S&P 500 Hits Record 5,500 Before Nvidia's Decline Spurs Tech Sector Pullback | Daily Market Analysis

Key events:

• USA - S&P Global US Manufacturing PMI (Jun)
• USA - S&P Global Services PMI (Jun)
• USA - Existing Home Sales (May)
• USA - Fed Monetary Policy Report

The S&P 500 dipped after briefly surpassing the 5,500 milestone for the first time ever on Thursday, as Nvidia's decline dragged the broader tech sector down.

The S&P 500 dropped 0.4% after hitting a record high of 5,505.23. The NASDAQ Composite decreased by 1%, while the Dow Jones Industrial Average rose by 253 points, or 0.7%.

With US economic data largely falling short of expectations, investors are increasingly hopeful that the Federal Reserve will be compelled to cut rates sooner rather than later. The CME’s FedWatch Tool indicates that rate markets are pricing in more than a 70% chance of at least a quarter-point cut on September 18.

Despite the recent softening of economic data, the Fed maintains a restrictive policy stance. Fed policymakers are waiting for several months of subdued inflation figures before considering any policy rate changes. Even with fluctuations in weekly unemployment claims, the US job market remains robust, giving Fed officials a strong justification to avoid hasty policy adjustments.

US Purchasing Managers Index figures will close out the trading week. Investors eager for rate cuts are watching for further cooling in US economic data. Both the Manufacturing and Services PMIs are expected to show slight declines, with June's Manufacturing PMI predicted to drop to 51.0 from 51.3, and the Services PMI component anticipated to decrease to 53.7 from 54.8.

On Thursday, the Canadian Dollar saw some gains, adding to the week's modest improvements. The CAD is struggling to outpace the US Dollar, which is strengthening as US markets resumed activity following a midweek holiday that had paused trading and thinned Greenback activity.

Canada reported a significant decrease in the number of Canadians receiving unemployment benefits.

In early Thursday trading during the Asian session, the Australian Dollar shows modest gains. The currency edges upward following the latest Australian Judo Bank PMI report, which indicated continued business growth, albeit at a slower pace than in March and April. Additionally, the Reserve Bank of Australia's recent hawkish stance is expected to support the AUD in the near term.

Meanwhile, rising geopolitical tensions in the Middle East, as Israeli officials assert their readiness for a full-scale war against Hezbollah, could bolster safe-haven currencies like the US Dollar. Attention now shifts to the advanced US S&P Global Manufacturing and Services PMI data due on Friday. If US business activity improves in June, this could further strengthen the Greenback, creating a headwind for the AUD/USD pair.

The USD/JPY pair remains in a narrow trading range during Friday's Asian session, consolidating its recent gains around the 159.00 level, the highest since late April. The fundamental outlook suggests the currency pair may appreciate further in the near term, although concerns about potential intervention might limit the upside.

The Japanese Yen is pressured by the Bank of Japan's reluctance to commit to near-term interest rate hikes. Additionally, data released on Friday showed Japan's core CPI, excluding food and energy prices, decelerated for the ninth consecutive month, dropping to a 2.1% annual rate from the previous 2.4%. This adds uncertainty regarding the BoJ's timing for interest rate hikes, potentially in July or later in the year. Combined with the bullish sentiment in global equity markets, this weakens demand for the safe-haven JPY and supports the USD/JPY pair.

The EUR/USD pair declined to familiar technical levels on Thursday, dropping to the 1.0700 handle after weaker-than-expected US economic data boosted the Greenback. In May, Germany's PPI fell to 0.0% month-over-month, down from 0.2% and missing the anticipated increase to 0.3%. Year-over-year, the PPI also underperformed, declining to -2.2%, an improvement from the previous -3.3% but below the expected -2.0%.

The GBP/USD pair is set for an active Friday session, with key UK data releases during the European market hours and US PMI)activity surveys wrapping up the week. The Bank of England maintained rates at 5.25% this week, taking a cautious stance on rate cuts, which has tempered market expectations for broad rate reductions.

The BoE's decision to keep interest rates unchanged in June was expected, but recent services inflation and the BoE's commitment to sustainably lower inflation have left Sterling's value uncertain. The BoE has indicated it will maintain restrictive policies as long as necessary, noting that while the UK labor market has eased, it remains historically tight.

Following the BoE's seven-to-two vote to hold interest rates at 5.25%, GBP traders will turn their attention to Friday's economic data. Key releases include UK Retail Sales and updated S&P Global PMI figures for both the UK and the US. UK retail sales are projected to rebound to 1.5% month-over-month in May, following a -2.3% decline previously. UK PMIs are expected to show slight improvements, with the Manufacturing PMI rising to 51.3 from 51.2 and the Services PMI increasing to 53.0 from 52.9.

In the US, both Manufacturing and Services PMIs are forecasted to decline slightly, with Manufacturing expected to decrease to 51.0 from 51.3 and Services to drop to 53.7 from 54.8.