Wall Street Treads Water Ahead of Fed Rate Decision; Mixed Market Moves and Sector Updates | Daily Market Analysis

Key events:

• Eurozone - ECB McCaul Speaks
• USA - Core Retail Sales (MoM) (Aug)
• USA - Retail Sales (MoM) (Aug)
• Eurozone - ECB's Elderson Speaks 

US stocks traded in mixed territory on Monday as investors awaited this week’s Federal Reserve meeting, where the central bank is expected to begin a cycle of rate cuts.

The Dow Jones Industrial Average gained 133 points, or 0.32%, while the S&P 500 dipped slightly by 5 points, or 0.1%. Meanwhile, the tech-heavy Nasdaq Composite saw a sharper decline, dropping 140 points, or 0.8%.

Investor sentiment was also tempered by news of a second attempted assassination on Republican presidential candidate Donald Trump, though the former president was unharmed.

In corporate news, Pfizer (NYSE: PFE) shares rose 1.2% after the company announced that its experimental drug, aimed at combating a condition causing appetite and weight loss in cancer patients, showed promising results in a midstage trial.

Boeing (NYSE: BA) saw its stock slip 0.5%, following a 3% drop on Friday. A strike involving over 30,000 workers entered its fourth day on Monday, with negotiations between the company and union set to continue on Tuesday.

Intel (NASDAQ: INTC) stock climbed 3% after reports confirmed the chipmaker qualified for up to $3.5 billion in federal grants to produce semiconductors for the US Department of Defense.

Gold prices dipped slightly during Tuesday’s Asian session, appearing to break a three-day rally that reached a new all-time high the previous day. Investor caution ahead of the FOMC meeting, set to begin today, is easing some of the bearish pressure on the US Dollar, creating a headwind for the precious metal. However, several factors are expected to continue supporting gold prices, limiting any significant correction.

Market participants are increasingly expecting a substantial interest rate cut from the Federal Reserve on Wednesday. This has kept US Treasury bond yields near multi-year lows, preventing the USD from making any meaningful recovery and supporting the non-yielding asset like gold. Additionally, concerns over China's economic slowdown, political uncertainty in the US, and ongoing geopolitical tensions in the Middle East are reasons for caution among bearish traders.

The EUR/USD pair is trading lower around 1.1125, as the US Dollar saw a modest recovery during Tuesday’s Asian session. Investors are also awaiting US Retail Sales data, which is set to be released later today.

Last week, the European Central Bank reduced interest rates for the second time this year. ECB Governing Council member Martins Kazaks stated on Monday that further easing of monetary policy is likely, though caution is necessary given persistent inflation risks. On Friday, ECB policymaker Gabriel Makhlouf emphasized that future decisions will remain data-dependent.

Traders are now eyeing the Eurozone Harmonized Index of Consumer Prices (HICP) for fresh momentum. Annual inflation in August is projected to remain unchanged, but a higher-than-expected figure could boost the Euro against the USD.

The Japanese Yen has strengthened for the sixth consecutive day against the US Dollar, bolstered by expectations of a more hawkish Bank of Japan policy outlook. Traders are looking ahead to the BoJ’s policy decision on Friday, where rates are expected to remain unchanged, but the potential for hikes later in the year remains.

Japan’s Finance Minister Shunichi Suzuki remarked on Tuesday that rapid currency fluctuations are undesirable, adding that officials will closely monitor the Yen’s movement and its effect on the economy and citizens’ livelihoods. The government is prepared to intervene if necessary.

The Australian Dollar declined against the USD on Tuesday, weighed down by concerns over China’s economic health. Recent data indicates mounting challenges for China, a critical trading partner for Australia. This has raised alarm bells among analysts.

Goldman Sachs and Citi have both cut their 2024 GDP growth forecasts for China to 4.7%, below Beijing's target of around 5%. Economists at SocGen described the situation as a "downward spiral," while Barclays labeled it a "vicious cycle." Morgan Stanley also cautioned that conditions may worsen before improving, according to Reuters.

Despite the downside pressure, the Australian Dollar may remain supported by the Reserve Bank of Australia’s hawkish monetary stance.

The GBP/USD pair traded within a narrow range just above 1.3200 during Tuesday’s Asian session, consolidating after Monday’s strong upward move to a one-week high. Investors are adopting a cautious approach ahead of key central bank events, including the FOMC meeting on Tuesday and the Bank of England policy update on Thursday.

The British Pound remains underpinned by expectations that the BoE will take a more gradual approach to rate cuts compared to the US. However, last week’s data showing slower wage growth and stagnant GDP for July has prompted some traders to hold back on aggressive bullish positions, potentially capping GBP/USD gains.

With no significant economic data coming from the UK today, the GBP/USD pair will largely be influenced by US Retail Sales data and Treasury yields, which will play a key role in shaping USD demand. Nevertheless, the broader fundamental backdrop suggests caution for traders looking to take aggressive positions.