Daily Market Analysis - THURSDAY JUNE 22, 2023

Fed Chair Powell's Testimony Dampens US Stock Market, BoE Set to Raise Rates Amid Bleak Outlook

Key events:

Switzerland - SNB Interest Rate Decision (Q2)
Switzerland - SNB Press Conference
UK - BoE Interest Rate Decision (Jun)
UK - BOE Inflation Letter
USA - Initial Jobless Claims
USA - Existing Home Sales (May)
USA - Fed Chair Powell Testifies
USA - Crude Oil Inventories

US Stock Market Declines as Powell's Testimony Signals Potential Interest Rate Increases

The US stock market faced a downturn on Wednesday following Federal Reserve Chairman Jerome Powell's testimony before Congress. Powell emphasized the central bank's commitment to addressing inflation and hinted at the possibility of additional interest rate hikes. This led to the third consecutive day of losses across all three major US stock indices, with tech giants and related companies exerting significant downward pressure.

During his testimony to the US House Financial Services Committee, Powell reaffirmed the central bank's determination to bring inflation back to its targeted goal of 2%. He indicated that if the current economic trajectory continues, it would be reasonable to expect future interest rate increases. Market indicators, such as CME's FedWatch tool, currently suggest a 74.4% probability of a 25 basis point rate hike at the conclusion of the upcoming monetary policy meeting in July.

Powell's Testimony Continues, Energy Stocks Lead S&P 500 Gainers

Federal Reserve Chairman Jerome Powell is set to provide additional testimony before the Senate Banking Committee on Thursday. In the S&P 500, energy stocks emerged as the top gainers among the 11 major sectors, recovering from a notable decline witnessed the previous day. On the other hand, the technology and communication services sectors experienced the largest percentage drops.

AMZN stock daily chart

Amazon.com (NASDAQ: AMZN) Faces Lawsuit by FTC Over Alleged Deceptive Practices

Amazon.com (NASDAQ: AMZN) encountered legal challenges as the Federal Trade Commission (FTC) filed a lawsuit against the e-commerce giant. The lawsuit accuses Amazon of deceiving customers by allegedly obtaining their subscription to Prime services without obtaining proper consent.

TSLA stock daily chart

Tesla Inc (NASDAQ: TSLA) Slumps Following Downgrade by Barclays

Tesla Inc (NASDAQ: TSLA) witnessed a significant decline of over 5% following a downgrade by Barclays. The stock was downgraded from Buy to Hold, raising concerns about potential price cuts by the electric vehicle manufacturer. These price cuts have raised worries about the impact on Tesla's margin and earnings.

US Dollar Currency Index daily chart

US Dollar Reverses Gains, Gold Struggles to Maintain Position

The US Dollar faced significant selling pressure during American trading hours, leading to the end of its three-day winning streak and the elimination of its weekly gains. As of early Thursday, the US Dollar Index (DXY) remained relatively stable, hovering just above the 102.00 level.

Meanwhile, the price of gold experienced a drop to its lowest level in three months on Wednesday, dipping below $1,920. However, it managed to recover slightly later in the American session as US Treasury bond yields retreated. Nevertheless, early Thursday sees XAU/USD struggling to maintain its position, trading in negative territory slightly below $1,930.

XAU/USD daily chart

Central Banks' Monetary Policy Decisions Awaited Amid Concerns

Thursday will be marked by the closely watched monetary policy decisions of two major central banks: the Swiss National Bank (SNB) and the Bank of England (BoE).

The Bank of England (BoE) is set to convene following another worrisome inflation report, with expectations pointing towards an additional 25 basis point interest rate increase.

Despite being the first major central bank to initiate rate hikes as a measure to combat inflation, the BoE's efforts have been relatively less effective compared to other banks. British inflation currently stands as one of the highest among developed economies, nearing 9%. Consequently, the BoE is expected to be the last central bank to conclude its rate-hiking cycle. Projections suggest that the bank will implement six more 25 basis point rate hikes, eventually reaching a peak rate of over 6% by the end of this year or the beginning of the next.

Given the challenging macroeconomic conditions, it remains uncertain how the UK will manage to avoid a recession.

GBP/USD daily chart

UK Inflation Report Fails to Boost British Pound

The release of the UK inflation report did not generate a significant influx of buyers for the British pound. Despite initially testing resistance at 1.28, the GBP/USD currency pair retraced to pre-data levels and even reached its lowest point in five sessions. In contrast, the EUR/GBP currency pair witnessed a notable reversal from its nearly oversold state and surged above 0.86.

EUR/GBP daily chart

BoE Hawkish Surprise and Key US Data Awaited

There is a possibility of a hawkish surprise from the Bank of England (BoE), potentially including a 50 basis point rate hike, either in the current meeting or in one of the upcoming meetings. This anticipation is expected to maintain the GBP/USD currency pair on a trajectory for further gains, especially considering the prevailing environment of a weakening US dollar.

Market participants will also closely monitor the release of the weekly Initial Jobless Claims data from the United States, which has the potential to inject new momentum into the market. The US economic calendar will further feature the publication of Crude Oil Inventories and Existing Home Sales data for May. Additionally, FOMC Chairman Jerome Powell will continue his semi-annual congressional testimony, providing valuable insights into the policy outlook.