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Global Demand Concerns Weigh on Wall Street Amidst Profit-Taking

Market Update - Daniel Ang The Accidental Trader Traders Academy International 6

Welcome to the daily market update for Wednesday, June 21, 2023. In this report, we’ll delve into the latest market developments on Wall Street, highlighting the factors influencing investor sentiment and driving the performance of key indices. Today’s trading session saw a slight pullback as market participants seized the opportunity to take profits following a sustained rally. Concerns over weakening global demand, coupled with recent developments in China, weighed on investor sentiment. We’ll also explore the performance of major currencies, commodities, and the cryptocurrency market.

Wall Street Retreats as Profit-Taking Begins
Wall Street experienced a softening in overnight trading as investors opted to secure their gains amid signs of weakening global demand. The three major U.S. equity indices traded in the red, although they recovered from their session lows. This broad sell-off comes after the Nasdaq’s longest weekly winning streak since March 2019 and the S&P 500’s longest since November 2021. As of last Friday’s close, the S&P 500 had shown an impressive 20% gain over the past 12 months and a 14% increase year-to-date.

Concerns Over Weakening Global Demand
Worries about slowing global demand intensified as China implemented a cut to its lending benchmarks in an effort to stimulate sluggish demand. This move offset positive news of a 21.7% surge in housing starts, marking the largest monthly increase in thirty years. Despite this surge, the overall sentiment was overshadowed by concerns over global economic growth.

Wall Street Performance
During yesterday’s trading session, the Dow Jones Industrial Average fell by 0.72% to 34,053.87. The S&P 500 also experienced a decline of 0.47%, closing at 4,388.71, while the Nasdaq Composite dropped 0.16% to 13,667.29.

Currency Market Highlights
The U.S. Dollar showed strength during early Asian trade today, supported by surprisingly robust U.S. housing data. Conversely, the Australian Dollar remained under pressure. The U.S. Dollar index remained steady at 102.55. The AUD/USD pair suffered a 0.9% decline overnight and is currently trading at 0.6790.

The focus now turns to Federal Reserve Chair Jerome Powell’s two-day monetary policy testimony, commencing with an appearance before the U.S. House Financial Services Committee tonight. Market participants eagerly anticipate insights into the central bank’s outlook and future monetary policy decisions.

Currency Performance and Central Bank Actions
The EUR/USD pair exhibited marginal weakness, trading at 1.0916. The USD/JPY pair also experienced a slight decline to 140.50, ahead of an appearance by Bank of Japan Governor Kazuo Ueda later today. On the other hand, the GBP/USD pair recovered some of its overnight losses and is currently trading at 1.2760. Later in the day, key U.K. Consumer Price Index (CPI) data is scheduled for release, with economists hoping for signs of easing. The Bank of England (BoE) is set to meet tomorrow, with markets currently pricing in a 3/4 chance of a 25 bp hike and a 1/4 chance of a 50 bp hike, making the CPI data crucial for their decision-making.

Commodities Market Update
In the commodities market, spot gold remained largely unchanged at $1,936.99 per ounce, while COMEX gold futures experienced minimal fluctuations, trading at $1,948.20 per ounce. The gold market traded within a narrow range as cautious traders refrained from making significant bets ahead of Fed Chairman Jerome Powell’s congressional testimony.

Crude oil prices weakened for the third consecutive day, primarily influenced by a strengthening U.S. Dollar and lingering concerns that monetary stimulus may not be sufficient to stimulate growth in China. Brent crude futures declined by $0.21 (0.3%) to $75.69 per barrel, while West Texas Intermediate (WTI) crude futures were down $0.14 (0.2%) at $71.06 per barrel. The market remains apprehensive about a faltering recovery in China, the world’s leading oil importer.

China’s Economic Woes Impact Oil Market
China’s recent benchmark loan prime rate reduction, the first in 10 months, failed to alleviate concerns surrounding the country’s economic growth. The rate cut, which was smaller than anticipated, followed weak economic data indicating struggles in the retail and factory sectors. Investors are closely monitoring developments in China as the nation seeks to bolster its growth prospects.

Traders will also keep an eye on U.S. oil inventory data from the American Petroleum Institute industry group, which is set to be released tonight. The Energy Information Administration (EIA) will release their report tomorrow. Both reports were delayed by a day due to the Juneteenth public holiday on Monday.

Cryptocurrency Market Performance
Bitcoin (BTC) displayed notable strength, surging 5% overnight to surpass the $28,000 mark for the first time since late May. This surge was supported by the launch of a new cryptocurrency exchange backed by industry giants Fidelity, Citadel Securities, and Charles Schwab. EDX Markets, a digital asset platform supported by these financial powerhouses, officially commenced trading in four digital assets.

Currently, BTC is trading at $28,827. Ethereum (ETH) also experienced a positive trajectory, rising by 3.2% to $1,780 overnight and subsequently trading at $1,809.90 during early Asia trade.

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