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Stocks Retreat and Dollar Firms Ahead of CPI Data

March 12, 2024

On Monday, the stock market saw mixed results as the recent rally slowed down. The S&P 500 and the Nasdaq Composite experienced declines, with technology stocks, including Super Micro Computer and Nvidia, facing notable losses. The Dow Jones, however, managed a slight increase. Concerns over the future performance of AI-related stocks and anticipation of the upcoming consumer price index report were key factors influencing the market’s movement. Additionally, the currency market observed the dollar index strengthening as investors awaited the CPI data, which could impact Federal Reserve’s rate decisions. Market analysts remain cautious, suggesting the Federal Reserve may need to maintain a careful approach to rate cuts in 2024.

Stock Market Updates

On Monday, the stock market experienced a slight downturn, interrupting the recent rally that had propelled major indexes to unprecedented heights. The S&P 500 edged down by 0.11% to close at 5,117.94, while the technology-heavy Nasdaq Composite dropped by 0.41% to end the day at 16,019.27. Both indexes recorded their second consecutive day of losses. Conversely, the Dow Jones Industrial Average managed to buck the trend by gaining 46.97 points, a modest increase of 0.12%, to close at 38,769.66.

In the tech sector, notable declines were seen in shares of Super Micro Computer, which fell by more than 5%, and Nvidia, down 2%, as investors began to question the sustainability of the recent surge in stocks linked to artificial intelligence. Meta Platforms, the parent company of Facebook, also faced a significant setback, dropping 4.4%. Additionally, the pharmaceutical giant Eli Lilly saw its stock decrease by over 3%.

These movements come as the market anticipates the release of the Consumer Price Index (CPI) for February, expected on Tuesday. According to forecasts by economists surveyed by Dow Jones, the CPI is projected to rise by 0.4% from January to February and by 3.1% on an annual basis. The core CPI, which excludes the volatile food and energy sectors, is anticipated to increase by 0.3% for the month and 3.7% annually.

Later in the week, the focus will shift to the producer price index, setting the stage for the Federal Reserve’s policy meeting in March. Some analysts, suggests that market optimism regarding the Fed’s capacity to cut rates in 2024 may be premature, with the upcoming inflation data likely reinforcing the need for a cautious approach by the Fed.

Currency Market Updates

In the currency markets, the dollar index saw a slight increase of 0.18% on Monday, stabilizing after the previous week’s decline. This adjustment comes as investors eagerly await the CPI report, which could clarify the current disparity between market expectations of nearly four rate cuts this year and the Fed’s December projections of three cuts.

The EUR/USD pair dipped slightly by 0.15%, maintaining its position above 1.0900 following a rally last week. The anticipation of the CPI data and its potential impact on the Federal Reserve’s next moves adds to the cautious sentiment observed in the currency markets.

Moreover, the New York Fed’s consumer survey highlighted rising inflation expectations over the next three to five years, predominantly among respondents with a high school education or less, further complicating the economic outlook.

As the financial world braces for the upcoming CPI report and its implications for interest rate decisions, the stock and currency markets reflect a mix of caution and anticipation. The outcomes of these economic indicators will likely play a crucial role in shaping the Federal Reserve’s policy direction in the coming months, with significant ramifications for investors and the broader economy.

Picks of the Day Analysis
EUR/USD (4 Hours)

EUR/USD faces pressure as US dollar rebounds amid easing cycle anticipations

The US dollar’s modest rebound has put EUR/USD on the back foot, marking the start of the new trading week with its second day of losses. This comes as investors digest the latest US Non-farm Payrolls report, which showed a significant job addition but with a slight uptick in the jobless rate and a cooling in wage inflation. The dollar’s recovery is mirrored by a modest increase in US yields and the German 10-year bund yields climbing back to 2.30%.

Both the Federal Reserve and the European Central Bank are expected to begin their easing cycles in June, with the pace of interest rate reductions potentially setting them apart. Despite the ECB’s cautious stance, as expressed by Board member P. Kazimir, it’s unlikely to lag significantly behind the Fed in easing measures. With market expectations leaning towards a June rate cut, the economic fundamentals of the euro area, in comparison to the US’s resilience, suggest a stronger dollar in the medium term. This scenario could lead EUR/USD towards a deeper correction, initially aiming for its year-to-date low around 1.0700 and possibly extending towards late 2023 lows in the 1.0500 range.

Chart EUR/USD by TradingView

On Monday, the EUR/USD moved lower and was able to reach the middle band of the Bollinger Bands. Currently, the price is moving at the middle band, suggesting a potential consolidation movement and may create narrower bands. Notably, the Relative Strength Index (RSI) maintains its position at 57, signaling a neutral outlook for this currency pair.

Resistance: 1.0984, 1.1079

Support: 1.0907, 1.0812

 Economic Data
CurrencyDataTime (GMT + 8)Forecast
GBPEmployment Change15:0020.3K
USDCore CPI m/m20:300.3%
USDCPI m/m20:300.4%
USDCPI y/y20:303.1%

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