Tech Stocks Propel S&P 500 to New Heights Despite Rising Treasury Yields | Daily Market Analysis

Key events:

• Australia - RBA Interest Rate Decision (Jun)
• Eurozone - CPI (YoY) (May)
• USA - Core Retail Sales (MoM) (May)
• USA - Retail Sales (MoM) (May)

The S&P 500 closed at a new all-time high on Monday, overcoming rising Treasury yields as technology stocks continued their upward trajectory, supported by ongoing discussions from the Federal Reserve and anticipation of key economic data due later this week.

The S&P 500 gained 0.8%, reaching a record closing high of 5,475.14, after hitting an intraday peak of 5,488.82. The NASDAQ Composite increased by 0.9%, while the Dow Jones Industrial Average climbed 188 points, or 0.5%.

Major tech companies like Amazon, Microsoft Corporation, and Apple led the broader market gains. Apple rose by 2%, continuing its recent uptrend as it seeks to surpass Microsoft as the most valuable company with its push into artificial intelligence.

The rise in tech stocks boosted Apple's market value to $3.33 trillion and Microsoft's to $3.35 trillion, with many analysts optimistic about a sustained bull run in the tech sector.

On Tuesday, the Australian Dollar weakened due to a modest rebound in the US Dollar, with markets becoming cautious ahead of the Reserve Bank of Australia's monetary policy meeting. The RBA is expected to maintain its Official Cash Rate (OCR) at 4.35% for the fifth consecutive meeting in June, resisting a dovish shift similar to the Bank of Canada and the European Central Bank.

Economists broadly anticipate the RBA will keep its borrowing rate at a 12-year high, with Governor Michele Bullock likely to continue her hawkish stance during the press conference. Given persistent inflation, the Australian central bank may leave the possibility of a rate hike open this year, especially after the Minutes of the RBA’s May meeting revealed that board members considered raising interest rates. However, the RBA is expected to refrain from explicitly signaling a policy shift in upcoming meetings, maintaining a 'higher rates for longer' outlook.

The NZD/USD pair is struggling to build on the previous day's modest recovery from the 0.6100 level, which marked a one-week low. During the Asian session on Tuesday, the pair trades with a slight negative bias, remaining within the familiar range of the past month and hovering around 0.6120. The pair is down nearly 0.20% for the day, influenced by renewed buying interest in the US Dollar.

The Federal Reserve's hawkish outlook continues to support the USD, as policymakers favor only one interest rate cut this year. On Monday, Philadelphia Fed President Patrick Harker stated that maintaining current rates for a bit longer would help reduce inflation and mitigate risks. This outlook keeps US Treasury bond yields elevated, helping the USD gain positive traction and putting pressure on the NZD/USD pair.

Additionally, mixed economic data from China on Monday highlighted an uneven recovery in the world's second-largest economy, further weighing on antipodean currencies like the New Zealand Dollar. Meanwhile, weaker US consumer and producer prices suggest that inflation is easing, raising hopes for a potential Fed rate cut in September and another in December. This possibility could limit gains for the USD, providing some support for the NZD/USD pair.

The USD/JPY pair is also facing challenges in capitalizing on its gains from the past three days, trading in a narrow range just above the mid-157.00s during the Asian session on Tuesday. Despite being close to its highest level since late April, the pair remains poised to continue its recent upward trend.

While the Fed's hawkish stance remains, market expectations for two interest rate cuts this year amid signs of easing inflationary pressures in the US are keeping USD bulls on the defensive for the second consecutive day. Additionally, speculation that Japanese authorities might intervene to support the Japanese Yen is acting as a headwind for the USD/JPY pair. The Bank of Japan's cautious policy approach is also likely to limit any significant appreciation of the JPY, providing some support to the USD/JPY pair.

Market participants are now focused on the US economic docket, which includes the release of monthly Retail Sales and Industrial Production figures. Additionally, speeches by influential FOMC members and US bond yields will influence USD demand, potentially impacting the major currency pairs.