S&P 500 Hits Fifth Consecutive Record High Amidst Fed Chair Powell's Testimony and Rate Cut Speculation | Daily Market Analysis

Key events:

• USA - Fed Chair Powell Testifies
• USA - Crude Oil Inventories
• USA - 10-Year Note Auction
• USA - FOMC Member Bowman Speaks
• USA - Fed Goolsbee Speaks

The S&P 500 closed at a record high for the fifth consecutive session on Tuesday as Federal Reserve Chair Jerome Powell's testimony didn't deter investors from expecting a rate cut in September.

The S&P 500 edged up 0.1% to a new high of 5,577.03, while the NASDAQ Composite gained 0.2%, continuing its record streak. The Dow Jones Industrial Average, however, dipped by 53 points, or 0.1%.

Indicating that the Federal Reserve believes its policy measures are effectively cooling the economy, Powell noted that the economy was no longer "overheated," with job market tightness nearing pre-pandemic levels.

Powell also stated that "good data" in the coming months would increase the likelihood of an interest rate cut and highlighted the risk of maintaining high rates for too long. These remarks reinforced investor expectations for a September rate cut, just ahead of crucial inflation data due later this week.

The CPI data for June, scheduled for release on Thursday, will provide further insights into the inflation trend. The Fed has consistently emphasized the need for more confidence in declining inflation before initiating rate cuts.

According to the CME FedWatch tool, traders are now pricing in a more than 72% chance of a 25 basis point cut in September, up from 59% last week.

Apart from that, NVIDIA Corporation rose over 2% after KeyBanc raised its price target for the chipmaker to $1,800 from $1,300, citing increasing demand for AI technology.

Tesla Inc. also saw a boost, climbing more than 3% as Morgan Stanley reiterated its overweight rating on the stock, highlighting positive trends in the company's global electric vehicle market share, which stood at 15% in May.

After its July policy meeting on Wednesday, the Reserve Bank of New Zealand decided to maintain the Official Cash Rate (OCR) at 5.50%, aligning with market expectations.

Following the RBNZ's decision to hold rates, the New Zealand Dollar faced intense selling pressure, with the NZD/USD pair trading around 0.6100, down 0.40% for the day.

Gold prices saw mild gains during early Asian trading on Wednesday, buoyed by growing speculation that the US Federal Reserve might start cutting rates as early as September. Additionally, global political uncertainties continue to bolster Gold's appeal as a traditional safe-haven asset. However, the People's Bank of China's pause in Gold purchases for the second consecutive month could temper bullish sentiment, given China's status as the world's largest gold consumer.

The Japanese Yen depreciated for the third consecutive session on Wednesday, driven by a strengthening US Dollar following Fed Chairman Jerome Powell's testimony before Congress. The Bank of Japan may consider raising interest rates during its July meeting and outline plans to reduce bond purchases. On Tuesday, Japan's Finance Minister Shunichi Suzuki emphasized the importance of fiscal discipline to maintain long-term fiscal health and noted that BoJ discussions on the bond market would be closely monitored.

The Australian Dollar saw a recovery from its daily losses on Wednesday, though it faces potential headwinds from disappointing inflation data out of China, a significant trading partner. China's CPI increased at an annual rate of 0.2% in June, down from 0.3% in May and below the projected 0.4%. On a monthly basis, Chinese CPI dropped by 0.2% in June, compared to a 0.1% decline in May, missing the anticipated 0.1% decrease.

Meanwhile, the GBP/USD pair remained muted for the second day in a row, trading around 1.2780 during the Asian session on Wednesday. The pair's weakness is largely attributed to the strengthening US Dollar, which gained traction following Federal Reserve Chair Jerome Powell's testimony.

In the UK, Bank of England policymaker Jonathan Haskel advocated for maintaining current interest rates due to persistent price pressures in the job market. Haskel commented, "I prefer to keep rates steady until we see more assurance that underlying inflationary pressures have truly diminished," according to Reuters.

Pound Sterling has exhibited limited movement against major currencies, with investor focus shifting to upcoming economic data releases. Key reports include the UK's monthly GDP and factory data for May, both scheduled for release on Thursday.

Traders are also keenly awaiting the second semi-annual testimony from Fed Chair Jerome Powell, alongside speeches from Fed officials Michelle Bowman and Austan Goolsbee. Additionally, market attention is on the forthcoming US CPI data set to be released on Thursday. Forecasts indicate that the annualized US core CPI for the year ending in June will remain steady at 3.4%, while headline CPI inflation is expected to rise by 0.1% month-over-month in June, compared to a flat reading in May.