S&P 500 Hits New High, Gold Stabilizes, and Currency Trends Unfold | Daily Market Analysis

Key events:

• UK - GDP (MoM) (Jan)
• USA - Crude Oil Inventories
• USA - 30-Year Bond Auction

The S&P 500 soared to a new record high on Tuesday, as US stocks shrugged off a hotter-than-anticipated inflation report, buoyed by fresh bullish sentiment in the tech sector. The benchmark S&P 500 surged by 1.1% to reach a historic high of 5,173.97, while the tech-heavy Nasdaq Composite saw a 1.5% increase, and the blue-chip Dow Jones Industrial Average surged by 235 points, marking a 0.6% jump.

Meanwhile, in Asian trade on Wednesday, gold prices stabilized after experiencing a notable decline from their record highs, following a robust US inflation reading that fueled concerns over the possibility of sustained higher interest rates. The precious metal faced some profit-taking pressure after reaching heights of $2,200 earlier in the week. Initially, gold's rally was spurred by expectations of early interest rate cuts by the Federal Reserve. However, Tuesday's consumer price index data swiftly dampened those expectations.

The CPI data revealed that US inflation had grown slightly more than anticipated in February, remaining significantly above the Fed's targeted 2% annual rate. As a result, there is now less urgency for the Fed to initiate interest rate cuts ahead of schedule, although traders continued to maintain bets on a 70% probability of a 25 basis point cut in June, according to the CME Fedwatch tool.

With the spotlight now shifting to the upcoming producer price index and retail sales reports, the focus remains on the potential for further cuts in response to the state of the US economy. Any indications of resilience in economic performance would provide the Fed with greater leeway to maintain higher interest rates for an extended period, which could dampen demand for safe-haven assets like gold. Nevertheless, despite these developments, gold has still seen substantial gains thus far in 2024.

Moreover, gold and other precious metals faced downward pressure due to overnight strength in the dollar and US Treasury yields.

In currency markets, the NZD/USD pair continued its recovery, reaching 0.6160 during Wednesday's early European session, driven by improved market sentiment that bolstered demand for risk-associated assets.

Furthermore, easing inflation expectations are anticipated to provide relief for households. The latest forecasts from the Reserve Bank of New Zealand indicate that consumer prices are expected to rise by 0.8% in the first quarter of March, with annual inflation projected to decrease from 4.7% to 4.2%, compared to the final quarter of 2023.

The Australian Dollar remains in consolidation mode, displaying signs of a potential recovery from recent losses as Wednesday unfolds. Despite the S&P/ASX 200 Index marking its second consecutive day of gains, mirroring the upward trend on Wall Street overnight, the Aussie Dollar faces downward pressure due to lower commodity prices.

On Tuesday, the Australian Dollar experienced setbacks against the US Dollar, prompted by a robust CPI report that dashed hopes of an imminent rate cut by the Federal Reserve. This bolstered the Greenback, posing potential challenges for the AUD/USD pair.

In contrast, the Japanese Yen sees a modest uptick against its American counterpart during Wednesday's Asian session, reversing a portion of the previous day's losses to reach weekly lows. News regarding Japan's spring wage negotiations reveals that most companies have acceded to the wage hike demands of trade unions. Additionally, reports suggesting the Bank of Japan is contemplating a March interest rate hike contribute to a mild uplift in the JPY.

However, recent dovish remarks from BoJ Governor Kazuo Ueda may have tempered expectations for an early rate hike. Coupled with the prevailing risk-on sentiment, this has restrained traders from aggressively betting on the safe-haven JPY. Furthermore, investor reluctance prevails, with many opting to stay on the sidelines ahead of next week's pivotal central bank events, including the eagerly anticipated BoJ decision on Tuesday, followed by the outcome of the two-day FOMC policy meeting on Wednesday. Given these factors, exercising caution before positioning for further declines in the USD/JPY pair is advisable.