US Stocks Rally Amid Megacap Surge, Gold Prices Recover; Focus Shifts to Inflation Data and Central Bank Strategies | Daily Market Analysis

Key events: 

• USA - Core CPI (MoM) (Dec)
• USA - CPI (MoM) (Dec)
• USA - CPI (YoY) (Dec)
• USA - Initial Jobless Claims
• USA - 30-Year Bond Auction

On Wednesday, US stocks saw an upward trend with a boost from mega-cap companies, although gains were tempered in anticipation of forthcoming inflation reports and significant bank earnings later in the week.

Contributing significantly to the S&P 500 index were Microsoft (NASDAQ: MSFT), Meta Platforms (NASDAQ: META), and Nvidia (NASDAQ: NVDA). The S&P 500 was influenced by these mega caps, while the 10-year Treasury note yield hovered around 4%. Additionally, a $37 billion auction of the notes experienced above-average demand.

Among the 11 major S&P sectors, communication services performed the best, primarily driven by a 3.65% increase in Meta Platforms' stock. This surge, reaching its highest intraday level since September 2021, followed Mizuho raising its price target for Meta Platforms to $470 from $400.

Nvidia achieved a record high and closed up 2.28% after fellow chipmaker TSMC surpassed fourth-quarter revenue expectations.

Despite a strong finish to 2023, stocks have encountered challenges in gaining upward momentum in the new year. The S&P 500 has struggled to stay positive for the year, impacted by mixed economic data and statements from Federal Reserve officials, prompting investors to moderate expectations for potential rate cuts from the central bank in the coming months. Nevertheless, Wednesday's gains brought the index within 0.27% of its record close of 4,796.56 set on January 3, 2022.

The Dow Jones Industrial Average rose by 170.57 points or 0.45% to 37,695.73. Similarly, the S&P 500 recorded a gain of 26.95 points or 0.57% at 4,783.45, while the Nasdaq Composite advanced by 111.94 points or 0.75% to 14,969.65.

Boeing (NYSE: BA) experienced a 0.92% increase after a 9.3% decline in the prior two sessions. This rebound followed CEO Dave Calhoun's acknowledgment of errors by the US planemaker, as more than 170 jets remained grounded for a fourth consecutive day.

Gold prices in Asian trade climbed on Thursday, staging a recovery after a challenging start to 2024. The market's attention is now firmly fixed on forthcoming US inflation data to glean insights into the Federal Reserve's intentions regarding interest rate cuts.

The yellow metal had been grappling with substantial losses in the first week of January, as traders deliberated whether the Fed might initiate interest rate reductions as early as March 2024. The uncertainty surrounding rate cuts triggered a significant resurgence in the dollar, adding downward pressure on gold. However, the greenback relinquished a significant portion of its recent gains this week, and traders largely sustained their expectations of a March rate cut.

This provided some relief for gold prices, though they remained confined within a trading range of $2,000 to $2,050 per ounce, a pattern observed through most of December.

Market participants eagerly awaited crucial US Consumer Price Index (CPI) data for December, scheduled for later in the day. Projections indicated a marginal uptick in headline CPI inflation, while core CPI was anticipated to decline further.

Inflation is projected to stay well above the Fed's 2% annual target, and recent indications of resilience in the labor market are dampening expectations of early interest rate cuts. Despite a slight reduction in expectations last week, traders seemed to maintain their outlook for a 25 basis point cut in March. The CME Fedwatch tool reflected a 67.1% probability of a cut in March, up from 60.8% the previous day and 64.7% last week.

The resurgence in bets for early rate cuts followed statements from several Fed officials asserting that high interest rates were operating as anticipated in curbing inflation. However, these officials provided limited clues on the timing of potential rate cuts.

The prevailing consensus points toward at least 100 to 150 basis points of rate cuts in the current year, a development that favors gold as lower rates are conducive for the precious metal, especially when confronted with higher opportunity costs in a high-rate environment where it offers no yield.

The USD/CHF pair experienced a second consecutive day of decline on Thursday, slipping below the psychological mark of 0.8500 during the Asian session. Although spot prices are currently confined within a familiar trading range sustained over the past two weeks, traders are cautiously awaiting the release of the latest US consumer inflation figures before making fresh directional bets.

Ahead of the crucial US data release, the US Dollar remains subdued within a week-old range, reflecting uncertainty regarding the Federal Reserve's (Fed) stance on rate cuts. This uncertainty exerts some pressure on the USD/CHF pair.

Meanwhile, the Australian Dollar has gained upward momentum for the second consecutive day on Thursday, propelled by improved risk sentiment. The positive market sentiment exerts pressure on the US Dollar, consequently supporting the AUD/USD pair. Additionally, favorable data from Australia, such as the widened trade surplus to 11,437 million month-on-month in December, surpassing market expectations and the previous reading, contributes to the Aussie Dollar's strength.

While economic signals in Australia present a mixed perspective, with a slight decrease in the Monthly Consumer Price Index for November and an increase in Retail Sales, lower-than-expected inflation figures in Australia add to the perception of a potential pause by the Reserve Bank of Australia at its next February meeting.