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17/07/2024 - 07:57 UTCThe U.S. dollar was almost unchanged against most major currencies on Tuesday, with the dollar index (USDX) down by 0.03%, fluctuating within a tight range between levels 103.71 and 104.25. Markets are receiving pressure from rising expectations that the Fed could proceed with more rate cuts by the end of the year than initially expected, following recent comments by Fed president Jerome Powell. The dollar could see some benefit in the recent decline of the euro that could accelerate if the ECB resumes rate cuts in September.
The CME FedWatch tool shows a surge in expectations for a September rate cut, with the probability now at 93.3%. Expectations for a second rate cut in November currently stand at 57.2%.
Oil prices fell on Tuesday, with the two main benchmarks WTI and Brent down by 1.33% and 1.14% respectively, hitting levels last seen in mid-June. According to reports, the move was attributed to signs of weakening demand in China that weighs on investor sentiment. The focus now shifts to U.S. inventories, as possible drawdowns could provide some support.
Bitcoin extends its rally for a fourth straight session on Tuesday, adding another 0.5% to its value while Ethereum fell by 1.12% with investors looking for more catalysts that could drive prices higher. The overall cryptocurrency market capitalization crossed the 2.5 trillion dollars mark, up from 2.2 trillion seen last week.
Fueled by positive retail sales data and strong corporate earnings, the US 30 that tracks the performance of the Dow Jones future, soared to record highs on Tuesday, marking its best day in over a year. On the earnings front, Wall Street banks continue to dominate with Bank of America's stellar earnings report sending it 5% higher. The bank thrived in the second quarter, exceeding analyst expectations for both revenue and profit thanks to robust performance in investment banking and asset management.
Focus for today could be on a testimony by Fed member Waller while some price action could also be observed upon the release of US building permits and industrial production numbers.
On Tuesday, the EUR/USD remained close to 1.0900, with market attention focused on the possibility of a September rate cut following weaker US Retail Sales figures for June.
Traders are anticipating up to three quarter-point cuts from the Federal Reserve starting in September. Meanwhile, the upcoming European Central Bank rate decision on Thursday adds to the market uncertainty. In June, US Retail Sales stagnated at 0.0%, in line with expectations and down from the revised 0.3% in the previous month. This, combined with a recent slowdown in Consumer Price Index (CPI) data, has increased the likelihood of a September rate cut.
The ECB is expected to keep rates unchanged on Thursday, waiting for further data following a previous quarter-point cut in June.
Gold prices surged by over 1% and reached a new all-time high on Tuesday, with investors turning to the precious metal as a safe-haven asset following remarks from Federal Reserve officials that solidified expectations of an impending U.S. interest rate cut in September.
Federal Reserve Chair Jerome Powell's statement on Monday, highlighting that recent inflation data supported policymakers' confidence that price pressures will remain subdued, reassured markets about the likelihood of a U.S. rate cut next month.
San Francisco Fed Bank President, Mary Daly, also expressed optimism, stating that "confidence is growing" regarding inflation's trajectory towards the U.S. central bank's 2% target.
Oil prices experienced a decline of over 1% on Tuesday, marking the third consecutive day of losses. The decrease was attributed to concerns about the impact of a slowing Chinese economy on demand. However, the downward trend was offset by the growing consensus that the U.S. Federal Reserve might initiate a reduction in its key interest rate as early as September.
Ongoing reports of weaker economic data from China were accompanied by disappointments regarding the government support programs, resulting in a reduction in fuel demand from China's refineries. In the U.S., crude oil inventories reportedly decreased by 4.4 million barrels last week, surpassing the market's expectations. According to sources citing figures from the American Petroleum Institute, an average decrease of 33,000 barrels was anticipated last week, as indicated by a Reuters poll conducted on Tuesday.
US 30 and US 500 closed the session on a high note, driven by strong retail sales data and a wave of predominantly positive quarterly earnings reports from companies. However, US Tech 100 experienced losses as major technology stocks continued to pull back ahead of key earnings releases from the sector this week.
The surge in earnings, growing confidence in the U.S. economy, and expectations of lower interest rates prompted traders to shift away from tech heavyweights and towards sectors more sensitive to economic conditions.
Furthermore, Wall Street banks maintained strong earnings performance, with Bank of America jumping 5% following second-quarter revenue and profit that surpassed expectations, driven by increased investment banking and asset management fees.
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