Mixed Market Reactions to Central Bank Actions and Economic Indicators Shape Investor Sentiment | Daily Market Analysis

Key events:                                                   

• UK - Manufacturing PMI                             
• USA - FOMC Member Mester Speaks    
• USA - FOMC Member Bostic Speaks         
• USA - FOMC Member Bullard Speaks                    
• USA -    Services PMI (Jun)                        

On Thursday, the S&P 500 and the Nasdaq demonstrated upward movement as US Federal Reserve Chairman Jerome Powell maintained a hawkish stance, indicating that the central bank's tightening cycle is not yet complete. However, Powell also provided reassurances that the Fed would exercise caution in its approach.

The Nasdaq, which is heavily focused on technology stocks, experienced significant gains, primarily driven by momentum stocks such as Amazon.com (NASDAQ: AMZN), Apple Inc (NASDAQ: AAPL), and Microsoft Corp (NASDAQ: MSFT). In contrast, the S&P 500's progress was more modest.

Meanwhile, the blue-chip Dow remained relatively unchanged, with the industrials and financial sectors having a minimal impact.

During his semi-annual monetary policy testimony before the Senate Banking Committee, Powell reaffirmed his belief that additional interest rate hikes are probable in the coming months. This viewpoint was echoed by Fed Governor Michelle Bowman earlier in the session.
 

In terms of the economic landscape, jobless claims remained stable at a 20-month high, indicating ongoing challenges in the labor market. Additionally, the Conference Board's Leading Economic Index recorded its 14th consecutive monthly decline, suggesting that the Federal Reserve's endeavors to moderate economic growth are starting to yield the intended impact.

The Bank of England's (BoE) decision to accelerate the pace of interest rate hikes during its 13th meeting under the tightening policy has been met with disapproval from various stakeholders, including households, bond and stock investors, and foreign exchange (FX) traders.

Although the 2-year gilt yield stabilized above the 5% threshold, it didn't experience a significant boost due to concerns that the BoE's potential hike of another full percentage point could have detrimental effects on the British economy, particularly in the property market. The 10-year yield declined as a result of the gloomy economic outlook. The possibility of Britain avoiding a recession, let alone a property crisis, seems increasingly unlikely.

As for the FTSE 100, it dropped below its 200-day moving average (DMA) and approached the 7500 level. Trend and momentum indicators are displaying negative signals, and the index is approaching oversold conditions.

It's worth noting that falling energy and commodity prices, influenced by a relatively weak Chinese reopening, have adversely affected large British companies this year. The bearish pressure has been intensified by rising interest rates. The outlook for the FTSE 100 remains neutral to negative until there is a rebound in global energy prices, which has yet to materialize.

In response to the 50 basis point hike, the pound depreciated instead of appreciating as one might typically expect. This reaction reflects the market's sentiment that the dark clouds looming over Britain will cause more damage than the positive effects that higher rates could generate.

On Friday, gold prices experienced a slight decline and were heading toward their worst week since January. The significant rate hike by the Bank of England, along with hawkish signals from the Federal Reserve, heightened concerns about tighter monetary conditions.

The price of gold reached a three-month low, finally breaking out of a narrow trading range observed over the past month, albeit in a downward direction.

Looking ahead to Friday's session, investors will pay close attention to the release of preliminary manufacturing and services Purchasing Managers' Index (PMI) data. These indicators provide insights into the health of these sectors and can influence market sentiment.

Additionally, speeches from several members of the Federal Open Market Committee (FOMC) including Bullard, Bostic, and Mester are anticipated. These speeches may provide further clarity on the monetary policy outlook and could impact market expectations.

Overall, Friday's session is expected to be influenced by the PMI data and the comments made by FOMC members, as investors assess the economic conditions and gather insights into the future direction of monetary policy.