Mixed US Stock Futures and Central Bank Actions Drive Market Sentiment on Wednesday | Daily Market Analysis

Key events:

• USA - FOMC Meeting Minutes                     

During Monday's evening deals, US stock futures exhibited a mixed pattern after a shortened regular session. Tesla Inc (NASDAQ: TSLA) experienced a notable surge of 6.9% due to better-than-expected delivery and production figures.

By 19:00 ET (23:00 GMT), Dow Jones futures remained unchanged, while S&P 500 futures saw a slight increase of 0.1%. On the other hand, Nasdaq 100 futures witnessed a minor decline of 0.2%.

Yesterday afternoon, the Australian dollar experienced a decline following the decision by the Reserve Bank of Australia (RBA) to keep the policy rate unchanged at 4.10%.

Consequently, the AUD/USD rate dropped towards 0.6650, while the AUD/NZD rate approached 1.0825. The Australian rate market had adjusted its expectations for consecutive rate hikes, anticipating a more cautious approach from the RBA. However, economists surveyed by Bloomberg held mixed views on whether the RBA would opt for another rate hike or maintain the status quo.

In its policy statement, the RBA explained that maintaining the current rates this month would enable them to assess the impact of previous rate increases and evaluate the economic outlook. Although the RBA acknowledged a further decline in the May monthly CPI indicator, they still regard inflation as "too high" and anticipate it to remain elevated for a considerable period.
 

The Dollar Index stabilized at 103.07, slightly up from yesterday's 102.92, as the yield curve inversion in the US between 2-year and 10-year yields expanded. A yield curve inversion occurs when shorter-term securities trade at higher yields compared to longer-term treasuries.

Against the Japanese Yen, the US Dollar remained largely unchanged at 144.45 (compared to 144.40 previously) following warnings from Japanese officials against excessive selling of the Yen. Masato Kanda, Japan's top currency diplomat, stated that authorities were maintaining close communication with US Treasury Secretary Janet Yellen.

The Euro (EUR/USD) experienced a dip in subdued trading, falling to 1.0882 from 1.0910. On the other hand, the British Pound (GBP/USD) rallied by 0.20% to 1.2715 (compared to 1.2695). The rally in the Pound was triggered by UK Prime Minister Rishi Sunak's statement that they would utilize monetary and fiscal policies fully to address inflation concerns.

Meanwhile, gold prices stabilized on Wednesday after experiencing slight gains overnight. Investors remained cautious ahead of the release of the minutes from the Federal Reserve's June meeting. In contrast, copper prices declined due to concerns about a potential resurgence of a trade war between the United States and China.

Gold had a modest recovery over the past three sessions after dropping below the key support level of $1,900 per ounce last week. The primary factor putting pressure on gold prices has been the fear of increasing US interest rates.

Attention is now focused on the minutes of the Federal Reserve's June meeting, as investors seek further clues about the trajectory of US interest rates. While the central bank kept rates unchanged last month, it had indicated the possibility of at least two more rate hikes this year due to persistent high inflation.

Federal Reserve Chair Jerome Powell has reiterated this stance in recent testimonies and speeches over the past two weeks. Market expectations currently indicate an 88% chance of a 25 basis point rate increase by the central bank in July. Although recent data showed a decline in overall US inflation, core inflation remains stubbornly high and above the Fed's target range.

This trend suggests potential further pressure on gold in the upcoming months, although the metal has also seen some safe-haven demand due to expectations of a potential US recession.

Analysts at IG mentioned that they would adopt a positive stance on spot gold if it managed to surpass a resistance level ranging between $1,925 to $1,935 per ounce.

Today the Eurozone will publish its June Producer Price Index (PPI) data, with a forecasted month-on-month decrease of -1.8% (compared to -3.2% previously) and a year-on-year decrease of -1.3% (compared to -1.0%).

Following that, the United Kingdom will release its S&P Global Final Services Purchasing Managers' Index (PMI) for June, with a forecasted reading of 53.7 (compared to 55.2 previously).

In the United States, the May Factory Orders data will be published, with a forecasted month-on-month increase of 0.8% (compared to 0.4% previously). Additionally, the May Core Factory Orders, excluding transportation, are expected to show a month-on-month increase of 0.3% (compared to -0.2% previously).

Lastly, the US will release the IBD/TIPP Economic Optimism Index for July, with a forecasted reading of 43 (compared to 41.7 previously).