Dow Drops on Powell's Fed Statement, Currencies React, Gold Rallies | Daily Market Analysis

Key events:

• Eurozone - CPI (YoY) (Jan)
• UK - BoE Interest Rate Decision (Jan)
• USA - Initial Jobless Claims
• USA - ISM Manufacturing PMI (Jan)
• USA - ISM Manufacturing Prices (Jan)

On Wednesday, the Dow experienced a decline following Federal Reserve Chairman Jerome Powell's statement, dashing hopes for an imminent rate cut and intensifying the tech-driven market sell-off. The Dow Jones Industrial Average dropped by 317 points, equivalent to a 0.8% decrease, while the S&P 500 witnessed a 1.6% fall, and the Nasdaq Composite slipped by 2.2%.

Powell's assertion that it was unlikely for the Fed to reduce rates in March delivered a blow to sentiments anticipating an earlier rate cut. The Fed clarified that it does not anticipate reducing the target range until it gains greater confidence in inflation sustainably moving toward 2 percent.

Powell further emphasized that the committee might not achieve the necessary confidence for a rate cut by the March meeting, emphasizing that future policy decisions hinge on incoming data. Despite the less dovish-than-expected monetary policy statement, Treasury yields remained in the red, with the 2-year Treasury yield dropping by 9.3 basis points to 4.262%.

This shift in monetary policy outlook followed an anticipated unchanged rate decision. The ADP National Employment report, revealing 107,000 job additions to private payrolls in January (slightly below expectations), and the JOLTS report indicating an unexpected rise in December job openings, also influenced market dynamics.

Alphabet (NASDAQ: GOOG) faced a more than 6% decline due to disappointing advertising revenue, offsetting better-than-expected fourth-quarter results. Microsoft Corporation (NASDAQ: MSFT) experienced a more than 2% decrease after its fiscal third-quarter revenue guidance fell short of analyst estimates, overshadowing positive fiscal Q2 results despite robust cloud growth.

Tesla (NASDAQ: TSLA) stock fluctuated between gains and losses, ultimately closing 2% lower. A judge in Delaware rejected CEO Elon Musk's substantial $55.8 billion Tesla package, deeming such a "nearly unimaginable sum" unfair to shareholders. If upheld, Musk would lose options to over 303 million Tesla shares, approximately 10% of the company.

In contrast, Boeing (NYSE: BA) shares rose over 5% as the aircraft manufacturer delayed the release of its 2024 financial forecasts. CEO Dave Calhoun acknowledged the need to rebuild confidence with regulators and passengers following a recent mid-air door plug breach.

The Australian Dollar faced continued depreciation against the US Dollar following disappointing Aussie data on Thursday. The AUD/USD pair declined after Federal Reserve  Chairman Jerome Powell's announcement, wherein he ruled out a potential rate cut in the upcoming March meeting. Powell emphasized the persistence of elevated inflation and the strong expansion of economic activity. Weaker-than-expected quarterly inflation data may exert downward pressure on the Australian Dollar, leading bond traders to increase expectations of early interest rate cuts by the Reserve Bank of Australia. Despite this, the RBA is likely to maintain the cash rate at 4.35% in its February meeting, with markets pricing in two quarter-point reductions in 2024, starting in August.

On the other hand, the Japanese Yen retained its strength against the US Dollar for the second consecutive day on Thursday. Concerns about escalating conflicts in the Middle East potentially triggering a broader war, coupled with China's economic challenges, contribute to the JPY's status as a relatively safe haven. Additionally, the Bank of Japan's hawkish stance from the previous week further supports the domestic currency.

Gold prices experienced buying interest for the fourth consecutive day, nearing a two-week high around the $2,056 mark. The US Dollar struggled to capitalize on its post-FOMC bounce, hindered by a continued decline in US Treasury bond yields.

Investors are turning their attention to Thursday's busy economic calendar, featuring the release of flash Eurozone consumer inflation figures and the US ISM Manufacturing PMI. The Bank of England's monetary policy decision is also anticipated to inject volatility into the markets. Factors such as US bond yields, USD price dynamics, and broader risk sentiment will likely influence short-term trading opportunities around Gold prices. The market focus is expected to shift to the eagerly awaited US monthly employment details, known as the nonfarm payrolls report, set to be released on Friday.