Markets Respond to Tesla's AI Surge, Gold Stability, and European ECB Anticipation | Daily Market Analysis

Key events:  

• USA - OPEC Monthly Report    
• USA - Federal Budget Balance (Aug)

On Monday, the Nasdaq experienced a significant uptick in performance, driven by Tesla's (NASDAQ: TSLA) remarkable surge fueled by optimism surrounding artificial intelligence. Investors were also eagerly awaiting inflation data set to be released later in the week.

Tesla witnessed an impressive 10% rally following an upgrade by Morgan Stanley, who shifted their rating from "equal-weight" to "overweight." The upgrade was motivated by their belief that Tesla's Dojo supercomputer has the potential to increase the company's market value by nearly $600 billion.

In addition to Tesla's surge, other major companies also saw gains. Amazon (NASDAQ: AMZN) climbed by 3.5%, while Microsoft (NASDAQ: MSFT) posted a 1.1% increase.

Meta Platforms (NASDAQ: META) experienced a notable 3.25% jump after a report emerged on Sunday indicating that the social media giant was actively developing a more advanced AI system.

Walt Disney (NYSE: DIS) saw a 1.2% increase, and Charter Communications (NASDAQ: CHTR) rose by 3.2%. This rise was attributed to a recent agreement reached between the two companies, allowing Disney's programming, including ESPN, to be reinstated on the Spectrum cable service just hours before the start of NFL's "Monday Night Football."

Gold prices remained relatively stable on Tuesday, as the dollar halted its recent declines ahead of crucial US inflation data scheduled for later in the week.

In recent sessions, bullion prices found some relief as the dollar retreated from its nearly six-month peak due to profit-taking activities. However, the greenback regained its composure during Asian trading on Tuesday, staying close to its recent high levels.

The outlook for US inflation and interest rates remained a cause for concern, indicating potential downward pressure on gold prices in the forthcoming months. This trend has persisted over the past year as rising interest rates have increased the opportunity cost associated with investing in gold.

All eyes are now focused on the consumer price index inflation report for August, which is anticipated to reveal a faster growth in inflation compared to July. This expected uptick in US inflation is attributed to higher fuel costs and resilient retail spending.

Moreover, this reading is anticipated to set the tone for the upcoming Federal Reserve meeting next week. If inflation turns out to be higher than expected, it could prompt the central bank to adopt a more hawkish stance, maintaining or even raising interest rates further later in the year.

While it is widely anticipated that the Fed will keep rates unchanged in September, a stronger inflation report may lead to a more assertive outlook from the central bank. The Federal Reserve is also set to maintain interest rates at levels not seen in over two decades, at least until mid-2024.

In such a scenario, the prospects for gold appear weak, given the likelihood of the dollar and Treasury yields continuing to rise in a high-interest-rate environment. Reduced concerns about a US recession have also diminished the safe-haven appeal of gold, although tensions in US-China trade relations have provided some support for bullion prices.

European stock markets are anticipated to open with relative stability on Tuesday, as investors assess recent developments, including UK jobs data and Spanish inflation figures, in anticipation of the upcoming policy-setting meeting by the European Central Bank later in the week.

In early trading indicators, the DAX futures contract in Germany showed a modest 0.1% increase, while CAC 40 futures in France demonstrated a 0.2% gain. Meanwhile, the FTSE 100 futures contract in the UK remained mostly unchanged.

The latest data released on Tuesday revealed that the UK unemployment rate for July increased to 4.3%, up from 4.2% the previous month. However, the August claimant count only rose by 900.

Despite indications of a softening labor market in the UK, average earnings saw a notable increase of 7.8%. This suggests that the Bank of England will still need to address wage-based inflationary pressures when it convenes for its meeting next week.

Catherine Mann, a policymaker at the Bank of England, cautioned on Monday that it is premature to halt the process of raising interest rates. Consequently, it is widely anticipated that the central bank will proceed with another 24-basis-point interest rate hike in the near future.