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23.01.202406:23 Forex Analysis & Reviews: Economic Contrast: Stock Indices Shine, Bonds Stay in the Shadow

Exchange Rates 23.01.2024 analysis

The yield on US Treasury bonds is decreasing, and the dollar is barely changing, as investors enter the market in anticipation of upcoming economic indicators that may provide new insights into the direction of interest rates.

The global MSCI stock index saw growth on Monday, fueled by Wall Street's momentum that led to a new record high last week, while the US dollar index edged slightly higher.

The S&P 500 index reached its second consecutive record high on Monday, driven by the recent growth of technology company stocks, as investors awaited upcoming corporate reports for insights into this year's profit forecasts.

Friday's results confirmed that the S&P 500 index has been in a bull market since it closed at its minimum on October 12, 2022, according to one of the widely used indicators.

Netflix (NFLX.O), Tesla (TSLA.O), Abbott Laboratories (ABT.N), Intel (INTC.O), and Johnson & Johnson (JNJ.N) are set to report this week.

Several leading technology giants, including Microsoft (MSFT.O) and Apple (AAPL.O), are expected to report results next week. "Earnings and guidance will be crucial for further strengthening the mega-tech strength in the market," said Quincy Crosby, Chief Global Strategist at LPL Financial in Charlotte, North Carolina.

Investors are also awaiting reports this week on the Personal Consumption Expenditures (PCE) index, global PMI figures from S&P, and preliminary GDP data for the fourth quarter to glean possible hints regarding the next policy decision from the US central bank.

The Dow Jones Industrial Average (.DJI) rose by 138.01 points or 0.36% to 38,001.81, the S&P 500 index (.SPX) added 10.62 points or 0.22% to 4,850.43, and the Nasdaq Composite index (.IXIC) gained 49.32 points or 0.32% to 15,360.29. The global MSCI stock index (.MIWD00000PUS), tracking stocks in 49 countries, increased by 0.29%. The European STOXX 600 index (.STOXX) rose by 0.77%.

Archer-Daniels-Midland (ADM.N) experienced the largest daily percentage decline in the S&P 500 index, with its stocks falling by 24.2%, marking the largest percentage drop in a decade after its Chief Financial Officer was placed on administrative leave for investigation, and the annual profit forecast was reduced.

As for Treasury bonds, the yield on the benchmark 10-year Treasury bonds rose to 4.1091%, compared to the US closing level of 4.146% on Friday. The two-year yield, increasing amid traders' expectations of higher Federal Reserve fund rates, reached 4.3932%, compared to the US closing level of 4.408%.

In the currency markets, the US dollar's exchange rate remained virtually unchanged and slightly increased against a basket of currencies on Monday, ahead of policy decisions from the central banks of Japan and the Eurozone, which could influence the currency's direction this year.

The Dollar Index, tracking the dollar's exchange rate against a basket of other major trading partners' currencies, rose by 0.08% to 103.35. The US dollar fell by 0.04% against the yen to 148.08. The single European currency declined by 0.1% during the day, dropping to $1.0882, losing 1.4% for the month.

It is expected that the Bank of Japan will maintain a very accommodative policy in its Tuesday meeting, while the European Central Bank (ECB) will convene on Thursday and is expected to adhere to a stable monetary policy.

The central banks of Canada and Norway will also hold meetings this week, with no changes in rates expected, although Turkey is likely to raise them again. The US Federal Reserve plans to hold a new meeting on January 30-31.

Spot gold prices fell by 0.44% to $2,020.36 per ounce as investors abandoned expectations of interest rate cuts in the US by the end of March, and the rise in stock markets further reduced interest in safe-haven assets.

Oil prices rose as traders witnessed a reduction in oil supplies due to conflicts in the Middle East and Ukraine, along with extremely cold weather in North America, while the bullish US stock market signaled an upcoming increase in demand.

US oil rose by 2.4% to $75.19 per barrel, and Brent crude oil increased by 1.9% to $80.06 per barrel.

Regarding cryptocurrencies, Bitcoin earlier fell to a seven-week minimum and last dropped by about 4% to $39,936.

In Beijing, the central bank once again refrained from lowering rates in its market operations on Monday.

Chinese and Hong Kong stocks fell as the ongoing outflow of foreign currency and a surge in short selling undermined confidence, already weakened by the region's slowing economy.

The CSI300 blue-chip index (.CSI300) in China fell by 1.6% to its lowest closing level in almost five years, while in Hong Kong, the Hang Seng benchmark index (.HIS) dropped by 2.3% to its lowest level in 14 months.

Thomas Frank,
Analytical expert of InstaSpot
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