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14/08/2024 - 07:50 UTCThe dollar plummeted against most major currencies on Tuesday, with the dollar index (USDX) down by 0.52% and closing Wednesday at 102.52. Anticipation of further cooling in today's inflation data is weighing on the greenback. Market participants are betting that softer inflation could pave the way for the Federal Reserve to adopt a more accommodative monetary policy to combat recession risks.
The CME FedWatch tool indicates a 47.5% likelihood of a 0.25% interest rate cut by the Fed in September, with a more probable 52.5% chance of a 0.50% reduction. Additionally, the market anticipates another rate cut in November, with a 50.7% probability.
The Japan 225 extended its rally, adding another 2.25% on its value on Tuesday, despite recent data showing Japanese producer inflation grew as expected in July, pushing up concerns that a sustained increase in inflation will give the Bank of Japan more headroom to hike interest rates. This week, all eyes are on Thursday's second-quarter GDP data, which follows a much sharper-than-expected economic contraction in the first quarter.
Major indices in Wall Street surged, with the US 500 up by 1.59%, the US tech 100 gaining by 2.49% and the US 30 posting a 0.95% increase. The move was largely attributed to further signs that inflation is cooling as shown in the PPI numbers that eased to 2.2% year-on-year, falling below the expected 2.3%. This strengthened the case for a Federal Reserve rate cut as soon as next month, sending Treasury yields tumbling.
In corporate news, Home Depot shares rebounded, gaining over 1%, after initially dropping in pre-market trading. The retailer's lowered full-year forecast, blamed on softening consumer demand for home improvement projects, had weighed on the stock. In addition, Starbucks led the S&P 500 surge, skyrocketing 24.54% in its biggest one-day gain ever after appointing Chipotle Mexican Grill's Brian Niccol as its new CEO.
In the spotlight for Wednesday is the U.S. consumer price index data, due later in the day, for more cues on when the Federal Reserve will begin trimming interest rates. Some price action could also be observed upon the release of eurozone Flash GDP numbers and the Energy Information Administration crude oil inventories report.
On Tuesday, the EUR/USD pair gained momentum, driven by a broad weakening of US Dollar demand following a sharper-than-expected decline in US Producer Price Index (PPI) inflation.
Traders in the EUR/USD market are now eagerly awaiting the pan-European Union Gross Domestic Product (GDP) growth figures, scheduled for release on Wednesday.
However, the focus for investors remains the upcoming US Consumer Price Index (CPI) inflation data, as market sentiment continues to recover.
US PPI inflation for July eased to 2.2% year-on-year, falling below the expected 2.3% and continuing its decline from the revised 2.7% of the previous period. Core PPI inflation also decreased to 2.4% for the year ending in July, undercutting forecasts of 2.7% and significantly lower than the prior 3.0%.
Gold prices posted minor losses on Tuesday as the U.S. dollar and Treasury yields edged lower.
Despite some recent profit-taking, ongoing geopolitical tensions and market volatility, along with the anticipated rate cut, continue to drive investors toward gold as a safe-haven asset.
According to the CME Group's FedWatch tool, traders are now pricing in a 54% chance of a 50-basis-point rate cut in September, which could further enhance the appeal of gold in a low-interest-rate environment.
Oil futures declined on Tuesday as traders became less concerned about the potential for a broader conflict in the Middle East. This shift in sentiment followed a lack of immediate retaliation from Iran in response to the assassination of a Hamas official in Tehran.
The International Energy Agency (IEA) maintained its global oil demand growth forecast for 2024 but revised its 2025 estimate downward, citing weaker-than-expected economic growth due to sluggish Chinese consumption.
Markets are also closely watching Wednesday’s U.S. Consumer Price Index (CPI) report, which is expected to provide crucial insights into inflation trends.
U.S. stock indexes closed higher on Tuesday, reaching a near two-week high, as softer producer price data fueled expectations of a potential interest rate cut by the Federal Reserve in September.
Investors are now focused on the upcoming consumer price index (CPI) data for July, set to be released on Wednesday, and retail sales figures on Thursday. These reports will be crucial in determining whether the U.S. central bank will pursue an aggressive rate cut.
In corporate news, Starbucks was the top performer on the US 500, soaring 24.54%, marking its biggest one-day percentage gain ever after the company named Brian Niccol, the head of Chipotle Mexican Grill, as its new chairman and CEO.
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