Stock Market and Precious Metals React to Fed's Decision | Daily Market Analysis

Key events:

• UK - BoE Interest Rate Decision (Nov)
• USA - Initial Jobless Claims

On Wednesday, Wall Street's major stock indices closed on a high note, with the Nasdaq leading the gains with a 1.6% advance. This upswing followed the US Federal Reserve's decision to maintain unchanged interest rates. Comments from the Fed's top official boosted investor optimism, suggesting that further rate hikes may not be on the horizon, despite the central bank keeping the door open for potential future actions.

The Dow Jones Industrial Average surged by 221 points or 0.7%, while the S&P 500 and NASDAQ Composite also saw gains of 1.1% and 1.6%, respectively.

Meanwhile, gold prices experienced an uptick on Thursday, primarily due to a weaker dollar and lower Treasury yields following the Federal Reserve's less hawkish stance than initially expected. However, the increase in gold prices was somewhat tempered by growing investor appetite for riskier assets.

The Federal Reserve, as widely anticipated, chose to leave interest rates unchanged on Wednesday. Comments from Fed Chair Jerome Powell led to a reduced likelihood of further rate hikes, particularly as he acknowledged that financial conditions had significantly tightened in recent months. This perception led to a decline in the dollar and Treasury yields, benefiting gold. Nevertheless, investors mostly shifted their focus toward riskier assets like stocks, which limited significant gains in the price of gold.

All eyes are now on the forthcoming US nonfarm payrolls data scheduled for release on Friday. A robust jobs report would provide the Fed with more justification to raise interest rates, as emphasized by Powell during Wednesday's announcement.

A private payrolls report published on Wednesday hinted at a cooling job market, potentially indicating a softer nonfarm payrolls report. While gold is expected to benefit from the prospect of no further rate hikes, substantial upward movement in the precious metal's price remains uncertain, given expectations of sustained higher US interest rates.

Powell also acknowledged that the Fed had a long path ahead before achieving its 2% inflation target. Moreover, he had previously indicated that the central bank's target rate would likely remain above 5% until at least the end of 2024. Higher interest rates are typically detrimental to gold since they raise the opportunity cost of holding the precious metal. Nevertheless, gold has maintained strong gains since October, driven by increased demand for safe-haven assets amidst global events like the Israel-Hamas conflict.

In the realm of cryptocurrencies, Bitcoin prices saw an upswing on Thursday following the Federal Reserve's more dovish tone than what the markets had anticipated. Other cryptocurrencies also advanced as the dollar weakened, and traders bet on the likelihood of no further interest rate hikes.

Bitcoin, the world's largest cryptocurrency by market capitalization, recorded a nearly 4% increase, reaching $35,808, marking its highest level since May 2022. Ethereum, the second-largest cryptocurrency, also experienced a 3% rise, reaching $1,866.19, nearing a three-month high.

The cryptocurrency market, just like gold, received a boost from the declining dollar and lower yields, as the Federal Reserve opted to maintain interest rates, aligning with market expectations. The dollar index declined by over 0.5% during Asian trading on Thursday.

Notably, Bitcoin surpassed the $35,000 mark for the first time since May 2022. High-profile bankruptcies in the crypto market, including Terra, Three Arrows Capital, and FTX, had led to significant drops in cryptocurrency prices over the past year. The world's largest cryptocurrency had previously dipped to as low as $15,000 in late 2022.

However, in recent weeks, Bitcoin has experienced a remarkable rally, driven by speculations that a US-approved exchange-traded fund (ETF) directly tracking Bitcoin's price will soon enter the market.

At the same time, the Bank of England (BoE) is expected to keep its interest rate steady at 5.25%. This decision comes as the UK grapples with persistent inflation, a cost-of-living crisis, and escalating oil prices due to the Israel-Hamas conflict. The BoE's choice mirrors similar actions taken by the Federal Reserve in the US and the European Central Bank in the eurozone, all aimed at managing their respective economies in the face of global financial challenges.

The BoE's anticipated decision follows a series of 14 consecutive rate hikes that commenced from a record low of 0.1% at the end of 2021. This series of increases was paused in September, signaling a halt in the central bank's tightening policy. Despite these rate hikes leading to higher loan repayments and placing additional strain on the economy, experts at Hargreaves Lansdown predict that the BoE may opt for another rate pause.

In Thursday's trading session, market participants will be closely monitoring significant employment data, including nonfarm payrolls, the unemployment rate, average hourly earnings, and factory orders. Additionally, a speech from the Fed Vice Chair for Supervision Barr is expected.

On the earnings front, investors will be keeping a watchful eye on companies such as Apple Inc (NASDAQ: AAPL), Eli Lilly and Company (NYSE: LLY), ConocoPhillips (NYSE: COP), Starbucks Corporation (NASDAQ: SBUX), and Shopify Inc (NYSE: SHOP).