Markets React to Corporate Earnings and Economic Data, Gold Surges to Near Six-Week High | Daily Market Analysis

Key events:

• UK - CPI (YoY) (Jun)
• Eurozone - CPI (YoY) (Jun)
• USA - Building Permits (Jun)
• USA - Crude Oil Inventories

Investors celebrated Tuesday as the S&P 500 surged, driven by better-than-expected quarterly results from several major corporations, including prominent Wall Street banks.

The S&P 500 index experienced a notable 0.8% increase, while the Dow Jones Industrial Average saw a remarkable 1% rise, equivalent to a substantial 359 points. Additionally, the Nasdaq showed its strength with a 0.9% upward movement.

Among the standout performers was Bank of America Corp (NYSE: BAC), which led to the surge in banking stocks with a remarkable rise of over 4%. The bank reported second-quarter earnings that exceeded analyst estimates, primarily due to increased loan income resulting from higher interest rates.

Morgan Stanley (NYSE: MS) was another success story, rallying by 5% after reporting second-quarter results that outperformed estimates on both the top and bottom lines. The strong performance in its wealth management business effectively offset the trading business's weakness, which experienced a decline in equity and fixed-income revenue.

On Tuesday, the stock markets experienced marginal negativity, influenced by US retail sales data, which caused some initial volatility but later settled. The June retail sales figures were notably weaker than expected, but the impact was partly offset by the revision of May's numbers, presenting a mixed picture. The dollar experienced a significant decline following a slowdown in consumer and producer price gains in June.

This development has led to increased expectations that the US central bank will halt its rate hikes after the anticipated 25 basis-point increase at the upcoming July 25-26 meeting.

According to Fed funds futures traders, there is a projection of an additional 33 basis points of tightening later in the year. The benchmark rate is expected to peak at 5.40% in November.

On Tuesday, other data revealed an unexpected drop in production at US factories in June. However, the second quarter saw a rebound, especially in motor vehicle output, which accelerated after two consecutive quarterly declines.

Moving forward, traders are closely monitoring inflation releases from various regions, including the eurozone, Britain, and Japan. These releases will provide further insights into whether inflation is cooling globally.

As a result of these developments, the dollar index was last up 0.04% on the day at 99.924. However, it had fallen to 99.549, marking the lowest level since April 2022. This signifies the significant impact of the recent data on the dollar's performance in the foreign exchange market.

The dollar managed to gain 0.10% against the Japanese yen, reaching 138.83, recovering from the drop to 137.245 experienced on the previous Friday, which was the lowest level since May 17.

On the other hand, the euro remained relatively unchanged at $1.1229, after earlier reaching $1.12760, which marked the highest point since February 2022.

European Central Bank (ECB) governing council member Klaas Knot stated on Tuesday that the bank would closely monitor any signs of inflation cooling down in the upcoming months to ensure that rate hikes are not implemented excessively.

Market expectations point towards the European Central Bank raising interest rates by 25 basis points in the following week.

As for the British pound, it experienced a slight decline of 0.22% to $1.3046 after reaching $1.31440 on Thursday, which was the highest level seen since April 2022. This suggests some volatility in the currency's performance.

These fluctuations in currency values demonstrate the influence of various factors, including inflation concerns and interest rate expectations, on the global foreign exchange market.

Meanwhile, the Reserve Bank of Australia (RBA) is engaged in a balanced debate among policymakers regarding the appropriateness of current conditions. The central question is whether the existing restrictive measures are sufficient, or if further actions could potentially lead to positive or negative outcomes. While markets seem confident that the RBA will implement another rate hike this year, the timing remains uncertain. As seen throughout this year, expectations can change significantly within a matter of weeks, making it challenging for investors to predict future developments any more than the policymakers themselves.

Gold prices are once again showing a gradual upward movement after briefly paring gains in recent sessions. Initially facing resistance around $1,960, the price experienced a minor pullback but managed to find support near $1,940. The ongoing support from lower yields and a weakened dollar continues to play a significant role in bolstering gold's performance, as evidenced by yesterday's market movements.

As a result of yesterday's developments, gold has surpassed the $1,960 mark, reaching a nearly six-week high. Yields and the dollar have exhibited volatility following the release of retail sales data, which has had a corresponding impact on gold's performance. However, the market has yet to demonstrate a decisive direction for the precious metal.

If gold can maintain its position above $1,960, which it is currently close to testing, this could be perceived as a bullish confirmation signal. In such a scenario, the next potential challenge for gold's price could be at the $1,980 level.