Volatile Dow Jones Fluctuates Amid Strong Job Data and Rate Cut Hopes | Daily Market Analysis

Key events:

• USA - NY Fed 1-Year Consumer Inflation Expectations  
• UK - MPC Member Haskel Speaks
• USA - Consumer Credit (May)

On Friday, the Dow Jones Industrial Average experienced notable fluctuations, hovering around the 39,300 level. This volatility was driven by US nonfarm payrolls data, which reignited hopes for potential rate cuts. Despite the broader US equity market climbing on renewed expectations of a Federal Reserve rate reduction, the Dow Jones remained stuck in a technical consolidation phase.

The US nonfarm payrolls report surpassed median market forecasts, adding 206K new jobs in June, well above the anticipated 190K. However, the previous month's figure was significantly revised down to 218K from the initial 272K. Additionally, US Average Hourly Earnings growth decelerated to 3.9% year-over-year for June, matching expectations but down from the prior 4.1%. The US Unemployment Rate edged up to 4.1%, the highest since December 2021, whereas markets had predicted it would remain at 4.0%.

Gold prices faced selling pressure during the Asian session on Monday. The precious metal lost traction as the People's Bank of China paused gold purchases for the second consecutive month in June, according to official data released on Sunday. This pause could weigh on gold prices, considering China’s position as the world's largest bullion consumer.

Conversely, rising speculation that the US Federal Reserve might cut interest rates in the third quarter could support non-yielding gold prices. Additionally, political uncertainty in France, with exit polls from the final round of parliamentary elections pointing to a hung parliament, could boost demand for safe-haven assets like gold.

On Monday, the Japanese Yen continued its upward trend for the third consecutive session. The USD/JPY pair fell as the US Dollar struggled after Friday's US employment growth data fell short of expectations.

Japan's current account surplus rose for the 15th month in a row in May. According to the Ministry of Finance, the current account increased to ¥2,849.9 billion ($17.78 billion) in May, up from ¥2,050.5 billion in April, and exceeded market forecasts of ¥2,450.0 billion.

The Australian Dollar remained steady despite increased risk aversion on Monday, facing pressure from renewed US Dollar demand. Nevertheless, high inflation, stronger retail sales, and a robust services PMI could limit the AUD's downside. These factors might lead the Reserve Bank of Australia to delay potential rate cuts.

Minutes from the RBA’s June meeting indicated that policymakers emphasized the need to remain vigilant against upside inflation risks. A significant increase in prices might necessitate higher interest rates. Although rates remained unchanged in June, May’s CPI, which unexpectedly rose to 4.0% from 3.6%, led to warnings that the RBA might raise the cash rate to 4.6% in September.

The GBP/USD pair traded lower around 1.2805, breaking a seven-day winning streak in the early Asian session on Monday. The recovery of the Greenback pulled the pair down. However, the downside may be limited due to rising expectations that the Federal Reserve will cut interest rates in the third quarter.

The Pound Sterling gained following the Labour Party's decisive victory in the 2024 UK general election, winning 410 seats, an increase of 212 seats from the 2019 elections. A clear majority win is seen as positive for financial markets, boosting the Cable.

This week, investors will focus on several key events, including Fed Chair Powell’s testimony before the Senate Banking Committee, US CPI inflation data, and an update from the Reserve Bank of New Zealand.

Additionally, investors will be closely watching the market's reaction to the second round of French elections on Sunday, with the possibility of a hung parliament due to the lack of a clear majority.