S&P 500 Rises Amid Tech Gains; Fed Meeting and Global Economic Indicators in Focus | Daily Market Analysis

Key events:

• Eurozone - CPI (YoY) (Feb)

The S&P 500 ended the day on a positive note Monday, driven by gains in the technology sector, as investors turned their attention to the upcoming Federal Reserve meeting and its implications for interest rates.

The Dow Jones Industrial Average edged up 75 points, or 0.2%, while the S&P 500 climbed 0.7% and the NASDAQ Composite advanced 0.8%.

The Federal Reserve begins its two-day meeting on Tuesday, widely expected to result in an unchanged interest rate decision. Recent data revealing persistent inflation has raised concerns among investors, sparking speculation that the central bank may revise down its projections for rate cuts this year.

In December, Fed members forecasted three rate cuts for the year, but some analysts now anticipate a reduction to two.

Meanwhile, Apple (NASDAQ: AAPL) is reportedly in discussions with Alphabet (NASDAQ: GOOGL)'s Google unit to integrate AI features into its flagship iPhones using the latter's Gemini generative artificial intelligence engine, according to Bloomberg.

Tesla (NASDAQ: TSLA) saw a 6% surge after announcing it would raise the prices of its Model Y electric vehicles by approximately 2,000 euros in certain European countries this week. The move comes amid concerns about demand as competition in the electric vehicle market intensifies.

The Bank of Japan made its first interest rate hike in 17 years on Tuesday, signaling confidence in achieving its inflation targets and wage stability. The central bank will maintain its overnight call rate within the range of 0% to 0.1% and apply a 0.1% interest rate to current account balances held by financial institutions.

Additionally, the BOJ indicated a gradual reduction in its purchases of commercial paper and corporate bonds, with plans to discontinue purchases within a year, marking a shift away from its ultra-loose monetary policy.

Japanese stocks reacted positively to the BOJ's announcement, with the Nikkei 225 index rebounding from early losses to trade 0.2% higher.

Conversely, the Japanese yen weakened against the US dollar amid expectations of continued loose monetary conditions, with the USD/JPY pair climbing nearly 0.5% and nearing the 150 level.

The Australian Dollar remained subdued amidst cautious trading activity as investors awaited the Reserve Bank of Australia's interest rate decision. However, the Aussie central bank opted to maintain its interest rate at 4.35% during March's policy meeting. RBA Governor Michele Bullock addressed the policy outlook during a subsequent press conference, noting progress in curbing inflation and emphasizing the importance of closely monitoring employment figures. Despite acknowledging positive strides, Governor Bullock cautioned that risks to the outlook remain finely balanced, highlighting that the battle against inflation is ongoing.

In the Australian equity market, the benchmark S&P/ASX 200 Index edged higher, buoyed by gains in the energy and real estate sectors. This upward momentum in the stock market may lend support to the Australian Dollar. However, Australia's economy expanded less than expected in the fourth quarter of 2023, fueling speculation that the Reserve Bank of Australia could potentially initiate rate cuts later this year.

Meanwhile, the GBP/USD pair faced selling pressure during the early Asian session on Tuesday. The uptick in the US Dollar above 103.50, coupled with higher US yields, provided some support to the major pair. The Federal Reserve is anticipated to maintain its interest rate unchanged for the fifth consecutive time at its March meeting on Wednesday, signaling the need for further evidence of sustainable inflation returning to its 2% target. Despite Federal Reserve Chair Jerome Powell's earlier suggestion of a potential benchmark interest rate cut later in the year, continued progress in lowering inflation to the target remains uncertain.

Market participants will closely monitor the press conference following the Fed meeting for any significant policy shifts. However, there is a possibility that policymakers might revise down the anticipated number of rate cuts for the year from three to two.

On another front, UK inflation is showing signs of moderation, but the Bank of England remains cautious until the Consumer Price Index returns to the 2% target. The BoE is expected to leave interest rates unchanged at 5.25% on Thursday, with investors anticipating potential rate cuts starting in August and continuing through the year.

Later on Tuesday, the focus will shift to US Building Permits and Housing Starts data, with all eyes on the Fed monetary policy meeting and the subsequent press conference on Wednesday. Additionally, Fed officials will update their quarterly economic projections. In the UK, attention will be on the BoE interest rate decision on Thursday, where policymakers may offer insights into inflation, economic growth, and the labor market outlook.