DAILY MARKET NEWS - 06-02-2024

Ariff Azraei

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The RBA aligned itself with other central banks and market expectations by holding rates steady at 4.35%, citing persistent inflation concerns. Despite the recent slowdown, inflation remains "too high" and above target, necessitating a cautious approach. While acknowledging a cooling economy, the RBA warns that further rate hikes are possible if inflation proves "sticky," particularly in services. This hawkish stance sent clear signals that tightening are here to stay, boosting the Australian dollar but weighing on equities.


Fed Chair Powell firmly pushed back on near-rate-cut speculation, calling for more proof of cooling inflation to warrant easing. Market losses were limited as investors weighed stronger PMIs and earnings, along with rising Treasury yields. McDonald's and Boeing shares weighed on a global boycott and potential 737 delays, respectively. Healthy AI demand outlooks powered semiconductors rise, including record-high Nvidia.


Gold prices are down for two consecutive days, nearing two-week lows. With strong economic data and a hawkish Fed, bullion lacks support beyond simmering geopolitical tensions, prompting traders to rethink their rate-cut bets. While China's upcoming spring holiday offers a potential pause, gold faces an uphill battle in the near term unless risk sentiment deteriorates, especially over treasury yields returning from inversion.


Oil prices downspiral was paused by rising geopolitical tensions in a key oil-producing area and weakening economic outlooks for major consumers like the US and China. Brent has fallen from a high of 84 as another energy source, like LNG, has fallen in price to its lowest level in seven months due to ample supply. Market participants now await US crude stockpile data for further clues on supply dynamics, with expectations pointing towards a modest inventory build.


The dollar's surge is driven by waning expectations for aggressive Fed rate cuts but also by better economic data. Recent ISM and job reports suggest continued economic growth momentum, and Treasury yields are expected to climb further. This strengthened the dollar across the board, with the euro and yen hitting multi-month lows against the greenback as the Fed-dollar divergence widens.