Daily Market Analysis - Thursday June 15, 2023

Market Analysis: Global shares decline, dollar recovers as Fed pauses rate hikes; ECB and BOJ meetings awaited.

Key events on the economic calendar include:

New Zealand GDP (QoQ) for the first quarter.
Eurozone Deposit Facility Rate announcement for June.
Eurozone ECB Interest Rate Decision for June.
US Core Retail Sales (MoM) data for May.
US Initial Jobless Claims report.
US Philadelphia Fed Manufacturing Index for June.
US Retail Sales (MoM) data for May.
Eurozone ECB Press Conference.
On Wednesday, global stock markets saw a decline, while the US dollar managed to regain some of its losses. This came after the US Federal Reserve, as expected, announced a pause in its interest rate hikes. However, the central bank also hinted at the possibility of raising rates by an additional 0.5% before the end of the year.

During its recent two-day meeting, the Federal Reserve presented new economic projections that indicated a potential 0.5% increase in borrowing costs by the end of 2023. This projection was based on a stronger-than-expected economy and a slower decline in inflation.

US Fed funds rate

The Federal Open Market Committee (FOMC), responsible for determining interest rates, unanimously stated in its policy statement that maintaining the current target interest rate range during this meeting would allow the committee to assess additional information and its implications for monetary policy.

While it was widely anticipated that the US Federal Reserve would pause its rate hikes, the focus shifted to the communication surrounding potential future increases. In a surprising twist, the participants of the FOMC adopted a more hawkish stance. The median forecast for the end of 2023 regarding the Federal Funds rate was revised upward by 50 basis points, now ranging from 5.50% to 5.75%.

SPX NASDAQ and DJI indices daily chart

Following the announcement, the closing results of the stock market exhibited a mixed picture. The Dow Jones index concluded the day with a decline of over 230 points, while the S&P 500 index managed to secure a modest gain of 0.1%. The Nasdaq index, on the other hand, experienced a more significant increase of 0.4%. Notably, the Nasdaq Composite index was primarily driven by the positive performance of AI-related stocks, including Nvidia and AMD.

In addition to the stock market movements, Wednesday started with Bitcoin surpassing the $26,000 milestone. However, it retraced shortly afterward and reached a 24-hour low of $25,791. Analysts are speculating that it may potentially drop further to $25,000. These sentiments are influenced by ongoing discussions on cryptocurrency regulation, which have been dominating the news recently.

BTC/USD daily chart

On the flip side, gold prices initially saw an uptick, reaching $1,959 per ounce during the session. However, as Asian traders kickstart their day, the price of gold has resumed its downward trajectory, edging closer to the $1,930 level. This downward movement can be attributed to the hawkish stance of the US Federal Reserve (Fed), which has bolstered the United States Dollar (USD). The prevailing market sentiment currently favors the USD, consequently exerting downward pressure on the price of gold.

XAU/USD daily chart

The US dollar has demonstrated a decline against multiple currencies, resulting in a 0.32% drop in the DXY index. Among the currencies, the New Zealand dollar (NZD) experienced the most notable movement, surging by over one percent and reaching a three-week high at $0.6211. Meanwhile, the Euro (EUR) and the British Pound (GBP) registered more modest gains, each recording an increase of 0.39%.

NZD/USD daily chart

Despite the release of favorable exports and machinery orders data, the Japanese yen encountered a 0.9% decline, emerging as the primary loser in the Asian markets.

Investor focus was predominantly directed towards the upcoming Bank of Japan (BOJ) meeting scheduled for Friday. It is widely expected that the central bank will maintain its accommodative monetary policy stance to bolster domestic economic growth. This anticipated approach is anticipated to have a favorable influence on Japanese stocks.

USD/JPY daily chart

Nevertheless, the Japanese yen is expected to encounter further selling pressure as interest rates rise in other regions, diminishing its appeal.

Bank of Japan (BOJ) officials, including the newly appointed Governor Kazuo Ueda, have expressed their intention to maintain the bank's yield curve control policy to provide support to the domestic economy.

Furthermore, the diminished anticipation of Japanese government intervention in stabilizing currency markets has contributed to the yen's weakening. While officials have issued verbal warnings, no concrete actions have been taken thus far.

Currently, traders are closely watching the upcoming monetary policy announcements from the European Central Bank (ECB), scheduled for later in the day at 12:15 GMT. It is widely anticipated that the ECB will implement a 25 basis points increase in key rates. However, the Staff Economic Projections and the subsequent press conference by President Christine Lagarde will play a crucial role in shaping future policy direction.

Market expectations indicate that interest rates will likely reach their peak in July, with speculation of an additional rate hike following June's increase, followed by a potential pause in September. If the ECB adopts a more hawkish stance by implementing a rate hike, it is expected to exert additional selling pressure on the price of gold.