S&P 500 Ends Flat Amid Caution While Gold Enters Bullish Consolidation Phase | Daily Market Analysis

Key events:

• USA - FOMC Member Kashkari Speaks
• UK - BRC Retail Sales Monitor (YoY) (Mar)

The S&P 500 ended the day flat on Monday, experiencing swings between gains and losses as cautious trading prevailed ahead of the latest inflation data and the start of the first-quarter earnings season later in the week. The Dow Jones Industrial Average slipped by 11 points, or 0.03%, while the S&P 500 edged down by 2 points, or 0.04%. Conversely, the NASDAQ Composite rose by 5 points, or 0.03%.

During the Asian session on Tuesday, the price of gold entered a bullish consolidation phase, fluctuating within a range below the $2,350 level, which marks the all-time peak reached the previous day. Anticipation that the Federal Reserve might delay interest rate cuts has kept US Treasury bond yields elevated, providing support for the US Dollar. This, coupled with generally positive risk sentiment, has restrained bullish activity around gold, especially given the extremely overextended conditions on the daily chart.

Despite this, a significant corrective decline remains elusive, as optimism wanes regarding talks on a potential Israel-Hamas ceasefire and the ongoing Russia-Ukraine conflict, which continue to bolster gold's status as a safe-haven asset. Investors may also prefer to await further guidance on the Fed's rate-cutting trajectory before entering new positions. As such, attention will be on the release of US consumer inflation figures for March and the FOMC minutes on Wednesday, which could provide fresh direction for XAU/USD.

The Australian Dollar has maintained its gains from the previous session, despite subdued Westpac Consumer Confidence data released on Tuesday. The decline in the US Dollar has supported the AUD/USD pair, reflecting improved risk appetite.

The Australian Dollar has strengthened further amidst a rising domestic equity market, with the ASX 200 Index poised for gains as investor focus remains on the Reserve Bank of Australia’s interest rate decisions. Growing doubts about the need for RBA interest rate cuts in 2024, particularly after positive US data, have bolstered expectations that the Federal Reserve may prolong its stance of higher interest rates.

GBP/USD maintains its position in positive territory, hovering around 1.2650 during Tuesday's Asian session. The pair advanced due to improved risk sentiment ahead of the release of Consumer Price Index data scheduled for Wednesday.

The US Dollar encounters challenges amidst market fluctuations, influenced by the cautious approach of the Federal Reserve. According to the CME FedWatch Tool, the probability of a 25-basis point rate cut by the Fed in June has decreased to 51.1%. Federal Reserve Bank of Minneapolis President Neel Kashkari emphasized the central bank's commitment to addressing inflation, stressing the importance of returning it to the target level of 2%, despite the current rate hovering around 3%.

In contrast, Chicago Fed President Austan Goolsbee offered a different perspective on Monday, suggesting the economy is on a favorable trajectory due to a tight labor market.

On the UK front, BRC Like-For-Like Retail Sales surged by 3.2% year-over-year in March, surpassing expectations and marking the strongest growth since August 2023. This boost was attributed to increased food sales ahead of the extended Easter weekend.

Looking ahead, the GBP movement may be influenced by the release of monthly Gross Domestic Product and factory data for February, set for publication on Friday. Bank of England Governor Andrew Bailey is expected to make an appearance on Tuesday, though discussions on the economy or policy may not be prominent.

Furthermore, investor expectations of interest rate cuts by the Bank of England from the June meeting have heightened, driven by indications of easing price pressures.

In contrast, the Japanese Yen remains defensively positioned against its US counterpart during Tuesday's Asian session, hovering near a multi-decade low just above the 152.00 mark. Speculation of Japanese authorities intervening in the market to support the domestic currency provides some support to the JPY. However, the Bank of Japan's dovish stance, indicating a delay in the next rate hike, along with positive sentiment in equity markets, fails to attract significant buyers to the safe-haven JPY.

Moreover, the growing consensus that the gap between US and Japanese interest rates will remain wide may continue to drive flows away from the JPY, suggesting a potential upside for the currency pair.