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25/01/2024 - 08:40 UTCThe dollar ended in negative territory against most major currencies on Wednesday, with the dollar index (USDX) breaking below the weekly trading range, to touch levels last seen on January 16th. Investors anticipate a key GDP report and inflation data due later this week to further assess resilience in the US economy.
According to the CME Fedwatch tool, the markets price in a 42.4% possibility that the 1st rate cut in 2024 will take place in the March FOMC meeting, while the possibility for an additional rate hike taking place in May is at 30.8%.
The main stock market indices send waves of optimism in the markets as they continue to ascend, marking several consecutive record high closings, with investors shifting their focus to today’s key GDP report where markets expect a decline of 2%, from 4.9% in Q3. Fourth quarter earnings are also in focus, with results so far being encouraging, with the exception of Tesla, as the company reported disappointing fourth-quarter financials, and weak outlook. However, Elon Musk says that these numbers are the result of massive new investments made that will transform the company into a colossus.
Oil prices recovered on Wednesday, as U.S. weekly crude inventories reported by the EIA fell more than expected last week. Further support came from China's central bank, as it announced a decrease in reserves on Wednesday, a move that will inject about $140 billion of cash into the banking system.
For Thursday, some price action could be seen later in the session, upon the ECB monetary policy statement and the US growth and employment data that follows. In addition, US durable goods orders and new home sales could also bring some volatility into the session. On the earnings front, companies Las Vegas Sands, Valero, American Airlines, Union Pacific, KLA, Intel, Visa and T-Mobile publish quarterly results later in the session.
The EUR/USD pair rebounded on Wednesday ending the session positive for the first time this week with gains of 0.22%.
Advanced PMIs in Germany and the euro bloc came in on the strong side for the month of January, exposing some reactivation of the economic activity in the region and hinting at the idea of a potential soft landing of the region’s economy.
The US Flash Composite PMI rose to 52.3 its highest since June 2023, while the Services PMI expanded by 52.9 from 51.4. Meanwhile, manufacturing activity was the largest contributor to the composite index, which rebounded from 47.9 to 50.4, crushing estimates of 47.9.
Next in the US economic docket are the Gross Domestic Product (GDP) report release, the Core Personal Consumption Expenditures (PCE) Price Index, Durable Goods Orders, and the unemployment claims. On the Eurozone, the European Central Bank (ECB) monetary policy decision is awaited, followed by ECB’s President Christine Lagarde's press conference.
Gold eased on Wednesday after data showed strong U.S. business activity, even as a weakened dollar limited loss, while investors looked ahead to more economic indicators to assess when the Federal Reserve might first cut interest rates.
U.S. business activity picked up in January and inflation appeared to abate, an S&P Global survey showed.
A strong U.S. economy and pushback from central bank officials is leading some investors to rethink their bets on how quickly the Fed will cut rates this year. Lower interest rates reduce the opportunity cost of holding non-yielding bullion.
Oil prices edged up more than 1% on Wednesday on a bigger-than-expected U.S. crude storage withdrawal, a slump in U.S. crude output, Chinese economic stimulus, geopolitical tensions, and a weaker dollar.
China's central bank will cut the amount of cash that banks must hold as reserves from Feb. 5, a move expected to shore up a fragile economic recovery.
U.S. crude stockpiles tumbled by 9.2 million barrels last week, the Energy Information Administration said, more than quadruple the 2.2 million-barrel draw analysts forecast.
U.S. stocks were mixed after the close on Wednesday, as gains in the Oil & Gas, Technology and Financials sectors led shares higher while losses in the Telecoms, Utilities and Basic Materials sectors led shares lower. At the close in NYSE, the US 30 declined 0.24%, while the US 500 lost 0.10%, and the US Tech 100 climbed 0.23%.
Treasury yields rebounded on Wednesday as investors demanded a higher risk premium after data showed U.S. business activity picking up in January and inflation appearing to abate before key data in coming days and a Federal Reserve meeting next week.
Investors will be closely monitoring Q4 GDP data on Thursday, while companies including Humana Inc, Southwest Airlines Company, and American Airlines Group are all set to report before the bell, while Intel Corporation, T-Mobile US Inc, and Western Digital Corporation will release their quarterly results after the close.
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