S&P 500 Hits Historic 5,000 Milestone Amid Strong Disney Surge | Daily Market Analysis

Key events:

• Eurozone - German CPI (MoM) (Jan)
• Canada - Employment Change (Jan)
• Canada - Unemployment Rate (Jan)

The S&P 500 achieved a record high for the second consecutive Thursday, briefly touching an unprecedented 5,000 level just before closing. The surge in Disney and ARM contributed to this milestone, keeping the bullish trend intact.

S&P 500 Futures showed a 0.1% increase to 4,998.76, briefly reaching the 5,000 level. The Dow Futures contract set a record, closing up 0.1% with a 48-point gain, while Nasdaq 100 Futures added 0.2%.

Walt Disney Company (NYSE: DIS) experienced a remarkable 11% jump after surpassing expectations in fiscal Q1, raising its quarterly dividend by 50%, and reintroducing a $3 billion share buyback plan for the year. Disney also unveiled new deals and upcoming events, including a significant venture into the gaming business with a $1.5 billion stake in EPIC Games. Macquarie Equity Research noted that most of the news was "nearly all positive," though they raised questions about the impact on linear networks from direct-to-consumer advances and the time required for meaningful changes.

In the week ending Feb. 3, the number of individuals filing for unemployment benefits decreased by 9,000 to 218,000, reinforcing recent data suggesting a robust labor market. The strength in the labor market, posing a potential threat to wages and inflation, has created uncertainty regarding aggressive Federal Reserve rate cuts this year.

The Australian Dollar faced consolidation with a downward bias on Friday, influenced by losses in the previous two sessions. Challenges arose from the S&P/ASX 200's subdued performance and weaker prices of coal and iron ore. Additionally, the US Dollar gained strength against the Australian Dollar, supported by an uptick in US Treasury yields observed on Thursday.

The Australian Dollar found some support as Reserve Bank of Australia  Governor Michele Bullock reiterated the RBA's commitment to managing inflation, citing encouraging signs in inflation data. While the board hasn't ruled out the possibility of further interest rate hikes, it has not confirmed any. However, the Commonwealth Bank of Australia maintains its forecast of a 75-basis-point benchmark interest rate cut in 2024, with the initial cut expected in September.

The US Dollar Index is striving to extend its recent uptrend for the second consecutive day, defying a dip in US bond yields. This resilience is primarily attributed to hawkish comments from US Federal Reserve officials, reinforcing the strength of the US Dollar. Positive data from the US job market further contributes to the Greenback's strengthening.

On Thursday, President Thomas Barkin of the Federal Reserve in Richmond emphasized the importance of flexibility among policymakers when considering the timing of rate adjustments. He pointed to the strength of the labor market and the ongoing issue of disinflation as pivotal factors shaping their decisions. Additionally, Federal Reserve Chair Jerome Powell, in a press conference following the January 31 interest rate decision, firmly rejected the notion of a rate cut in March.

Meanwhile, the Japanese Yen finds itself in a defensive position against its American counterpart on Friday, touching a new year-to-date low in the Asian session. Deputy Governor Uchida Shinichi of the Bank of Japan, in his dovish remarks on Thursday, assured that the central bank has no plans for an aggressive hike upon the conclusion of negative rates. Coupled with an overall positive risk sentiment, these factors continue to exert downward pressure on the JPY.

Investors are speculating that a substantial salary increase this year may prompt the Bank of Japan to depart from its prolonged ultra-loose monetary policy. Simultaneously, traders are adopting a wait-and-see approach, holding out for next week's release of US consumer inflation figures to gauge the Federal Reserve's potential trajectory for rate cuts. This impending data is poised to play a pivotal role in shaping the short-term dynamics of the USD and could offer a fresh impetus to the USD/JPY pair. Despite the absence of significant macroeconomic data from the US, spot prices are positioned for robust weekly gains, aligning with a fundamental landscape that favors bullish traders.

In another development, the USD/CAD has halted its four-day losing streak as the US Dollar gains strength amid market caution heightened by escalating geopolitical tensions in the Middle East. The Canadian Dollar faces additional downward pressure due to the decline in crude oil prices, providing support to the USD/CAD pair, which hovers around 1.3460 during the Asian session on Friday. Furthermore, WTI oil prices are attempting to break their four-day winning streak, slightly dipping to nearly $76.20 per barrel.
 

On Thursday, the Bank of Canada unveiled the Summary of Deliberations from its Governing Council, shedding light on the discussions that shaped the monetary policy decision on January 24, 2024. Within these deliberations, council members highlighted the unexpected resilience observed in consumer spending within the United States. However, a cautious outlook prevails, with an anticipation of a slowdown in spending in the forthcoming quarters. This cautious sentiment stems from the expectation that consumers will need to adapt to higher interest rates, having already tapped into a significant portion of their savings accumulated during the pandemic. Despite this prudent forecast, there is a recognized risk among council members that US consumer spending could potentially remain stronger than initially anticipated.

In the absence of substantial data releases scheduled from the United States, market participants are eagerly awaiting the release of Canada's Unemployment Rate and Net Change in Employment figures, set to be disclosed on Friday.