Stocks and dollar rise on Fed anticipation, Nvidia shines

March 20, 2024

Stocks rose on Tuesday with anticipation for the Federal Reserve’s meeting and Nvidia’s announcements boosting the tech sector. The major indices saw gains, while Treasury yields fell, indicating a cautious but optimistic market stance on interest rates amidst inflation concerns. Nvidia’s showcase of its new AI chip influenced tech stocks, though not all news was positive in the sector. The dollar gained strength, particularly against the yen, after Japan’s central bank policy update, highlighting the ongoing interplay between technology developments, monetary policy, and global financial markets.

Stock Market Updates

On Tuesday, stocks saw an uptick as the Federal Reserve initiated its two-day policy discussion, with investors closely monitoring Nvidia amidst significant announcements from the tech leader. The Dow Jones Industrial Average marked a notable increase, rising by 320.33 points or 0.83% to settle at 39,110.76, making it the best-performing day since February 22. The S&P 500 followed suit, achieving a new record by closing up 0.56% at 5,178.51, while the Nasdaq Composite grew by 0.39%, ending the day at 16,166.79. This optimistic trend emerged amidst expectations that the Federal Reserve might keep interest rates steady, despite a series of concerning inflation reports that hinted at a potential prolonged period of higher rates.

Treasury yields saw a general decline, offering a boost to the stock market; the benchmark 10-year Treasury yield dropped by over 4 basis points, reaching 4.295%. Nvidia, a major player in the semiconductor industry, saw its shares climb by approximately 1.1% after recovering from earlier losses. This shift in investor sentiment was influenced by the company’s unveiling of its latest artificial intelligence chip, Blackwell, at its first GTC Conference. Meanwhile, Super Micro Computer experienced a drop of about 9% following news of a share offering, despite the stock’s significant surge this year driven by AI excitement. Additionally, MicroStrategy saw a 5.7% decrease, signaling a potential cooldown in the recent bull run, despite the stock’s substantial growth in 2024 paralleled with Bitcoin reaching record highs.

Currency Market Updates

In anticipation of Wednesday’s Federal Reserve meeting, the dollar strengthened broadly, while the yen dropped significantly following the Bank of Japan’s meeting, which ended its negative rate policy and some ultra-loose policies but maintained key yield-suppressing operations. The USD/JPY pair surged by 1.2%, breaking through the year’s previous high and inching closer to the peaks of the last two years. This occurred despite a slight retreat in Treasury yields, reflecting a consolidation phase ahead of the Fed’s upcoming decisions. The market’s expectations for rate hikes have adjusted, with futures now indicating fewer increases than previously anticipated, amidst speculation about potential cuts in the Fed’s rate projections.

The gap between the U.S. Treasury and Japanese Government Bond yields remains a focal point, potentially influencing the USD/JPY pair to approach its recent highs, pending the outcome of the Fed meeting. The next significant data releases include the Core PCE index, the Fed’s preferred inflation measure, and upcoming reports on the U.S. labor market and manufacturing sector, which could further impact currency valuations. The housing market showed signs of resilience, possibly buoyed by the expectation of easing mortgage rates following the Fed’s actions later in the year.

The euro saw a slight decline against the dollar, recovering from an early drop to its monthly low. This movement was influenced by the German ZEW economic sentiment index, which, despite exceeding forecasts, was contrasted by persistently low current conditions and reduced labor and wage costs in the Eurozone. The European Central Bank has hinted at a possible rate cut, though market swaps suggest a mixed outlook. The sterling and the Australian dollar also faced challenges, with the latter affected by the Reserve Bank of Australia’s softened stance on tightening. The Canadian dollar’s gains were trimmed following disappointing inflation data, highlighting the dynamic and interconnected nature of global currency markets.

Picks of the Day Analysis

EUR/USD (4 Hours)

XAU/USD prices dip amid resurgent US dollar and central bank developments

Gold’s rally faced a setback as the US Dollar regained momentum, influencing XAU/USD to hover around $2,154 during the mid-American session. This shift was spurred by dovish stances from global central banks, notably the Reserve Bank of Australia (RBA) and the Bank of Japan (BoJ), which have recently adjusted their monetary policies. The RBA’s decision to keep rates steady, coupled with the BoJ’s rate hike—the first in 17 years—and the discontinuation of its Yield Curve Control (YCC) program, underscored a cautious approach to achieving sustainable inflation levels. Despite these developments, the US Dollar saw a slight retreat from its peak levels as Treasury yields decreased, reflecting cautious anticipation among investors for the upcoming Federal Reserve decision and economic projections. This atmosphere of vigilance suggests that gold prices may continue to be influenced by central bank policies and the broader economic outlook, especially with the Fed’s potential stance on interest rates amid current economic indicators.

Chart XAU/USD by TradingView

On Tuesday, XAU/USD consolidated between the lower and middle bands of the Bollinger Bands. Currently, the price is moving at the middle band of the Bollinger Bands, suggesting a potential awaited moment for gold before the FOMC meeting. Notably, the Relative Strength Index (RSI) maintains its position at 48, signaling a neutral outlook for this pair.

Resistance: $2,172, $2,195

Support: $2,147, $2,123

 Economic Data