DAILY MARKET NEWS – 02-07-2024

Eurozone inflation eased to 2.5% in June, down from 2.6% in May, attributed to moderation in energy and unprocessed food costs. However, core inflation is above expectations at 2.9%, largely driven by a persistent 4.1% rise in service prices. This stickiness in service inflation has divided ECB policymakers, with some arguing it's a delayed effect that will moderate, while others fear it could keep overall inflation above target for an extended period. The ECB lowered interest rates in early June but made no commitment about future moves, citing a lack of confidence in inflation's trajectory towards the 2% target. ECB's Wunsch left wanting more evidence of inflation moving from 2.5% towards 2% before further cuts, while markets expect about 40 basis points of cuts this year and four cuts in 18 months.

EQUITY

The market started the second half of 2024 rather positively, with technology stocks leading gains and the Nasdaq reaching a new record. Manufacturing data showed mixed results with ISM at contraction in a busy week filled with multiple high-impact news including the jobs report and FOMC minutes. Global stocks edged higher at opening, with European markets responding to French election results, while U.S. Treasury yields rose to their highest levels since mid-June.

GOLD

Gold prices slipped Tuesday as traders eyed the upcoming Fed Chair Powell speech for clues on the interest rate path. The metal struggled in June due to fears of high rates boosting the dollar, which has seen it strengthen to a 2-month high. Other economic data coming out this week include meeting minutes, and Friday's jobs report. Despite recent pressure, increased central bank buying has kept gold's yearly gains intact.

OIL

Oil prices are holding steady near two-month highs, driven by strong summer travel demand in the northern hemisphere. Geopolitical tensions in the Middle East and the threat of Hurricane Beryl to Mexican oil production are adding a risk premium and supply restrictions. OPEC's continued production cuts are set to tighten supplies later this year. Yet, weaker demand in Asia and mixed economic signals are keeping price gains in check, although prices are already up an average 14% for the year.

CURRENCY

Asian currencies weakened as the dollar steadied, with the Japanese yen hitting a 38-year low. Markets await key economic data and Fed comments for interest rate insights. The Australian dollar dipped after RBA minutes but may rise if August brings a rate hike as inflation appears stronger than anticipated. Traders are pricing in a potential September Fed rate cut, a two-rate cut narrative.