Fed Chair Powell Signals More Rate Hikes, Nasdaq Gains Support from Mega-Cap Stocks

In today’s daily market update, we delve into the recent developments that impacted the financial landscape on Thursday, June 29, 2023. The Nasdaq experienced a slight gain, thanks to the support from mega-cap stocks. Conversely, the S&P 500 and the Dow closed lower following U.S. Federal Reserve Chair Jerome Powell’s indication of more rate hikes and his projection that inflation would not reach the Fed’s target rate in the near future. Investors, however, seemed unperturbed by these remarks due to encouraging signs of strength in the economy.

Market Performance

The Dow Jones Industrial Average concluded the day with a decline of 74.08 points, equivalent to 0.22%, settling at 33,852.66. The S&P 500 experienced a marginal decrease of 1.55 points, or 0.04%, reaching 4,376.86. On a positive note, the Nasdaq Composite registered an increase of 36.08 points, or 0.27%, closing at 13,591.75.

Investor Sentiment

Despite the red territory for the S&P 500, investors largely took Powell’s comments in stride due to the economy’s overall resilience. The market participants anticipate crucial upcoming indicators to assess the state of the U.S. economy. Among these indicators are the Personal Consumption Expenditures (PCE) index reading, which serves as the Federal Reserve’s favored gauge of inflation, initial jobless claims data, and the final reading of first-quarter GDP, all slated to be released on Friday.

Dollar Strengthens on Powell’s Comments

As Powell refrained from ruling out another rate hike by the central bank in July, the U.S. dollar saw a rise. The Dollar Index climbed by 0.566% to reach 103.080, signaling increased investor confidence in the currency.

Foreign Exchange Market

In the foreign exchange market, the Japanese Yen weakened by 0.32% against the dollar, amounting to 144.51 per dollar. Similarly, EUR/JPY fell by 0.22% to 157.560 after reaching a 15-year high of 158.00. The yen has been under pressure due to the Bank of Japan’s comparatively loose monetary policy. Recently, it touched a fresh 7-month low of 144.57 per dollar, prompting concerns among Japanese currency officials about a possible intervention to support the yen, as seen when USD/JPY traded around 145.

Banking Sector Outlook

Christine Lagarde, head of the European Central Bank (ECB), highlighted that the ECB is yet to observe sufficient evidence indicating a downward trend in underlying inflation. On the other hand, Bank of England Governor Andrew Bailey expressed caution regarding the financial markets’ expectations of interest rate increases by the Bank of England.

EUR/USD declined by 0.53% to 1.0901, while GBP/USD was last traded at 1.2611, marking a 1.06% decrease for the day.

Commodity Market

Crude oil prices rose by approximately 3% following the second consecutive weekly draw from U.S. crude stockpiles, which surpassed expectations. This draw helped offset concerns about potential economic growth slowdown due to further interest rate hikes and their potential impact on global oil demand. The U.S. Energy Information Administration (EIA) reported a decline of 9.6 million barrels in crude inventories for the week ended June 23. This figure exceeded the 1.8-million-barrel draw forecasted by analysts and the 2.8-million-barrel draw from the same period the previous year. It also surpassed the average draw from 2018-2022.

Brent futures experienced a $1.77 increase, equivalent to 2.5%, settling at $74.03 per barrel. Similarly, West Texas Intermediate (WTI) crude rose by $1.86, or 2.8%, reaching $69.56 per barrel. This reduction in Brent’s premium over WTI marked its lowest level since June 9.

Analysts anticipate a tightening market in the second half of the year due to ongoing supply cuts by OPEC+ and Saudi Arabia’s voluntary reduction for July.

Gold Market

Gold prices reached their lowest point in nearly four months due to expectations of prolonged higher interest rates. Federal Reserve Chair Jerome Powell’s reiterated hawkish stance, suggesting the likelihood of additional rate increases and leaving the door open for a rate hike at the July Federal Open Market Committee (FOMC) meeting.

Spot gold fell by 0.1% to $1,912.49 per ounce after hitting its lowest level since mid-March. COMEX gold futures settled 0.1% lower at $1,922.20 per ounce. Similarly, silver experienced a 0.3% decline, reaching $22.81 per ounce.

Crypto Market Recovery Signals

The cryptocurrency market shows promising signs of recovery, indicating a potential end to the crypto winter. Institutional players continue to enter the space, with notable announcements such as BlackRock’s filing for a spot Bitcoin (BTC) ETF. Additionally, Citadel, Fidelity, and Charles Schwab have launched a crypto exchange called EDX Markets, and Fidelity itself is filing for a license to establish another BTC ETF.

Increasing transaction volumes in Bitcoin (BTC) have also sparked speculation regarding the end of the bear market. The daily trading volume for Bitcoin has surpassed $10 billion, prompting discussions about a potential market turnaround.

Bitcoin is currently undergoing a consolidation phase after its surge to $31,000 last week. In early Asia trading, it is hovering just above the $30,000 mark.