Wall Street Surges Ahead of July 4: S&P 500 Hits Record Close Amid Rate Cut Hopes | Daily Market Analysis

Key events:

• USA - Independence Day
• Eurozone - ECB's Lane Speaks
• Eurozone - ECB McCaul Speaks

The S&P 500 achieved another record close on Wednesday during a shortened trading session, as weaker economic data increased hopes for imminent rate cuts, just before the July 4 holiday.

The S&P 500 rose 0.5% to a new closing high of 5,534.63. Meanwhile, the Dow Jones Industrial Average dipped by 24 points or 0.1%, and the NASDAQ Composite surged 0.8% to a fresh record close.

Wall Street's major indices are set for a shortened trading day on Wednesday ahead of Thursday's Independence Day holiday. This follows strong gains on Tuesday after Federal Reserve Chair Jerome Powell indicated some progress in reducing inflation.

The Pound Sterling extends its winning streak that began on June 27, with the GBP/USD pair trading around 1.2750 during Thursday's Asian session. This rise is attributed to the softer economic data released from the United States on Wednesday.

Markets are expected to closely watch the UK general elections on Thursday. Britain seems poised to elect Labour Party leader Keir Starmer as the next prime minister, replacing Rishi Sunak's Conservatives after 14 years. A forecast by polling company Survation, as reported by Reuters on Tuesday, predicts the Labour Party will win a record number of seats in the national election.

Gold prices attract buyers for the second consecutive day on Thursday, building on the overnight move to a nearly two-week high. US macro data published on Wednesday indicated signs of weakness in the labor market and a softening economy. Moreover, the minutes from the last FOMC meeting revealed that most policymakers see US economic growth gradually cooling. This has reinforced bets that the Federal Reserve will cut rates in September, causing a sharp fall in US Treasury bond yields and dragging the US Dollar to a three-week low. Additionally, geopolitical tensions and political uncertainty in the US and Europe suggest that gold prices are likely to rise.

However, the strong bullish sentiment across global equity markets could act as a headwind for safe-haven gold amid relatively lighter trading volumes due to the US Independence Day holiday. Traders seem hesitant and might prefer to wait for the closely-watched US monthly employment details, known as the nonfarm payrolls report, on Friday before making new bets. Nonetheless, the fundamental backdrop supports a further near-term appreciation for XAU/USD.

The NZD/USD pair continues its upward trend, nearing 0.6110 during the early Asian trading hours on Thursday. This rise comes as the Greenback encounters significant bearish pressure following the release of the disappointing US ISM Services PMI report.

The Reserve Bank of New Zealand is anticipated to maintain its borrowing costs at 5.5% for the seventh consecutive meeting in July. However, investors have priced in nearly a 45% chance of a rate cut by the RBNZ in October. Traders will look for additional guidance from the Monetary Policy Statement, as any indications of an earlier easing cycle could weaken the New Zealand Dollar and limit gains for the pair.

The EUR/USD pair found support on Wednesday, briefly rising above the 1.0800 level after disappointing US economic data pointed to a weakening economy. Early Thursday, European data showed mixed results, with the pan-EU HCOB PMI increasing to 50.9 MoM in June, slightly above the forecast of 50.8. However, the EU-wide Producer Price Index contracted more than expected in May, falling -0.2% MoM compared to the forecast of -0.1%.

US markets will be closed on Thursday for the Independence Day holiday, leaving EUR/USD traders to focus on German Factory Orders, forecast to rebound to 0.5% MoM in May from the previous -0.2%. EUR/USD traders will also watch for any volatility resulting from the UK Parliamentary Elections.