S&P 500 Trims Gains on Weakening Consumer Confidence; Fed Commentary and Inflation Report Awaited | Daily Market Analysis

 Key events:

• USA - Crude Oil Inventories

The S&P 500 saw its gains trimmed on Tuesday as investors processed news of a decline in US consumer confidence, marking its lowest level since November. This development preceded further commentary from Federal Reserve officials and an upcoming key inflation report later in the week.

The Dow Jones Industrial Average slipped by 31 points, or 0.2%, while the S&P 500 and NASDAQ Composite both experienced a 0.2% and 0.4% decline, respectively.

The Conference Board's consumer confidence index dropped to 104.7 from a revised figure of 104.8, marking its lowest point since November 2023.

Given that consumer sentiment serves as a leading indicator for consumer spending, which is a significant driver of economic growth, indications of a weaker consumer outlook supported expectations for a potential rate cut as early as June.

Market traders are pricing in a probability of at least 70% for the Fed to initiate its easing cycle in June, as indicated by the CME FedWatch tool. This represents an increase from the roughly 59% probability observed early last week.

The Japanese Yen saw a modest rebound after hitting its lowest level against the US Dollar since 1990 during the Asian trading session on Wednesday. However, this recovery lacked sustained momentum as Japanese officials continued verbal interventions to support the domestic currency. Coupled with cautious market sentiment, traders opted to lighten their bearish positions on the safe-haven JPY. As a result, the USD/JPY pair struggled to extend its intraday gains beyond the psychological level of 152.00.

Despite the JPY's attempt at appreciation, a significant upward movement remains challenging due to the Bank of Japan's dovish stance, signaling a prolonged accommodative monetary policy. In contrast, doubts have emerged among market participants regarding the Federal Reserve's anticipated three interest rate cuts this year, given the resilience of the US economy and persistent inflation concerns. These factors are likely to constrain any substantial corrective pullback for the USD/JPY pair.

Meanwhile, the Australian Dollar continued its decline for the second consecutive session on Wednesday. Weakening further following disappointing Aussie consumer price data, the AUD/USD pair faced downward pressure amid expectations of a dovish stance from the Reserve Bank of Australia regarding interest rate adjustments.

Australia's Monthly Consumer Price Index (YoY) for February rose by 3.4%, slightly below the expected 3.5% and marking the lowest reading since November 2021. The AUD's downward trajectory was also influenced by Tuesday's release of the Westpac Consumer Confidence index, which dropped to 84.4 in March 2024 from February's 86.0, signaling a decline from 20-month highs.

Additionally, the EUR/USD pair continued to experience selling pressure for the second consecutive day on Wednesday, extending its rejection from the 100-day Simple Moving Average resistance near the 1.0865 level. Despite holding above the 1.0800 mark during the Asian session, the euro remained vulnerable to further downside amid ongoing USD buying momentum.

The euro's decline was exacerbated by increasing speculation of a rate cut by the European Central Bank in June. ECB policymakers' comments, particularly from Madis Muller and Yannis Stoumaras, indicated growing support for such a move, reinforcing the bearish sentiment surrounding the EUR/USD pair and suggesting a continuation of its recent downtrend.

Looking ahead, the release of the Spanish Consumer Price Index report on Wednesday may influence the euro's performance, offering some direction in the absence of significant data releases from the US.

The release of the PCE price index data, the Fed's preferred inflation metric, scheduled for this Friday when markets will be closed, adds to the significance of the week. Additionally, a lineup of Fed officials, including Fed Governor Christopher Waller on Wednesday and Fed Chair Jerome Powell on Friday, is expected to provide further insights into the central bank's stance and potential policy actions.