✅ Daily Market Analysis - THURSDAY SEPTEMBER 14, 2023

Key events:

Eurozone - Deposit Facility Rate (Sep)
Eurozone - ECB Interest Rate Decision (Sep)
USA - Core Retail Sales (MoM) (Aug)
USA - Initial Jobless Claims
USA - PPI (MoM) (Aug)
USA - Retail Sales (MoM) (Aug)
Eurozone - ECB Press Conference

During the overnight trading hours of Wednesday, US stock futures retained their steadiness, reflecting a session marked by a mix of performances across the major benchmark indices. Traders were contending with the consequences of recent inflation data, rising yields, and a diminishing appetite for technology stocks.

The Dow Jones Futures held relatively steady, while both the S&P 500 Futures and Nasdaq 100 Futures saw minor gains of 0.1% each.

NASDAQ Index daily chart

S&P500 Index daily chart

DJI Index daily chart


During Thursday's Asian trading session, gold prices showed limited movement, holding steady near their three-week lows. This stability comes amid pressure from a strengthening US dollar, driven by data indicating a larger-than-expected increase in US inflation.

Despite the release of robust US consumer inflation figures on Wednesday, gold managed to hold its ground. Market sentiment appeared to lean towards the expectation that the Federal Reserve would keep interest rates unchanged during the upcoming week.

XAU/USD daily chart

Nevertheless, uncertainty lingers regarding whether gold prices can maintain the $1,900 per ounce threshold, given the prospects of persistently higher US interest rates. At the same time, the US dollar retains its resilience, hovering just below its nearly six-month peak, thereby restraining significant upward movements in gold prices.

The reduced likelihood of a US economic downturn has weighed on the safe-haven demand for gold. Recent data has indicated the ongoing resilience of the world's largest economy, undermining gold's appeal as a hedge.

Later on Thursday, market attention is expected to shift towards US producer inflation and retail sales data, which are anticipated to further underscore the economy's strength. The backdrop of robust consumer inflation readings arrives just a week ahead of the Federal Reserve meeting, where widespread expectations suggest that the central bank will maintain its current stance on interest rates. However, it's worth noting that the Fed might adopt a more hawkish outlook, particularly in response to the resurgence in inflation.

Market participants are also anticipating that the Fed will keep interest rates at levels not witnessed in over two decades until at least mid-2024, presenting a subdued outlook for gold. The precious metal has faced a challenging year due to the surge in interest rates, which increases the opportunity cost of holding non-yielding assets like gold, thereby limiting its appeal compared to assets such as the US dollar or Treasury bonds.

Meanwhile, European shares saw a decline in Wednesday's trading session, with the industrial sector leading the downturn. Additionally, BP (NYSE: BP) shares suffered losses following the sudden departure of the oil company's CEO. Investors remained vigilant ahead of the European Central Bank's upcoming monetary policy decision scheduled for Thursday.

BP stock daily chart

The European Central Bank is anticipated to make its interest rate decision later in the day, and many traders believe that we are currently at or near the peak of the rate cycle. A potential 25 basis point increase would push the rate on bank deposits to 4%, which would be the highest level since the inception of the euro in 1999. However, these expectations have already been factored into the market, which could introduce a downside risk to the currency. If the expected rate hike does not materialize, it could lead to a weakening of the euro. Conversely, if the rate increase does occur, markets are likely to interpret it as the final move in the series, potentially prompting selling.

During the quiet Asian trading session, the euro remained stable at $1.0742.

EUR/USD daily chart

Despite inflation remaining above policymakers' 2% target, Europe's economic momentum is slowing down. Lending growth is lackluster, and PMI surveys are indicating a more significant contraction in business activity than initially expected.

The British Pound came under significant pressure in the recent trading session due to notably weaker GDP data for July and a concurrent decline in industrial production. The GDP figures from yesterday revealed a concerning 0.5% contraction on a monthly basis, marking the most significant decline since December 2022. What's particularly surprising is that all sectors of the economy found themselves in a contractionary phase. Of particular note was the service sector, which bore the brunt of the decline, a puzzling occurrence given that this period typically witnesses growth in the tourism sector.

GBP/USD daily chart

The Bank of England (BoE) currently faces a complex dilemma. On one hand, the economy is already showing warning signs of a slowdown, largely attributed to elevated interest rates. On the other hand, the average earnings index, including bonuses, has inched up from 8.4% to 8.5%. This slight increase adds further inflationary pressures and raises expectations for more interest rate hikes.

As a result, we can observe a notable weakening of the Pound against the USD, which is a reaction to the release of macroeconomic data indicating that the market is starting to factor in a greater likelihood of the BoE refraining from further rate hikes. The reasoning behind this shift in sentiment is the concern that even higher interest rates could potentially push the UK into a deeper recession.