Record Highs, Currency Shifts, and Geopolitical Influences This Week | Daily Market Analysis

Key events:

• Eurozone - ECB's De Guindos Speaks
• Australia - Retail Sales (MoM) (Dec)

The S&P 500 concluded a five-session streak of record highs on Friday, marked by Intel (NASDAQ: INTC) slumping following a grim revenue forecast, and US economic data indicating moderated inflation. Despite both the S&P 500 and Nasdaq closing lower, all three major indexes logged their third straight weekly gain and their 12th weekly advance out of 13.

The S&P 500 saw a 0.07% decline, closing the session at 4,890.97 points. Simultaneously, the Nasdaq decreased by 0.36% to 15,455.36 points, while the Dow Jones Industrial Average rose by 0.16% to 38,109.43 points. Over the week, the S&P 500 gained 1.06%, the Dow increased by 0.65%, and the Nasdaq advanced by 0.94%.

Recent sessions witnessed the S&P 500 returning to record highs for the first time in two years, continuing a rally driven by economic optimism, lower interest rates, and optimism about artificial intelligence.

Intel experienced a significant tumble of 11.9% to a six-week low after providing a revenue forecast that significantly missed estimates, attributed to playing catch-up in the AI race and addressing challenges in a weak PC market.

The Australian Dollar showed resilience on Monday, rebounding from recent losses despite a stronger US Dollar amid heightened geopolitical tensions. The AUD/USD pair advanced as three US service members were killed in a drone attack near the Jordan-Syria border. The US is formulating plans to respond, potentially escalating with strikes into Iran. Australia's money market remained steady, supported by upbeat crude oil prices and potential stimulus measures by the People's Bank of China. The Reserve Bank of Australia (RBA) indicated expectations of moderated price growth, with a potential interest rate cut later this year. Investors are awaiting Australian Retail Sales on Tuesday and Consumer Price Index data on Wednesday.

On the other hand, the Japanese Yen started the week subdued, with the USD/JPY pair hovering above 148.00 during the Asian session. Traders await the outcome of the two-day FOMC monetary policy meeting on Wednesday, uncertain about the timing of the first interest rate cut. Key US macro data, including Nonfarm Payrolls, will influence the USD. Tokyo inflation below the Bank of Japan's 2% target may weaken the JPY, but the BoJ signaling conditions for stimulus phase-out could counteract this. Geopolitical tensions and a softer risk tone may limit the meaningful downside for the JPY, acting as a headwind for the USD/JPY pair.

The USD/CHF is on a downward trend for the second consecutive session, hovering near 0.8640 in Asian trading on Monday. The Swiss Franc is gaining against the US Dollar, driven by increased risk aversion sentiment. This demand for the CHF is linked to heightened tensions in the Middle East, where geopolitical uncertainties often prompt investors to turn to safe-haven currencies like the Swiss Franc.

There is uncertainty about the Swiss National Bank's stance regarding the persistent strength of the Swiss Franc. Despite concerns, it is not anticipated that the SNB will intervene in the foreign exchange market by purchasing foreign currency to curb the appreciation of the CHF.

Last week commenced with the dollar maintaining stability as investors assessed US economic data in anticipation of the Federal Reserve policy meeting. Escalating geopolitical tensions in the Middle East curbed risk sentiment.

The dollar index, gauging the US currency against six counterparts, hovered at 103.50 on Monday, staying close to last week's six-week high of 103.82. With a projected 2% gain in January, traders moderated expectations of early and profound US interest rate cuts.

In December, the Fed surprised markets with a dovish stance, projecting 75 basis points of rate cuts in 2024. This led to aggressive easing expectations, anticipating a cut as early as March. However, robust economic data and central bank pushback prompted traders to adjust expectations, resulting in a current 48% chance of a March rate cut, down from 86% at the end of December.

According to analysts, the coming weeks will likely witness a continuation of the trend correction that started last month. Friday's data revealed moderate US price increases in December, maintaining annual inflation below 3% for a third consecutive month, reinforcing expectations of potential rate cuts this year.

Investor focus this week centers on the Federal Reserve's two-day policy meeting starting Tuesday, widely expected to maintain current rates. The spotlight will be on Fed Chair Jerome Powell and his comments. Additionally, investors will monitor various economic data, including US jobless figures and payrolls, to gauge the strength of the labor market.