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Market Surges on Inflation Data; Tech Stocks and Dollar Gain Momentum

March 13, 2024

On Tuesday, financial markets experienced significant gains following the release of U.S. inflation data that aligned with expectations, fueling a surge in tech stocks like Nvidia, Meta Platforms, and Oracle. The Dow Jones, S&P 500, and Nasdaq all posted notable increases, with the S&P 500 hitting a new record high. Meanwhile, the consumer price index’s rise mirrored forecasts, sustaining investor hopes for a Federal Reserve rate cut in June. In the currency sector, the dollar strengthened against major currencies, reacting to the inflation report and Treasury yield movements, setting the stage for the upcoming Fed meeting and economic indicators release.

Stock Market Updates

On Tuesday, the stock market witnessed notable gains, driven by U.S. inflation data that aligned with expectations, fueling investor enthusiasm towards tech giants such as Nvidia and Meta Platforms. The Dow Jones Industrial Average rose by 235.83 points (0.61%) to 39,005.49, the S&P 500 increased by 1.12% to a record close of 5,175.27, and the Nasdaq Composite advanced by 1.54% to 16,265.64. Notable movers included Nvidia, which jumped over 7%, Microsoft and Meta with increases of 2.6% and 3.3% respectively, and Oracle, which surged more than 11% following earnings that surpassed Wall Street’s forecasts.

The inflation update, with the consumer price index (CPI) rising by 0.4% for February and 3.2% year-over-year, was closely watched by the market. These figures met economists’ expectations and signaled a stabilizing inflation environment, albeit with core inflation rising slightly above forecasts at 0.4%. This data prompted analysts to maintain their outlook for a potential Federal Reserve rate cut in June, despite acknowledging the unpredictable path to the Fed’s 2% inflation target. 

Currency Market Updates

In the currency markets, the dollar index experienced a slight uplift of 0.2%, responding to the inflation data that pushed Treasury yields higher and adjusted the market’s expectations for Federal Reserve rate cuts in 2024. The yield on two-year Treasuries increased, and the overall sentiment shifted slightly, reducing the anticipated Fed rate cuts for the year, though a cut in June is still highly probable. The EUR/USD pair showed resilience, bouncing back after an initial drop, as market participants digested the implications of the CPI data and its impact on U.S. and European interest rate differentials.

Investors are now redirecting their focus towards other significant economic indicators and events, including the upcoming U.S. retail sales, Producer Price Index (PPI), and jobless claims reports. These data points, alongside the next Federal Reserve meeting scheduled for March 19-20, are expected to provide further clarity on the economic landscape and the central bank’s monetary policy direction. Additionally, the currency market remains attuned to developments around the globe, including the Bank of Japan’s potential rate decisions and the economic recovery signals from the U.S. and Europe.

As the financial world looks ahead, the anticipation builds for the Federal Reserve’s next moves, especially in light of recent economic data and global financial trends. The market’s reaction to the inflation reports, combined with upcoming economic indicators, underscores the delicate balance the Fed seeks to maintain between fostering economic growth and controlling inflation. With discussions and speculations around interest rate paths and policy adjustments, investors and analysts alike remain vigilant, ready to adapt to the evolving economic narrative.

Picks of the Day Analysis
EUR/USD (4 Hours)

EUR/USD extends decline amidst US dollar resurgence and inflation concerns

The US Dollar’s (USD) continuous recovery has applied additional pressure on EUR/USD, resulting in the pair’s decline for the third consecutive session towards the 1.0900 support level. This movement coincides with the USD Index (DXY) experiencing an uptick to the 103.20 area, driven by higher-than-anticipated US Consumer Price Index (CPI) inflation figures. The resurgence in the Dollar is echoed by gains in US yields across various maturities, paralleled by the German 10-year bund yields nearing 2.35%.

With both the Federal Reserve (Fed) and the European Central Bank (ECB) anticipated to start their easing cycles in early summer, likely in June, the focus shifts to the pace at which interest rate cuts will unfold. Although the ECB may not significantly trail the Fed in this regard, the central banks’ strategies could highlight differences in their approaches to monetary policy easing.

Market sentiment, as gauged by the FedWatch Tool from CME Group, now shows an increased probability of about 60% for a rate cut in June. This adjustment in expectations comes amidst a backdrop where the solid resilience of the US economy starkly contrasts with the euro area’s more subdued fundamentals. This dynamic fosters a medium-term outlook favoring a stronger Dollar, especially with both central banks on the verge of commencing their easing programs nearly in tandem. Under such conditions, EUR/USD may face a deeper correction, initially aiming for its year-to-date low around 1.0700, with a potential extension towards the late October 2023/early November lows in the 1.0500 vicinity.

Chart EUR/USD by TradingView

On Tuesday, the EUR/USD moved lower and reached the lower band of the Bollinger Bands. Currently, the price is moving just below the middle band, suggesting a potential higher movement, and may reach the upper band. Notably, the Relative Strength Index (RSI) maintains its position at 54, signaling a neutral outlook for this currency pair.

Resistance: 1.0984, 1.1079

Support: 1.0907, 1.0812

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