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16/10/2024 - 07:25 UTCThe U.S. dollar remained firm at an over two-month high against most of its major peers on Tuesday, with the dollar index (USDX) continuing the recent upward trajectory fueled by anticipation of gradual interest rate reductions by the Federal Reserve. Even though geopolitical fears have eased, and energy prices fell slightly, analysts remain optimistic about the dollar's long-term strength due to its safe haven properties and ongoing global uncertainties.
Looking ahead, the upcoming U.S. elections and the Federal Reserve's interest rate decision in November will be closely watched by investors. Based on current market expectations, there is a strong likelihood of a 25-basis-point interest rate reduction, with an 88.2% probability, while the odds of rates remaining unchanged are at 11.8%.
U.S. stock market benchmarks pulled back from record highs on Tuesday as heavyweight chipmaking stocks declined following ASML Holding NV's disappointing sales outlook for 2025. The Dutch company, a leading supplier of advanced chipmaking equipment, cited softer demand in industries not related to artificial intelligence. ASML's U.S. shares experienced a significant 16% drop in after-hours trading.
The third-quarter earnings season gained momentum on Tuesday, capturing investor focus. The banking sector was particularly noteworthy, with Goldman Sachs exceeding expectations driven by strong performance in Global Banking & Markets. Walgreens Boots stock soared 15.8% as the company announced plans to close 1,200 stores and exceeded lowered earnings estimates. Boeing stock rose 2.3% after the aerospace giant entered a $10 billion credit agreement and filed a registration statement for a potential $25 billion debt offering.
On the energy front, WTI retreated by roughly 3% on Tuesday, extending recent losses as concerns over a slowdown in global demand growth intensified, particularly in China, the world's largest oil importer. These concerns were further amplified by the Organization of the Petroleum Exporting Countries (OPEC) reducing its oil demand outlook for the third consecutive month.
Some key events later today include U.K. inflation numbers in the form of CPI, U.S. import prices and a speech by ECB President Lagarde.
The EUR/USD extended its decline on Tuesday, falling by 0.24%. This marks the first time since early August that the pair has closed below the 1.0900 level.
European banks have reported negative impacts following the European Central Bank’s (ECB) rate cut earlier this year. While credit standards for EU banks have generally remained stable and even eased slightly for household loans, conditions for consumer credit remain tight. The recent uptick in housing loan demand is driven largely by expectations of further rate cuts, suggesting that consumers are borrowing in anticipation of lower rates.
Looking ahead to Thursday, the ECB is widely expected to cut its main deposit rate by 25 basis points, bringing it down to 3.4% from 3.65%. A similar 25 bps reduction is anticipated for the ECB’s refinancing rate. In the U.S., key data on retail sales for September will be released on Thursday.
Gold prices rose on Tuesday as a decline in U.S. Treasury bond yields limited gains for the U.S. dollar.
The New York Fed's Empire State Manufacturing Index for September came in well below expectations, while the Consumer Expectations Survey showed an upward revision in inflation expectations for the month.
Geopolitical tensions also supported gold, with Israel announcing retaliatory military strikes against Iran and Hezbollah following the October 1 missile attack, reinforcing gold's role as a safe-haven asset.
Looking ahead, market attention will shift to key U.S. data releases later this week, including Retail Sales, Industrial Production, and Initial Jobless Claims.
Oil prices retreated on Tuesday, hitting a near two-week low, as a weakened demand outlook and reports that Israel would not target Iranian nuclear or oil sites eased fears of potential supply disruptions.
Israeli Prime Minister Benjamin Netanyahu told the United States that Israel was willing to strike Iranian military targets and not nuclear or oil ones, the Washington Post reported late on Monday.
Additionally, both the Organization of the Petroleum Exporting Countries (OPEC) and the International Energy Agency (IEA) revised down their forecasts for global oil demand growth in 2024, with China contributing significantly to the downgrades.
U.S. stock index futures declined on Tuesday, driven by disappointing earnings from chipmaking giant ASML, pulled Wall Street back from record highs.
The tech sector was weighed down by losses in major chipmakers after ASML, a key player in semiconductor manufacturing equipment, slashed its annual forecast due to sluggish demand for chips unrelated to artificial intelligence.
Adding to the pressure, a report indicated that the U.S. government may impose restrictions on sales of AI-related chips to certain countries, raising concerns about weaker future sales.
Beyond earnings, investors are closely watching speeches from several Federal Reserve officials amid growing expectations that interest rates may decrease more slowly than previously anticipated.
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