Markets Rally as S&P 500 Notches Best Week of 2024, Gold Hits Record High Amid Fed Uncertainty | Daily Market Analysis

Key events:

• USA - Fed Waller Speaks
• USA - US Leading Index (MoM) (Jul)

The S&P 500 closed higher on Friday, marking its strongest week of the year as easing economic concerns spurred a wave of dip buying in stocks after recent market turbulence.

The Dow Jones Industrial Average climbed 96 points, or 0.1%, while the S&P 500 and NASDAQ Composite each gained 0.2%.

Data from the University of Michigan's survey, released Friday, indicated that consumer sentiment improved in August for the first time in several months, alleviating some economic worries. The data revealed that sentiment is still being impacted by lower-income households, likely due to persistent inflation pressures.

Inflation expectations for the next year and over the five-to-ten-year period remained steady at 2.9% and 3%, respectively, reinforcing confidence that the Federal Reserve's policies are having the desired effect. Attention now turns to Fed Chairman Jerome Powell's upcoming speech at the Jackson Hole symposium next week.

Gold prices surged to new record highs, surpassing the $2,500 mark on Friday, fueled by a weaker US Dollar and ongoing geopolitical tensions. Renewed selling pressure on the Dollar, which neared its lowest point since January, provided significant support for the precious metal. Additionally, the escalating conflicts in the Middle East and the prolonged Russia-Ukraine war further bolstered gold's appeal as a safe haven.

However, with recession fears in the US easing, risk-on sentiment has put some pressure on gold prices during Monday’s Asian session. Traders are exercising caution, awaiting clearer signals on the Federal Reserve's policy path. This focus is now shifting to the FOMC meeting minutes on Wednesday and Fed Chair Jerome Powell’s upcoming speech at the Jackson Hole Symposium.

Meanwhile, the Japanese Yen continued its rise against the US Dollar for the second day, driven by expectations of a potential rate hike from the Bank of Japan following Japan’s solid second-quarter GDP growth. Japan's Machinery Orders also exceeded forecasts, increasing 2.1% month-on-month in June, further reinforcing confidence in the BoJ's hawkish stance. Market attention now turns to upcoming inflation data from Japan for additional clues on the BoJ's monetary policy.

The US Dollar remains under pressure due to dovish remarks from Federal Reserve officials, amplifying speculation of a potential rate cut in September. Recent US economic reports, including lower-than-expected inflation figures from both the Producer Price Index (PPI) and Consumer Price Index (CPI), suggest that inflationary pressures are easing. Federal Reserve officials, such as San Francisco President Mary Daly and Chicago President Austan Goolsbee, have both advocated for a cautious approach in reducing rates to avoid an overly restrictive monetary policy.

In other developments, the USD/CAD pair continued its downward trend, falling to a one-month low during Monday’s Asian session. The bearish sentiment surrounding the US Dollar and positive equity market trends contributed to the pair's decline, which was further driven by technical selling after last week’s breakdown. Despite this, softer crude oil prices may limit further losses for the commodity-linked Canadian Dollar.

The New Zealand Dollar also strengthened on Monday, aided by weaker US housing data and growing expectations of a rate cut from the Federal Reserve. However, the recent dovish stance from the Reserve Bank of New Zealand following a surprise rate cut could weigh on the Kiwi. Additionally, concerns about the strength of China’s economy, New Zealand’s largest trading partner, may limit the NZD’s upside. Investors are closely watching New Zealand’s Trade Balance data and the People’s Bank of China’s interest rate decision for further direction.

Lastly, the Australian Dollar continued its rally for the third consecutive day against the US Dollar, buoyed by improving risk sentiment and a hawkish outlook from the Reserve Bank of Australia. RBA Governor Michele Bullock reaffirmed the central bank's commitment to managing inflation risks, ruling out any near-term rate cuts. Markets are now focused on the RBA meeting minutes and the PBoC’s interest rate decision for further guidance.