22/07/2024 - 07:55 UTCThe U.S. dollar gained for a second session against most major currencies on Friday, with the dollar index (USDX) extending its rally above the 104.0 mark to end the week 0.31% higher. Reports suggest the move was partly driven by recent US-China tensions, which have boosted the dollar's appeal as a safe haven. Investors are now watching closely for signs on what an administration change in the U.S. will entail after an abrupt decision by U.S. President Joe Biden to drop his reelection bid, endorsing Vice President Kamala Harris in his stead. Harris is now likely to run against Republican nominee Donald Trump.
According to the CME FedWatch expectations for a September rate cut remain elevated at 91.7% while bets for a second rate cut to occur in November fell from 59.2% to 54.7%.
The main US stock index futures rose early on Monday amid growing expectations of interest rate cuts in September that saw investors rotate out of heavyweight technology stocks and into more economically sensitive sectors. In addition, anticipation of a Trump presidency also fueled a shift towards stocks expected to gain from stricter U.S. trade and a domestic business-friendly climate. This widespread transition of funds from technology stocks triggered steep declines on Wall Street.
Market focus now, lies on upcoming earnings reports from the technology sector with Alphabet Inc and Tesla Inc reporting their quarterly numbers on Tuesday. Investors will closely examine both companies' AI integration plans, while Tesla's declining sales will also be in focus. Other key earnings are due this week from Lockheed Martin Corporation, General Electric Company, Texas Instruments Incorporated, and Visa.
In the spotlight for Friday are PCE inflation data where economists are expecting a 0.1% increase for the second straight month, which would bring three-month annualized core inflation down to the slowest pace this year, below the Fed’s 2% target. The consumer price index fell in June for the first time in four years. That cooler-than-expected report cemented the market's conviction that the Fed will lower interest rates in September.
The EUR/USD pair slipped below 1.09 on Friday, concluding the session 0.19% lower. This marked its first weekly loss following three consecutive weeks of gains.
The European Central Bank (ECB) maintained rates as anticipated, keeping the September rate decision "wide open" and contingent on data. ECB President Lagarde suggested the possibility of another cut if data confirms disinflationary trends. Market expectations remained steadfast in anticipating a cut in September.
Conversely, escalating bets on a Federal Reserve (Fed) rate cut in September, coupled with the fragile state of the US labor market, applied downward pressure on the Greenback.
Later in the day, the German Retail Sales for May are scheduled for release, to be followed by the US Chicago Fed National Activity Index for June.
Gold prices experienced a nearly 2% decrease on Friday due to the strengthening of the dollar and profit-taking following the record highs reached earlier in the week. This surge was driven by the growing anticipation of U.S. interest rate cuts in September.
Chair Jerome Powell of the Federal Reserve mentioned earlier in the week that recent inflation indicators "somewhat add to confidence" that the pace of price increases is returning to the central bank's target in a sustainable manner.
On the physical front, the demand for gold in Asia was subdued last week, reflecting customers' hesitance to make new purchases despite significant discounts. Instead, they were observed to be taking advantage of the historically high prices of gold.
The decline in oil prices was notable on Friday, with a settlement over $2 lower at the lowest level since mid-June.
This was attributed to investors' focus on a potential ceasefire in Gaza, along with a stronger dollar exerting further pressure on oil values. U.S. Secretary of State Antony Blinken expressed optimism about an imminent ceasefire between Israel and the Palestinian militant group Hamas.
Additionally, the U.S. dollar index surged following robust data on the U.S. labor market and manufacturing this week, contributing to the downward pressure on oil prices.
Concerns about muted demand in the world’s largest oil importer persisted, given the softer-than-expected growth figures for the second quarter.
On Friday, U.S. stocks faced continued decline as a global technical outage, stemming from a software glitch, brought about widespread disruption across various industries, including airlines, banking, and healthcare.
The chaos added further uncertainty to an already apprehensive market. Microsoft's Windows operating system crashed due to a glitch in cybersecurity firm CrowdStrike's software, leading to far-reaching effects.
All three major U.S. stock indexes concluded the day in negative territory. CrowdStrike Holdings Inc witnessed an 11% slump after deploying an update that triggered a significant global IT outage affecting industries such as airlines and banks.
This week will keep a close eye on the tech sector, with Microsoft, Google-owner Alphabet, and Tesla scheduled to report on Tuesday.
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