Markets Soar to Record Highs Amidst AI Demand and Bitcoin's Impressive Rally; Eyes on Economic Data and Inflation Indicators | Daily Market Analysis

Key events:

• Eurozone - ECB's Elderson Speaks
• USA - Core Durable Goods Orders (MoM) (Jan)
• USA - CB Consumer Confidence (Feb)

The S&P 500 achieved a fresh record high of 5,088 last week, propelled by Nvidia's impressive quarterly report. Earlier on Friday, the index reached 5,111, establishing a new all-time peak.

Simultaneously, the NASDAQ Composite exhibited a robust surge of 2.96%, marking its most formidable performance since February 2023 and concluding at 16,041.62. This tech-heavy index is now in proximity to its record-losing pinnacle of 16,057.44. In a parallel ascent, the Dow Jones Industrial Average soared by 456.87 points, breaching the 39,000 milestone for the first time and culminating at a fresh summit of 39,069.11.

The recent upswing, fueled by the demand for artificial intelligence, is complemented by renewed market interest in the potential of a US interest rate cut. Multiple Federal Reserve officials emphasized the likelihood of future rate cuts, although opinions varied on the timing of such a shift.

The Japanese Yen exhibited strength during the Asian session on Tuesday, fueled by slightly higher-than-expected Japanese consumer inflation figures. This development revived expectations for a potential shift in the policy stance of the Bank of Japan. Coupled with a subdued sentiment in the equity markets, the safe-haven JPY is gaining support amid speculation that Japanese authorities might intervene to prevent further depreciation of the domestic currency.

In contrast, the Australian Dollar staged a recovery from intraday losses driven by improvements in the S&P/ASX 200 on Tuesday. Despite the Australian capital market opening lower, reflecting overnight losses on Wall Street, the overall market sentiment is influenced by declines in property and mining stocks, outweighing gains in consumer-related sectors. Additionally, investors are exercising caution ahead of key economic data releases from both Australia and the United States, seeking insights into the monetary policy outlook for these countries.

The ANZ-Roy Morgan Australian Consumer Confidence index remained nearly unchanged at 83.2 for the current week, marking the 56th consecutive week below the threshold of 85. The index sits just 0.4 points below the 2024 weekly average of 83.6.

Meanwhile, the GBP/USD pair maintains its position below the 1.2700 barrier during the early European session on Tuesday. Following a testimony to the UK Treasury committee by Bank of England Governor Andrew Bailey and other policymakers last week, speculations arose regarding a potential delay in rate cuts. This development boosts the Pound Sterling and creates a supportive environment for the GBP/USD pair, which is currently trading around 1.2683, reflecting a marginal increase of 0.01% on the day.

The bullish momentum for GBP/USD remains intact, with the pair trading above the key 100-period Exponential Moving Average (EMA) on the four-hour chart. The Relative Strength Index (RSI), positioned above the 50 midline, further supports the buyers at the moment.

Bitcoin prices experienced a notable surge on Tuesday, surpassing crucial levels, propelled by strong indications of sustained capital inflows into spot exchange-traded funds (ETFs) launched earlier this year.

The world's largest cryptocurrency soared by nearly 10%, reaching $56,256.9 yesterday, achieving its highest level in over two years. At this point, Bitcoin was less than $14,000 away from its all-time high reached during the bullish trend in late 2021.

The positive momentum in Bitcoin, along with the broader cryptocurrency market, was attributed to a report from digital asset manager Coinshares, revealing a fourth consecutive week of capital inflows into crypto investment products. The report highlighted weekly inflows of $598 million in the week ending February 23, with Bitcoin ETFs securing a significant portion of these inflows.

Bitcoin products witnessed $570 million in inflows, with BlackRock's iShares Bitcoin Trust (NASDAQ: IBIT) attracting $543.5 million. This counteracted substantial outflows from Grayscale Bitcoin Trust (BTC) (NYSE: GBTC), which faced challenges with the influx of new participants in the Bitcoin ETF arena.

Coinshares also observed a growing short interest in Bitcoin following recent price increases. The cryptocurrency has exhibited a 24% gain in 2024, building on its more than doubling in price throughout 2023.

Further contributing to Bitcoin's positive trajectory was the announcement from MicroStrategy Incorporated (NASDAQ: MSTR), the largest corporate holder of the cryptocurrency, revealing its recent acquisition of 3,000 tokens for approximately $155 million.

The impressive rally of Bitcoin in 2024 was primarily fueled by the recent approval of US ETFs directly tracking the cryptocurrency's price, indicating growing institutional interest and support.

Looking forward to the upcoming week, several pivotal economic data reports are anticipated to influence the current market dynamics. Notably, Thursday's release of the Core PCE Price Index is expected to be a crucial factor.

However, signals from the Federal Reserve last week, indicating a measured approach towards interest rate adjustments in the near term, tempered the market gains. Traders are now on edge as they await key inflation readings, specifically the PCE price index, the preferred inflation gauge of the Fed.

Investors have largely discounted the possibility of Fed rate cuts in May and June, with growing indications that inflation persists. In addition to the PCE data, attention is directed towards a second reading of fourth-quarter gross domestic product data scheduled for Wednesday. While US economic growth has demonstrated resilience compared to other developed countries, there is acknowledgment of a recent cooling trend in recent quarters.