Wall Street's Rollercoaster Ride: Fed, Yields, and Gold Amidst Market Uncertainty | Daily Market Analysis


Key events:

  • Eurozone -ECB's Lane Speaks
  • UK - BoE Gov Bailey Speaks
  • USA - Fed Chair Powell Speaks
  • USA - FOMC Member Williams Speaks

On Tuesday, Wall Street's primary indices embarked on an upward trajectory after a somewhat turbulent start to the session. The decline in US Treasury yields supported mega-cap growth stocks, while investors eagerly anticipated further statements from Federal Reserve officials to gauge the direction of interest rates.

US Treasury yields retreated on Tuesday in anticipation of significant bond auctions scheduled for the week. The benchmark ten-year Treasury yield concluded the day at 4.5892%.

In after-hours trading, the Dow Jones Industrial Average advanced by 56.7 points, marking a 0.2% increase to reach 34,152.6. Similarly, the S&P 500 saw a gain of 12.4 points, representing a 0.3% rise to attain 4,378.4, while the NASDAQ Composite surged by 121.1 points, a substantial 0.9% increase, reaching 13,639.9.

NASDAQ, SPX, and DJI indices daily chart

Although investors have already factored in the conclusion of the Federal Reserve's cycle of interest rate hikes, concerns have arisen in the market due to some hawkish comments from Fed officials, suggesting that the central bank might maintain current interest rates for a more extended period.

Federal Reserve Bank of Minneapolis President Neel Kashkari dampened hopes of imminent rate cuts, suggesting that the central bank may need to take additional measures to bring inflation back in line with its 2% target.

Chicago Fed chief Austan Goolsbee acknowledged the downward trajectory in inflation but emphasized that pricing pressures have not subsided.

Mega-cap growth stocks, including Microsoft (NASDAQ: MSFT), Apple (NASDAQ: AAPL), and Amazon.com (NASDAQ: AMZN), saw their values rise between 1.1% and 2.2%, contributing to the outperformance of the tech-heavy Nasdaq index compared to its counterparts.

MSFT, AAPL, and AMZN stock daily chart

During extended trading hours, eBay Inc (NASDAQ: EBAY) experienced a decline of 6.2% following the release of its Q3 earnings report. The company reported Q3 earnings per share (EPS) of $1.03, slightly exceeding the expected $1.00, and reported revenues of $2.5 billion, which matched the expected figure of $2.5 billion. For the upcoming Q4 of 2023, eBay anticipates an EPS range of $1.00 to $1.05, falling short of the expected $1.05. The revenue projection for Q4 2023 is within the range of $2.47 billion to $2.53 billion, lower than the expected $2.597 billion.

eBay stock daily chart

Meanwhile, the Japanese Yen continued its decline against the US Dollar (USD) for the second consecutive day, sparked by remarks from Minneapolis Federal Reserve President Neel Kashkari, suggesting that the US Federal Reserve (Fed) might not have concluded its hiking cycle. These comments had a positive impact on the value of the US Dollar. At the time of writing, the USD/JPY pair had risen to 150.59, gaining 52 pips on the day.

USD/JPY daily chart

The Pound Sterling faced a sell-off on Tuesday, relinquishing some of the gains it had made during the recent rally. This decline was attributed to ongoing concerns about a potential economic slowdown in the United Kingdom due to the Bank of England's (BoE) decision to raise interest rates. The GBP/USD pair experienced a significant recovery on Friday and Monday. Still, it struggled to maintain its strength, trading around 1.2280 amid a lack of fundamental support for the Pound Sterling.

GBP/USD daily chart

In Asian trading on Wednesday, gold prices showed minimal movement, yet they were grappling with significant losses over the past two sessions. These losses were triggered by hawkish remarks from Federal Reserve officials, prompting traders to reassess their expectations regarding potential interest rate hikes.

All eyes were on an upcoming speech by Fed Chair Jerome Powell, particularly after his comments during a recent meeting were perceived as somewhat less hawkish by the markets. Gold had experienced some gains in the previous week following the Fed meeting, along with a nonfarm payrolls report that was softer than anticipated, fueling hopes of a pause in the central bank's rate hike cycle.

XAU/USD daily chart

However, a number of Fed officials downplayed the likelihood of a pause, emphasizing the necessity for further rate hikes due to the robust economy and persistent inflation. Powell was scheduled to speak twice during the week, once on Wednesday and again on Thursday. Any additional insights he provided on the US economy and monetary policy were of paramount interest, especially in light of the underwhelming nonfarm payrolls data for October.

Before Powell's addresses, several Fed officials, including Governor Michelle Bowman, Minneapolis Fed President Neel Kashkari, and Chicago Fed President Austan Goolsbee, pointed out that inflation still remained at elevated levels and hinted at the possibility of further rate increases in the upcoming months.

Even if the Fed decides to pause, the expectation is that any rate reduction won't commence until mid-2024, which could limit substantial short-term gains for gold. The central bank has indicated its intention to maintain US interest rates at elevated levels for an extended period, likely until the end of 2024. This outlook doesn't bode well for gold in the immediate future.