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U.S. Equities Rally on Strong Economic Data and Bank Stress Test Results

Market Update - Daniel Ang The Accidental Trader Traders Academy International 13

In this daily market update, we’ll discuss the performance of U.S. equities on Friday, June 30, 2023. The market experienced mostly positive gains as bank shares rallied following the Federal Reserve’s stress test results. Additionally, strong economic data, including a significant decline in weekly jobless claims and an upward revision of the first-quarter gross domestic product (GDP) estimate, raised expectations of future interest rate hikes. We’ll also cover the performance of major indices, the upcoming release of the Federal Reserve’s preferred inflation gauge, and developments in the currency and commodities markets.

U.S. Equities Surge on Bank Stress Test Results:
On Thursday, U.S. equities closed mostly higher as major banks successfully passed the Federal Reserve’s annual stress test. The results showed that these banks have sufficient capital reserves to withstand a severe economic slump. This positive outcome boosted investor confidence and led to a rally in bank shares.

Strong Economic Data Bolsters Market Sentiment:
Reports released on Thursday revealed that U.S. weekly jobless claims reached their lowest level in 20 months. The number of initial jobless claims decreased by 26,000 to a seasonally adjusted 239,000. Furthermore, the Commerce Department revised its first-quarter GDP estimate from 1.3% (reported in May) to a more robust 2%. This positive economic data heightened expectations for future interest rate hikes, contributing to the overall market optimism.

Performance of Major Indices:
The S&P 500 closed with a gain of 19.58 points or 0.45%, reaching a level of 4,396.44 points. Meanwhile, the Nasdaq Composite experienced a marginal decrease of 0.42 points or 0.00%, closing at 13,591.33. The Dow Jones Industrial Average performed strongly, rising by 269.76 points or 0.80% to reach 34,122.42.

Federal Reserve’s Preferred Inflation Gauge:
The market eagerly awaits the release of the Personal Consumption Expenditure (PCE) index for May, which is the Federal Reserve’s preferred inflation gauge. Economists anticipate that core rates will remain steady at 4.7%. This data will provide insights into the inflationary pressures the economy is currently facing and could influence future monetary policy decisions.

Currency Markets:
In currency markets, the Dollar Index rose by 0.35% to 103.310, reaching its highest level since June 13. The USD/JPY pair strengthened for the third consecutive day, hitting a fresh 7½-month high of 144.90. Speculators are closely monitoring the Bank of Japan’s (BoJ) potential intervention in the currency market, particularly around the 145 mark, which saw intervention in the past.

Commodities Market:
Brent crude oil prices remained relatively stable in early Asian trading but were on track to achieve their first monthly gain of the year. This positive outlook is driven by a significant drawdown in oil stocks and the OPEC+ alliance’s commitment to cutting output, which outweighed concerns related to rising interest rates and their potential impact on oil demand. Brent crude futures for September delivery fell by 19 cents or 0.3% to $74.32, while West Texas Intermediate crude (WTI) was down 21 cents or 0.3% to $69.65. Both benchmarks were still set to register monthly gains of over 2%.

Tightening Supply Supports Oil Prices:
The U.S. Energy Information Administration (EIA) reported a substantial drop of 9.6 million barrels in crude inventories for the week ended June 23, surpassing analysts’ expectations of a 1.8-million-barrel draw. Furthermore, Saudi Arabia’s plans to reduce its output by 1 million barrels per day starting in July, along with a broader OPEC+ agreement to limit supply until 2024, have raised concerns about tightening supply. These factors have contributed to the recent support for oil prices.

Gold Prices Face Pressure:
Gold prices traded at a three-month low due to renewed strength in the U.S. Dollar and Treasury yields. Federal Reserve Chair Jerome Powell’s comments about the likelihood of more interest rate hikes further impacted the precious metal. Spot gold steadied at $1,908.85 per ounce after briefly dropping below the key $1,900 level. COMEX gold futures fell 0.3% to $1,916.20 per ounce.

Cryptocurrency Market Update:
Bitcoin (BTC) started the day trading at $30,451 in early Asian trading. BTC experienced a volatile period, briefly surpassing $31,000 on Tuesday following news of Fidelity Investments’ intention to apply for spot bitcoin ETFs, alongside BlackRock. However, on Wednesday, it dipped below $30,000 as investors pondered the timing of SEC approval and concerns surrounding inflationary pressures. Ether (ETH) was trading at $1,852.70, while SOL, the token of the Solano smart contracts blockchain, spiked over 10% to $17.59.

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