Dow's Winning Streak in Jeopardy, ECB's Surprising Move, and Key Earnings Ahead

Key events: 

• Japan - BoJ Press Conference                            
• USA - Core PCE Price Index (MoM) (Jun)             
• USA - Core PCE Price Index (YoY) (Jun)

On Thursday, the Dow Jones Industrial Average was poised to break its longest winning streak in 36 years, indicating that Wall Street's tech-driven rally is expanding to encompass a broader range of the stock market.

Until Wednesday, the Dow had achieved an impressive 13 consecutive sessions of closing higher, marking its lengthiest series of positive closes since 1987. However, on Thursday afternoon, it experienced a slight decline of 0.5% after earlier gains.

Although investment professionals often prefer the S&P 500, which includes over 500 stocks, the Dow's daily movements are frequently quoted in news media, making it widely recognized among many Americans.

The recent surge in the Dow coincides with the widespread belief among traders that the US Federal Reserve's 25 basis point rate hike on Wednesday marked the conclusion of its campaign to control inflation. Furthermore, investors are feeling optimistic about the US economy's ability to avoid a recession.

According to S&P Dow Jones Indices, the Dow's all-time longest winning streak occurred in 1897, lasting 14 sessions.

Despite its recent gains, the Dow has not performed as well as other major indices on Wall Street in 2023. Year to date, it has risen by 7%, while the S&P 500 and Nasdaq have seen gains of 18% and 35%, respectively.

During extended trading, Intel Corporation (NASDAQ: INTC) saw a significant increase of 8.4% following its Q2 earnings report. The company reported earnings per share (EPS) of $0.13, surpassing expectations as analysts had predicted losses of $0.04 per share. Additionally, Intel's revenue for the quarter was reported at $12.9 billion, beating the expected revenue of $12.09 billion.

Last night, the European Central Bank (ECB) made a notable move by raising its main policy interest rates by 25 basis points, resulting in a deposit interest rate of 3.75%. What caught attention was the policy statement that accompanied this decision, as it kept the possibility of further rate hikes open without adopting a more cautious stance.

The US markets received a modest boost yesterday from the Federal Reserve, but the European indices experienced significant gains this afternoon. Surprisingly, ECB President Christine Lagarde's remarks hinted that the rate hike campaign might come to an end, surprising the markets with a more dovish tone than anticipated. As a result, the DAX, CAC, and other European indices surged. The rally shows no signs of summer weakness, and even strong US economic data failed to dampen bullish sentiment.

While the FTSE's surge has slowed down this week, the overall market sentiment remains firmly bullish. The afternoon saw some drag due to declines in Shell and Barclays shares, but the index appears to have further upside potential. Looking ahead, it is expected that the Bank of England (BoE) will follow the lead of the Fed and ECB on rates. A dovish tone in the upcoming week should aid UK stocks in recovering some lost ground.

During the early hours of Friday's Asian trading session, the EUR/USD currency pair is hovering around the 1.0980-1.0970 range. The pair is recovering from its significant decline, which marked the largest drop in 4.5 months during the previous day's trading. Currently, the Euro pair reflects the cautious sentiment prevailing in the market as investors await the release of top-tier data from both Germany and the United States. The market sentiment appears subdued, reaching its lowest level in three weeks ahead of these key economic indicators.

Apart from that, during the much-awaited July policy review meeting, the Bank of Japan (BoJ) board members made the decision to keep their existing monetary policy settings unchanged. This includes maintaining interest rates at -10 basis points and the 10-year Japanese Government Bond (JGB) yield target at 0.00%.

Following the BoJ's policy announcements, the USD/JPY pair experienced renewed upward movement and gained further momentum. Currently, the pair is trading at 140.06, reflecting a 0.45% increase for the day. In response to the BoJ's decision, there was a swift knee-jerk reaction that pushed the pair to test 141.08 before settling at its current level.

Looking ahead to Friday's trading, investors will be closely observing the release of fresh data on the PCE (Personal Consumption Expenditures) price index, which is an important indicator of inflation. Additionally, market participants will be interested in the Michigan consumer sentiment and expectations data, which can provide insights into consumer confidence and economic expectations.

On the earnings front, two prominent companies, Exxon Mobil Corp (NYSE: XOM) and Procter & Gamble Company (NYSE: PG), are scheduled to announce their quarterly results. These reports could have a significant impact on their respective stock prices and may influence broader market sentiment.