S&P 500 Edges Higher as Investors Anticipate Tech Earnings and Fed Meeting | Daily Market Analysis

Key events:

• USA - CB Consumer Confidence (Jul)
• USA - JOLTs Job Openings (Jun)

The S&P 500 closed higher on Monday in anticipation of upcoming tech earnings and the Federal Reserve meeting later this week.

The S&P 500 had risen 0.1%, the NASDAQ Composite also increased by 0.1%, while the Dow Jones Industrial Average dropped by 49 points, or 0.1%.

This week, major earnings reports are expected from several of Wall Street’s biggest companies, with Microsoft (NASDAQ: MSFT) and Apple (NASDAQ: AAPL) scheduled to report on Tuesday and Thursday, respectively. Other significant tech companies, including Meta Platforms (NASDAQ: META), Advanced Micro Devices (NASDAQ: AMD), and Amazon (NASDAQ: AMZN), will also release their earnings throughout the week.

These reports follow a significant downturn in technology stocks, driven by profit-taking and a shift in investor focus towards more economically sensitive sectors amid expectations of rate cuts.

Caution increased after Alphabet (NASDAQ: GOOGL) posted disappointing earnings last week, with investors keen to see if substantial investments in artificial intelligence are starting to pay off.

McDonald’s (NYSE: MCD) saw its stock rise nearly 4%, despite reporting an unexpected drop in quarterly global comparable sales. Optimism grew around the fast-food giant’s new five-dollar meal deals, introduced on June 25, which are expected to boost results in the latter half of the year.

Tesla Inc (NASDAQ: TSLA) surged 5% after Morgan Stanley selected it as their top choice among US auto stocks.

Gold prices saw some dip-buying during the Asian session on Tuesday, but they remained within Monday's broader trading range and below the $2,400 level. A weaker equity market and ongoing geopolitical risks from Middle East conflicts bolstered the commodity's appeal. Additionally, the growing belief that the Federal Reserve will start cutting rates in September has kept the US Dollar bulls at bay below the two-week high reached on Monday, benefiting the non-yielding yellow metal.

However, the upside for gold prices might be limited as traders await more clarity on the Fed's policy path before taking decisive action. The focus is on the outcome of the two-day Federal Open Market Committee meeting on Wednesday and important US economic data, including Friday's nonfarm payrolls report. These events will influence USD dynamics and the XAU/USD pair. It would be prudent to wait for some follow-through buying before confirming that the recent pullback from the all-time peak has ended.

The Japanese Yen extended its losses against the US Dollar for the second consecutive day on Tuesday. Traders are cautious ahead of the Bank of Japan's policy meeting on Wednesday, which could result in a rate hike. Markets speculate that the BoJ may raise rates by ten basis points to 0.1% and announce plans to taper bond purchases.

Japan’s Chief Cabinet Secretary Yoshimasa Hayashi stated on Tuesday that while the Bank of Japan and the government will closely coordinate, monetary policy specifics remain the BoJ's responsibility. Hayashi emphasized that the BoJ will work with the government to implement policies aimed at achieving the inflation target.

The US Dollar might face challenges as the Federal Reserve is expected to keep rates unchanged on Wednesday. However, traders are anticipating a Fed rate cut in September, with the CME FedWatch Tool indicating a 100% probability of at least a quarter-point cut. Signs of cooling inflation and easing labor market conditions in the US have fueled expectations of three Fed rate cuts this year.

The Australian Dollar edged higher against the US Dollar following the release of Building Permits data on Tuesday. Australia's Consumer Price Index data, to be released on Wednesday, could provide insights into the Reserve Bank of Australia’s future monetary policy direction. Analysts expect a slight re-acceleration in Australia’s headline inflation for the second quarter, with the core rate likely remaining steady.

This inflation report will determine whether the RBA will opt for a rate hike at its policy meeting next week. However, economists have cautioned that another interest rate increase could threaten Australia’s economic recovery.

The GBP/USD pair struggled to build on the previous night's recovery from around the 1.2800 level, a nearly three-week low, and saw some selling during the Asian session on Tuesday. Spot prices traded with a negative bias around the mid-1.2800s amid modest US Dollar strength, though the fundamental backdrop warrants caution for bearish traders.

A softer risk tone helped the safe-haven US Dollar trade with a mild positive bias just below a two-and-a-half-week high touched on Monday, exerting some pressure on the GBP/USD pair. This week, investors will look for cues from the Bank of England policy update on Thursday and key US economic releases. In the meantime, the diminishing odds of a BoE rate cut in August might support the British Pound and limit downside for the GBP/USD pair.