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Daily market analysis

Stocks Slip as Market Consolidates Gains, Eyes Fed’s Inflation Target

June 6, 2023

On Monday, the S&P 500 ended the day lower, wiping out earlier gains that had brought the index to its highest level in nine months. The S&P 500 lost 0.2%, closing at 4,273.79, while the Nasdaq Composite dipped 0.09% to 13,229.43, and the Dow Jones Industrial Average dropped 0.59% to 33,562.86. Apple’s stock declined by around 0.8% after unveiling its virtual reality headset and software updates at its developers’ conference. Intel also saw a 4.6% drop due to Apple’s announcement of a new chip, and Nvidia pulled back on valuation concerns. JPMorgan Chase and Goldman Sachs faced struggles following news of potential increased capital requirements for large banks. The market’s recent consolidation of gains came after a broad-based rally on Friday, buoyed by positive economic indicators and the passage of the debt ceiling bill.

While investors are hopeful about the economy and the recent market rally, concerns linger about the narrow focus on a few tech stocks and the potential for an intermediate-term correction if market breadth does not improve. The Federal Reserve’s target for managing inflation is a key factor that could impact market movements going forward. Investors are eager to see if the central bank will revise its 2% inflation target. Despite these uncertainties, some analysts remain optimistic that the market can catch up and close the gap in other sectors as long as the economy continues to show resilience and avoid recessionary signs.

Data by Bloomberg

On Monday, the overall market experienced a slight decline of 0.20%. Among the different sectors, Communication Services saw a positive gain of 0.58%, followed by Utilities with a 0.45% increase. Health Care and Consumer Discretionary sectors also performed well, gaining 0.38% and 0.35% respectively. On the other hand, Materials experienced a slight decline of 0.10%. Consumer Staples, Real Estate, Information Technology, Financials, Energy, and Industrials all saw negative changes ranging from -0.35% to -0.71%.

Major Pair Movement

The US dollar weakened after the ISM services data revealed that a significant portion of the US economy was struggling to avoid contraction, with concerns about a potential recession. The decline in the ISM’s employment index, new orders, and prices paid contributed to the cautious market sentiment. This raised doubts about the possibility of a rate hike this month, supported by disinflationary data and indicators of a weaker labour market.

As a result, Treasury yields and the dollar reversed earlier gains, with expectations shifting towards a delay in rate increases. The euro-dollar exchange rate remained relatively unchanged despite the European Central Bank’s plans for future rate hikes. The British pound recovered slightly, while the US dollar against the Japanese yen experienced a decline. The market showed less willingness to pursue new Treasury yield and dollar highs, awaiting upcoming CPI data and Federal Reserve events.

In summary, the US dollar’s weakness reflected concerns about the struggling US economy and the potential delay in rate hikes by the Federal Reserve, leading to cautious market behaviour.

Picks of the Day Analysis

EUR/USD (4 Hours)

EUR/USD Rebounds as US Dollar Weakens on Disappointing Economic Data

The EUR/USD saw a rebound during the American session, driven by the broad-based weakness of the US dollar following the release of underwhelming US economic data. Federal Reserve rate expectations remain influential ahead of the upcoming June 13-14 meeting.

In contrast, the Euro experienced mixed performance due to lacklustre economic reports and European Central Bank President Christine Lagarde’s testimony. Lagarde hinted at potential rate hikes in the Euro area, while Eurozone data fell below expectations. Meanwhile, the US ISM Services PMI report further dampened the US dollar as it fell short of projections. Consequently, US Treasury bonds gained strength, impacting Wall Street and causing US yields to drop.

Chart EURUSD by TradingView

According to technical analysis, the EUR/USD pair is moving higher on Monday, reaching the middle band of the Bollinger Bands. Currently, the EUR/USD is trading just above the middle band, with the potential for it to move higher and reach the upper band of the Bollinger Bands. The Relative Strength Index (RSI) is currently at 49, indicating that the EUR/USD is in a neutral trend with a slightly bullish bias.

Resistance: 1.0766, 1.0824

Support: 1.0706, 1.0671

XAU/USD (4 Hours)

Gold (XAU/USD) Recovers as US Dollar Falters on Weak Data, Uncertainty Surrounds Fed’s Monetary Policy Decision

In the first half of the day, the US Dollar showed strength but later reversed course due to lacklustre American data. Amidst this, Gold (XAU/USD) rebounded from its intraday low and hovered near a recent high. The decline in the ISM Services PMI and modest Factory Orders growth put pressure on the USD, causing Treasury yields to fall. Market participants are grappling with uncertainty regarding the upcoming US Federal Reserve monetary policy decision, as inflation remains slow while the job market remains tight. As the decision approaches next week, financial markets await further communication from American policymakers.

The US Dollar started strong but reversed course due to weak US data, causing the XAU/USD to recover from a low and trade near a recent high. The decline in the ISM Services PMI and modest Factory Orders growth pressured the USD. US Treasury yields fell after initially rising post a solid Nonfarm Payrolls report. Uncertainty surrounds the upcoming US Federal Reserve decision, as inflation slows while the job market remains tight. Market participants anticipate the Fed to hold off on rate hikes in their June meeting but keep future hikes as a possibility. The Fed’s decision will be announced next week, keeping financial markets waiting for updates from American policymakers.

Chart XAUUSD by TradingView

According to technical analysis, the XAU/USD pair is moving higher on Monday, reaching the middle band of the Bollinger Bands. There is a possibility that the XAU/USD will continue to move higher and try to reach the upper band of the Bollinger Bands. Currently, the Relative Strength Index (RSI) is at 51, suggesting that the XAU/USD is in a neutral but slightly bullish trend.

Resistance: $1,970, $1,984

Support: $1,951, $1,937

Economic Data

CurrencyDataTime (GMT + 8)Forecast
AUDCash Rate12:303.85%
AUDRBA Rate Statement12:30

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