Market Rally Boosts Dow as Investors Shift from AI Stocks Amid Fed Rate Cut Anticipation | Daily Market Analysis

Key events:

• USA - FOMC Member Bowman Speaks
• USA - CB Consumer Confidence (Jun)

A broad stock market rally pushed the blue-chip Dow to a one-month high on Monday, as investors shifted away from AI-linked stocks and added laggards to their portfolios, anticipating Federal Reserve interest rate cuts this year.

Nvidia (NASDAQ: NVDA) slid for the third consecutive session, dropping 5.4%. Market observers attributed this to profit-taking following Nvidia’s significant rise last week, which briefly made it the world's most valuable company.

The Dow Jones Industrial Average rose by 225.94 points, or 0.58%, to 39,376.27. In contrast, the S&P 500 fell by 6.84 points, or 0.13%, to 5,457.78, and the Nasdaq Composite dropped by 147.38 points, or 0.83%, to 17,541.98.

In the forex market, Monday’s session saw a recovery in the Australian Dollar, with the AUD/USD pair finding support at the 0.6640 level, where the 20-day Simple Moving Average converges. Attention is now on Australian inflation data, which will influence upcoming decisions by the Reserve Bank of Australia.

Despite noticeable weaknesses in the Australian economy, persistent inflation is complicating the RBA’s potential interest rate cuts, likely limiting downside pressure on the Aussie. The RBA is now among the last of the G10 central banks to consider rate cuts, a stance expected to support the Australian Dollar's future gains.

The Canadian Dollar edged higher on Monday, benefiting from a softer US Dollar. With minimal significant data to drive early-week trading, market sentiment remained uncertain.

Canada is set to release its CPI inflation update on Tuesday. Besides Friday’s upcoming GDP report, the week’s agenda is light, featuring only a Monday appearance from Bank of Canada Governor Tiff Macklem. USD traders will also await Friday's US Durable Goods Orders and US PCE Price Index reports.

Gold prices traded in negative territory on Tuesday, despite a weaker US Dollar. The stronger-than-expected US PMI released last week led Federal Reserve officials to delay the anticipated timing of the first interest rate cut this year, thereby limiting gold's potential upside. However, safe-haven demand driven by geopolitical tensions in the Middle East and Ukraine could provide support for the yellow metal in the near term.

Bitcoin's price briefly dropped below the $60,000 level on Monday following news that the defunct exchange Mt. Gox will begin repaying its creditors in July. Despite this, data from Santiment indicates that a recent increase in social media mentions of the term "bottom" could signal a potential price rebound for Bitcoin based on historical trends. The recent decline has sparked ongoing questions and concerns within the crypto community. Bitcoin, the largest digital asset, has remained below the $69,000 mark for over two weeks before this recent dip.

The Japanese Yen extended its gains for the second consecutive session on Tuesday. The USD/JPY pair remains close to the 160.00 level, prompting Japanese authorities to intervene with substantial Yen-buying efforts, according to Reuters. Japan’s Corporate Service Price Index (YoY) rose 2.5% in May, a slight decrease from April's 2.7% increase. Investors are now awaiting more domestic economic reports this week, including Retail Sales, Unemployment data for May, and Tokyo’s inflation figures for June.

Investors will also be paying close attention to speeches by Fed members Lisa Cook and Michelle Bowman on Tuesday. Key US economic data to watch this week includes the final reading of the US GDP for the first quarter (Q1) on Thursday and the PCE Price Index for May, due on Friday. Evidence of easing inflation could heighten expectations for Fed rate cuts later in 2024, potentially weakening the US Dollar.