US Stocks Stable Amid Soft Retail Sales, Rising Interest Rate Cut Expectations | Daily Market Analysis

Key events:

• UK - CPI (YoY) (May)

US stocks exhibited stability following the release of subdued retail sales data, which raised concerns about the strength of the US economy while also increasing the likelihood of interest rate cuts this year. The Dow Jones Industrial Average remained mostly unchanged, the S&P 500 edged up by 7 points (or 0.1%), and the NASDAQ Composite traded flat.

In May, US retail sales increased by 0.1% on a monthly basis, which was better than the revised decline of 0.2% in April but fell short of economists' expectations of a 0.3% rise. These sales figures, which largely reflect goods and are not adjusted for inflation, could influence the broader economic outlook and the Federal Reserve's approach to potential interest rate cuts later in the year.

Investors are also closely watching speeches from Federal Reserve officials this week, including Boston Fed President Susan Collins and Richmond Fed President Tom Barkin, who are scheduled to speak later in the session. On Monday, Philadelphia Fed President Patrick Harker supported a 25-basis point rate cut in 2024, aligning with the median rate forecast released by policymakers last week.

In corporate news, Tesla (NASDAQ: TSLA) stock declined by 0.7%. The electric car manufacturer is currently seeking legal validation for CEO Elon Musk's substantial $56 billion pay package after shareholders approved the compensation agreement, despite a judge previously voiding it earlier this year.

The GBP/USD pair faces difficulties gaining significant traction on Wednesday, remaining within a narrow trading range around the 1.2700 level during the Asian session. Spot prices hover above the one-month low reached last Friday as traders eagerly await the latest UK consumer inflation figures before committing to a new directional move.

Market expectations indicate that the UK headline CPI rose 2% year-on-year, with the core annual reading anticipated at 3.5%. These figures would show an improvement from April's readings, where the CPI rose by 2.3% and the core reading, excluding volatile food and energy prices, hit 3.9%. However, May's monthly inflation is expected to rise by 0.4%, following a 0.3% increase in the previous month. Although not overly concerning, an uptick in price pressures, even if modest, might dampen market sentiment.

The Bank of England's Monetary Policy Committee kept interest rates unchanged at a multi-year high of 5.25% during its May meeting, despite two of the nine voting members favoring a 25 basis point cut. The inflation figures released on Wednesday could trigger significant price movements in GBP crosses. Higher-than-anticipated readings could signal a steady BoE stance, thus supporting the Pound.

The NZD/USD pair struggles to build on the previous day's rebound from sub-0.6100 levels, attracting some sellers during the Asian session on Wednesday. Spot prices currently trade around the 0.6135 region, down 0.10% for the day, although there is a lack of follow-through selling due to a softer tone surrounding the US Dollar.

A bullish sentiment across global equity markets is undermining the safe-haven USD, potentially lending support to the risk-sensitive New Zealand Dollar. However, mixed economic data from China, highlighting a bumpy recovery in the world's second-largest economy, is weighing on antipodean currencies, including the NZD. Additionally, comments by Reserve Bank of New Zealand Chief Economist Paul Conway, noting that inflation might be stickier in the short term but could fall more quickly in the medium term, are exerting pressure on the NZD/USD pair. This sentiment may keep bullish traders cautious ahead of New Zealand's first-quarter economic growth data, due on Thursday. Meanwhile, USD price dynamics are likely to continue influencing the NZD/USD pair amidst thin trading volumes due to a US bank holiday on Wednesday.

Gold prices are struggling to build on the previous day's bounce from around the $2,300 mark, remaining within a narrow range during the Asian session on Wednesday. The precious metal is currently trading near the $2,330 area, at the top boundary of a short-term trading range maintained over the past week and a half. Traders are seeking clarity on the timing of potential Federal Reserve interest rate cuts.

The Australian Dollar gains momentum on Wednesday, supported by the Reserve Bank of Australia's hawkish hold at its June meeting. Market expectations for RBA rate cuts have been pushed back, with the easing cycle now anticipated to start in 2025, bolstering the Aussie. Additionally, weaker-than-expected US retail sales have reinforced the case for Federal Reserve rate cuts later this year, undermining the USD across the board.

US markets will be closed on Wednesday in observance of Juneteenth National Independence Day. Investors will be closely watching the US S&P Global Manufacturing and Services PMI reports later in the week. Signs of expanding US business activity could potentially strengthen the USD.