Daily Market Analysis - WEDNESDAY JUNE 28, 2023

28 มิ.ย. 2023

US Stocks Rebound As A Result Of Positive Economic Data

Key News:

USA – Fed Chair Powell Speaks
USA – Crude Oil Inventories

Tuesday witnessed a notable recovery in US stock indices, signaling a turnaround from a recent string of losses. The resurgence was spurred by positive economic data, easing investor concerns regarding a potential recession triggered by the Federal Reserve's aggressive interest rate hikes.

The Dow Jones Industrial Average, comprising esteemed blue-chip stocks, halted its six-day losing streak on Tuesday. Simultaneously, the Nasdaq Composite, predominantly representing technology-related firms, appeared poised to achieve its strongest first-half performance in forty years. Furthermore, the S&P 500 rebounded after enduring declines in five out of the past six trading sessions.


DJI indice daily chart


NASDAQ indice daily chart


SPX indice daily chart

In a surprising turn, recent reports unveiled unforeseen growth in new orders for crucial US-manufactured capital goods in May. Furthermore, the month witnessed a substantial surge in sales of new single-family homes, alongside a nearly 1-1/2 year high in US consumer confidence in June.

These encouraging economic indicators provided investors with a compelling incentive to reengage in the stock market, following a significant correction in previous sessions. Mark Luschini, the chief investment strategist at Janney Montgomery Scott in Philadelphia, described the recent correction as a "pretty vicious" one.


EUR/USD daily chart

Yesterday, the euro demonstrated a robust performance in response to the hawkish stance adopted by European Central Bank (ECB) President Christine Lagarde and several other members of the ECB governing council regarding future interest rate increases. This indicates that the central bank has now made a commitment to implement another rate hike in July, with the possibility of a further increase in September. Lagarde has also dismissed the likelihood of a rapid decrease in rates, although her previous reversals on such matters have not been forgotten. A notable example was her statement at the end of 2021, when she declared a low probability of rate hikes in 2022.


GBP/USD daily chart

The pound has shown a gradual increase in value as traders intensify their expectations for a potential rate hike by the Bank of England. Speculation is mounting that the central bank may consider raising interest rates to a level above 6%, which has sparked renewed interest and confidence in the currency. The market sentiment surrounding the pound has shifted in favor of a more hawkish stance, driven by factors such as improving economic indicators and a belief that the Bank of England may take a proactive approach to control inflationary pressures. As a result, traders are adjusting their positions and positioning themselves to take advantage of a potential rate hike, leading to increased demand for the pound. However, it's important to note that these expectations are based on market speculation, and the actual decision by the Bank of England remains uncertain.


USD/JPY daily chart

The Japanese yen continues to face significant downward pressure, resulting in a decline against the US dollar, with the exchange rate reaching 144.00. Additionally, the yen has reached an 8-year low against the pound, reflecting the persistent weakness in the currency. The yen's depreciation can be attributed to a combination of factors, including the diverging monetary policies between the Bank of Japan and other major central banks, as well as a general risk-on sentiment in the markets, which has led to increased demand for higher-yielding assets.

In contrast, the Canadian dollar (CAD) has displayed remarkable strength among G10 currencies over the past month, and it has managed to maintain most of its gains leading up to the release of the Consumer Price Index (CPI) data today. During the overnight session, the USD/CAD pair reached its lowest level since September 2022, indicating the Canadian dollar's resilience. Although there has been a slight upward correction during European trading, the overall downward trend observed in June remains intact.

Market participants are now eagerly awaiting the release of May CPI data in Canada, as it will provide further insights into the country's inflationary pressures. Positive CPI figures could potentially bolster the Canadian dollar further, reaffirming its strength in the forex market. Conversely, weaker-than-expected CPI data may dampen the currency's recent performance.

Overall, the Japanese yen faces continued downward pressure, while the Canadian dollar remains strong and closely monitored ahead of the CPI data release, which could have a significant impact on its future trajectory.


USD/CAD daily chart

According to HSBC economists, there is an expectation of a 0.5% month-on-month increase in price pressures, surpassing the consensus estimate of 0.4%. This anticipated rise in inflation is driven by persistent upward pressure on mortgage interest costs and a seasonal uptick in food prices. If the actual price pressures exceed expectations on the upside, it could reinforce the likelihood of a quarter-point interest rate hike at the Bank of Canada's July meeting. Such a move would further bolster the strength of the Canadian dollar due to the impact of higher interest rates. Currently, swap markets are pricing in a 15-basis point increase in rates.

However, it is important to note that the year-on-year inflation rates for both headline and core measures are projected to slow down compared to the levels seen in April. This deceleration is attributed to the increasing influence of base effects, where the comparison is made against higher inflation rates from the previous year.

In addition to the upcoming inflation data, market participants are also anticipating other economic indicators and events this week. Of particular importance is a crucial inflation indicator, which will provide further insights into the state of inflationary pressures. Furthermore, a speech by Fed Chair Jerome Powell at the European Central Bank Forum in Sintra, Portugal, is expected to shed light on the future direction of interest rates and the monetary policy outlook.

These upcoming events and data releases are likely to play a significant role in shaping market expectations regarding interest rates and could have implications for currency movements, including the Canadian dollar. Traders and investors will closely analyze the outcomes and statements to make informed decisions in response to the evolving economic landscape.