Investors Brace for Fed Moves: Stock Gains, Currency Shifts, and Commodity Trends  | Daily Market Analysis

Key events:

• Australia - RBA Interest Rate Decision (Sep)
• USA - CB Consumer Confidence (Sep)

US stocks closed higher on Monday as investors paused near record highs, awaiting further signals from the Federal Reserve. The Dow Jones Industrial Average gained 0.15%, the S&P 500 rose 0.28%, and the NASDAQ Composite, which focuses on tech stocks, increased by 0.14%.

Following the Federal Reserve’s recent reduction, optimism around potential interest rate cuts pushed the S&P 500 and Dow to record levels last week. While the NASDAQ also advanced, tech sector weakness kept the index below its all-time high.

The GBP/USD extended its winning streak to five sessions, trading near 1.3350 during Tuesday’s Asian session, close to its 31-month high of 1.3359 reached on Monday.

The US dollar is expected to weaken as speculation grows regarding further Fed rate cuts in 2024. The CME FedWatch Tool indicates a 50% chance of a 75 basis point cut, which would bring the Fed’s rate to a range of 4.0-4.25% by year-end.

On Monday, Minneapolis Fed President Neel Kashkari suggested that additional rate cuts are likely in 2024, though they may be smaller than September's reduction. Chicago Fed President Austan Goolsbee echoed this sentiment, stating that "many more rate cuts are likely needed next year," according to Reuters.

The S&P Global US Composite PMI showed slower growth in September, coming in at 54.4, down from August's 54.6. The Manufacturing PMI unexpectedly dropped to 47.0, signaling contraction, while the Services PMI beat expectations, rising to 55.4.

In the UK, September’s preliminary Manufacturing PMI fell to 51.5 from August’s 52.5, missing forecasts of 52.3. The Services PMI also declined to 52.8 from 53.7, underperforming market expectations.

UK Prime Minister Keir Starmer voiced concerns that the economy could face "painful" reforms, as inflation remains stubbornly high compared to other countries.

Gold prices hit a new all-time high during Tuesday’s Asian session but lacked strong follow-through, as traders awaited clearer signals on the Fed's rate-cut path. Geopolitical tensions in the Middle East, US political uncertainty ahead of the November election, and fears of an economic slowdown continue to support the precious metal.

The Japanese yen weakened against the US dollar on Tuesday, driven by concerns that the Bank of Japan is in no rush to raise interest rates. BoJ Governor Kazuo Ueda acknowledged Japan’s moderate recovery following Friday’s policy decision, although signs of weakness persist.

Japan’s Finance Minister Shunichi Suzuki stated on Tuesday that he is “monitoring the impacts of central banks' monetary policies,” and expects the BoJ to take appropriate action while coordinating closely with the government.

Silver rebounded after a modest dip the previous day, climbing above $31.00 during Tuesday’s Asian session. However, it remained below the recent high of $31.45, reached last week. Despite this, the technical outlook remains favorable for bullish traders.

A breakout above a short-term descending trend line, combined with strengthening oscillators on the daily chart, suggests a positive outlook for XAG/USD. Further gains beyond the monthly peak near $31.45, with potential movement toward the July swing high of $31.75, seem increasingly likely.

Meanwhile, the Australian dollar edged higher against the US dollar as traders awaited the Reserve Bank of Australia’s policy decision on Tuesday. The RBA is expected to keep the Official Cash Rate (OCR) unchanged at 4.35%, citing strong labor market conditions and persistent inflation. Analysts predict no rate cuts before December, with some expecting the first adjustment as late as February or in the second quarter of 2025.

The ANZ-Roy Morgan Australia Consumer Confidence Index rose slightly by 0.8 points to 84.9 this week, but it has remained below the 85.0 level for 86 consecutive weeks. Year-over-year, the index increased by 8.5 points from 76.4.

In line with expectations, the RBA kept the OCR steady at 4.35% during its September meeting on Tuesday, marking the seventh consecutive session of unchanged policy following a 25-basis-point hike in November 2023.