Investors are now looking to the US Q2 GDP data release and a speech by Federal Reserve Chair Jerome Powell for further guidance on monetary policy.

The growing anticipation of deeper rate cuts by the Federal Reserve in November continued to weigh on the US Dollar. The US Dollar Index, which measures the USD against a basket of major currencies, fell to 100.85. Federal Reserve Governor Adriana Kugler expressed support for additional rate cuts, emphasizing the importance of reducing inflation while addressing employment concerns. According to the CME FedWatch Tool, markets have priced in a 57.4% chance of a 50 basis point cut in November, and a 42.6% chance of a 25 basis point reduction.

The final US Q2 GDP data, due later today, is projected to show a 3.0% growth rate. Attention will shift on Friday to the Personal Consumption Expenditures (PCE) Price Index, a key inflation gauge for the Federal Reserve. The headline PCE is expected to rise 2.3% year-over-year in August, with core PCE forecasted to increase 2.7%.

In the NZD/USD pair, the New Zealand Dollar gained strength as the People's Bank of China implemented a series of stimulus measures, including interest rate cuts and reductions to the reserve requirement ratio (RRR). As China is New Zealand’s largest export market, these measures lifted the NZD. However, cautious sentiment ahead of US economic data and geopolitical risks may limit further gains in the pair.

The USD/JPY pair declined to around 144.60 during Thursday’s early Asian session, pressured by a weakening US Dollar, as expectations for a significant Federal Reserve rate cut in November rise. Investors are closely monitoring US economic data and comments from Fed officials for further clues on the timing of future rate decisions.

In Japan, the Bank of Japan released minutes from its July policy meeting, where some members proposed a gradual interest rate hike to 0.25%. Finance Minister Shunichi Suzuki affirmed the central bank's commitment to coordinate monetary policy with the government. Any delay in further rate hikes could weaken the JPY and limit the downside for USD/JPY.

Gold prices edged higher during Thursday's Asian session, hovering near the record highs seen earlier in the week. The expectation of additional rate cuts by the Federal Reserve weighed on the US Dollar, benefiting gold, a non-yielding asset. Additionally, ongoing tensions in the Middle East and concerns over China’s economic recovery have increased demand for the safe-haven metal.

Despite these supportive factors, gold’s upward movement may be capped by slightly overbought conditions and investor caution ahead of Fed Chair Jerome Powell’s speech later today. Market participants will be seeking fresh insights into the pace of future rate cuts, which will influence both USD demand and gold prices. In addition to Powell's speech, US macroeconomic data, including the final Q2 GDP, Weekly Jobless Claims, and Durable Goods Orders, along with comments from Federal Open Market Committee members, are expected to provide further direction for gold.