S&P 500 Surpasses 5,600 for the First Time, Driven by Tech Stocks and Rate Cut Optimism | Daily Market Analysis

Key events:

• UK - GDP (MoM) (May)
• USA - Core CPI (MoM) (Jun)
• USA - Initial Jobless Claims
• USA - 30-Year Bond Auction

The S&P 500 closed above 5,600 for the first time on Wednesday, propelled by tech stocks and continued hopes for an earlier rate cut as Fed Chair Jerome Powell delivered his second day of testimony before Congress, a day ahead of new inflation data.

The S&P 500 gained 1%, ending at 5,633.50, marking its sixth consecutive record session. The NASDAQ Composite also rose 1%, closing at an all-time high, while the Dow Jones Industrial Average climbed 442 points, or 1%.

Tech stocks continued to drive the broader market's record run, with Nvidia and Apple Inc. contributing significantly. Apple shares rose 1% amid renewed investor optimism over iPhone sales. Bloomberg reported that Apple plans to ship 10% more new iPhones in 2024 compared to last year, anticipating that AI-enabled features will boost demand.

Microsoft also saw a 1% increase, as the software giant is set to relinquish its observer seat on the OpenAI board amid growing regulatory scrutiny over generative AI in Europe and the US Keith Dolliver, Microsoft’s Deputy General Counsel, wrote to OpenAI on Tuesday, explaining that while the observer seat had provided valuable insights, it was no longer necessary due to significant progress made by the new board.

Meanwhile, the US Dollar Index traded in negative territory for the second consecutive day, hovering around 104.95 during the Asian session on Thursday. Despite the cautious stance of Fed Chair Jerome Powell, the DXY edged lower. Investors are closely watching the US June CPI inflation data for new insights, along with weekly Initial Jobless Claims and speeches by Fed officials, including Raphael Bostic.

Powell reiterated on Wednesday before the US House Financial Services Committee that the central bank's interest rate decisions would be data-driven and not influenced by political factors. He emphasized that it would not be appropriate to cut rates until there is greater confidence that inflation is moving sustainably towards the Fed’s 2% target.

Fed Governor Lisa Cook added on Thursday that US inflation should continue to decline without a significant rise in the unemployment rate. Despite the Fed's cautious stance, the Greenback remained subdued as traders awaited the key inflation report. The US CPI is expected to show a 3.1% year-over-year increase in June, with core inflation forecasted to stay steady at 3.4% year-over-year.

If inflation figures come in lower than anticipated, it could add further downward pressure on the DXY. The CME FedWatch Tool indicates that markets have priced in less than a 10% probability of a rate cut in July, with a 73% likelihood of a cut in September.

Nevertheless, risk-off sentiment ahead of crucial economic data, along with political uncertainties in Europe and geopolitical tensions in the Middle East, may lend some support to the safe-haven US Dollar.

The Japanese Yen advanced on Thursday amid rising speculation that the Bank of Japan may raise interest rates at its July meeting, strengthening the JPY and weakening the USD/JPY pair.

The 10-year Japanese government bond yield remained stable at approximately 1.09%, near its peak of 1.1% recorded on July 3. This stability persisted despite selling pressure on JGBs, as overseas investors anticipate a potential rate hike by the BoJ to counter a weakening Yen, according to Nikkei Asia.

The Australian Dollar held its gains on Thursday following the release of softer Consumer Inflation Expectations for July by the Melbourne Institute, reflecting consumer expectations for inflation over the next 12 months.

The AUD/USD pair was bolstered by growing expectations that the Reserve Bank of Australia might delay the global rate-cutting cycle or potentially raise interest rates again. Recent data showed a decline in Australian consumer confidence in July, contrasted by a surge in business sentiment, reaching a 17-month high in June.

The NZD/USD pair traded stronger around 0.6090 during the early Asian session on Thursday, recovering some lost ground as the US Dollar weakened after pulling back from the weekly high of nearly 0.6155.

On Wednesday, the Reserve Bank of New Zealand decided to maintain its Official Cash Rate (OCR) at 5.5% for the eighth consecutive meeting, the highest level since December 2008. The RBNZ board noted the risk of more persistent domestically driven inflation in the near term and expected headline inflation to return to the 1% to 3% target range in the second half of the year. This less hawkish inflation outlook might apply some selling pressure on the Kiwi in the near future.