Traders took a pause on Friday, dialing back recent optimism following a volatile Thursday, as they awaited the crucial Bank of Japan (BoJ) monetary policy meeting and mid-tier US data.
Notably, the market sentiment from the previous day was influenced by decreased expectations of hawkishness from the Federal Reserve, mixed US data, and declining yields.
Reflecting the current mood, S&P 500 Futures recorded minor losses, though they remained at their highest levels since April 2022, down 0.23% intraday at 4,460 at the time of writing. Meanwhile, the US 10-year Treasury bond yields rebounded after a two-day decline, hovering near 3.74%.
It is worth mentioning that both S&P 500 Futures and Nasdaq reached their highest levels in 14 months on the previous day, with the Dow Jones leading the winning streak, gaining 1.26% intraday to around 34,408 by the end of Thursday.
When considering the catalysts, the broad slump in the US Dollar, driven by mixed data and doubts about the anticipated July rate hike, garnered significant attention. Additionally, positive news from China and Europe previously contributed to the risk-on sentiment.
Consequently, the US Dollar Index (DXY) experienced its largest drop in three months, reaching its lowest levels since May 12, at 102.15 as of the latest update.
Shifting focus to US data, the growth of US Retail Sales for May showed an increase of 0.3%, surpassing the expected -0.1% and the previous reading of 0.4%. The core readings, which exclude automobile sales, aligned with market forecasts at 0.1% for the same period, compared to the previous figure of 0.4%.
Moreover, the NY Fed Empire State Manufacturing Index surged to 6.6 in June, surpassing the anticipated -15.1 and the previous -31.8. In contrast, the Philadelphia Fed Manufacturing Index dropped to -13.7 for June, compared to the previous -10.4 and market expectations of -14.
Additionally, US Industrial Production for May declined to -0.2%, falling short of the estimated 0.1% and the previous 0.5%, while Initial Jobless Claims stood at the revised figure of 262K for the week ending on June 9, compared to the expected 249K.
On another note, the European Central Bank’s (ECB) hawkish stance, with a 25 basis points (bps) interest rate hike and indications of future moves, combined with a rate cut by the People’s Bank of China (PBoC), further supported the market’s positive sentiment.
It is noteworthy that the CME FedWatch Tool currently indicates a 67% probability of a rate hike in July. This, along with the release of underwhelming economic data from China and the market’s reassessment of the Fed’s hawkish position, has recently dampened the optimism.
Looking ahead, the outcome of the Bank of Japan (BoJ) monetary policy meeting will be crucial in determining immediate market direction. Following that, the final figures for Eurozone inflation data in May, as measured by the Harmonized Index of Consumer Prices (HICP), will be released prior to the preliminary readings of the Michigan Consumer Sentiment Index (CSI) for June and five-year inflation expectations, providing further trading opportunities.
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