Market Rally Pauses as S&P 500 Drops; Energy Stocks Tumble Amid Ceasefire Uncertainty and Jackson Hole Anticipation | Daily Market Analysis

Key events:

• USA - Crude Oil Inventories
• USA - FOMC Meeting Minutes

The S&P 500 ended its eight-day winning streak, weighed down by declines in energy stocks and cautious trading ahead of the Jackson Hole Symposium, where insights into future monetary policy are anticipated.

The Dow Jones Industrial Average dipped by 61 points, or 0.2%, while the S&P 500 also dropped 0.2% and the NASDAQ Composite slid 0.4%.

Energy stocks took a hit as oil prices reversed earlier gains amid renewed uncertainty over a ceasefire deal in Gaza. Hamas stated that the current agreement had been modified from the version agreed upon on July 2, which was deemed acceptable.

This week, attention is also focused on the Democratic National Convention, where President Joe Biden is scheduled to speak later today. Earlier in August, Vice President Kamala Harris was officially named the party's presidential nominee, with Minnesota Governor Tim Walz selected as her running mate.

Biden endorsed Harris in July, and recent polls show her closing the gap with Republican frontrunner Donald Trump, indicating a closely contested 2024 presidential race.

Gold prices remain stable above the $2,500 psychological threshold during the Asian session on Wednesday, staying close to the all-time high reached the previous day. The anticipation that the Federal Reserve will soon begin easing its monetary policy has been a significant driving force for the non-yielding yellow metal. Additionally, geopolitical tensions and China's economic struggles continue to bolster the safe-haven appeal of gold.

However, hopes that tensions in the Middle East are subsiding, combined with a generally optimistic tone in global financial markets and a modest rebound of the US Dollar from multi-month lows, are keeping gold gains in check.

The Japanese Yen paused its three-day advance against the US Dollar following Wednesday's release of trade balance figures. However, the Yen's drop might be tempered by the growing possibility of a near-term interest rate hike. Traders are also anticipating Bank of Japan Governor Kazuo Ueda’s upcoming parliamentary address on Friday, where he will discuss the recent decision to raise interest rates.

Japan's Merchandise Trade Balance shifted to a deficit of ¥621.84 billion in July, reversing the ¥224.0 billion surplus recorded in June and falling short of market expectations for a ¥330.7 billion shortfall. This is the fifth deficit this year, largely driven by imports growing at a faster pace than exports.

The Australian Dollar is holding firm, seeking to extend its gains against the US Dollar on Wednesday. The AUD/USD pair's resilience is supported by the Reserve Bank of Australia's August Meeting Minutes, which indicate that the cash rate could remain unchanged for some time. The minutes also revealed that while a rate hike was considered earlier in the month, the board ultimately decided that keeping rates steady would better manage risks. Furthermore, the RBA members agreed that a rate cut is unlikely in the near future.

The New Zealand Dollar edged lower on Wednesday after retreating from ten-week highs near 0.6164. Despite the ongoing decline in the USD Index and improved risk sentiment following China’s latest measures to support its real estate sector - which could benefit New Zealand due to its strong trade ties with China - dovish comments from the Reserve Bank of New Zealand following last week's unexpected rate cut might limit the Kiwi's upside. Traders are also focusing on the upcoming US S&P Global PMI data for August, due Thursday, and Fed Chair Powell's speech at the Jackson Hole symposium on Friday, which could influence the NZD/USD pair, particularly if Powell hints at a more dovish stance that could weaken the USD.

The USD/CAD pair continues to trend lower, trading near 1.3620 during the Asian session on Wednesday. The USD is attempting to end its three-day losing streak as traders turn cautious ahead of the FOMC Minutes release on Wednesday. Additionally, traders are closely watching Fed Chair Jerome Powell’s upcoming speech at Jackson Hole on Friday.

Federal Reserve Governor Michelle Bowman expressed caution on Tuesday about making any policy changes, citing ongoing inflation risks. Bowman cautioned that overreacting to isolated data points could undermine the progress already made.

Despite soft domestic data supporting a dovish outlook from the Bank of Canada, the Canadian Dollar has strengthened. The CAD has also managed to hold its ground, even as crude oil prices have declined. Canada’s Consumer Price Index (CPI) eased to 2.5% year-over-year in July, down from 2.7% in the previous month, aligning with market expectations. This marks the slowest pace of consumer price increases since March 2021. Additionally, the BoC's Core CPI fell to 1.7% year-over-year from the previous 1.9%, reinforcing expectations of a dovish stance from the BoC.

West Texas Intermediate (WTI) oil prices have extended their losing streak for a fourth straight session, trading around $72.90 per barrel at the time of writing. This comes amid hopes for a ceasefire in the Middle East, as US Secretary of State Antony Blinken confirmed that Israeli Prime Minister Benjamin Netanyahu had accepted a proposal to resolve issues delaying a Gaza ceasefire. However, tensions remain high as Hamas has threatened to resume suicide bombings, according to Reuters.