FOMC Statement, U.S. Core CPI, EIA Crude Oil Inventories

The U.S. dollar traded moderately higher against other major currencies on Tuesday, with the dollar index (USDX ) gradually closing in on the 105.5 mark as investors remain on the sidelines in anticipation of more cues on inflation and the Federal Reserve monetary policy meeting, while reports of more U.S. trade scrutiny against China also pressured sentiment. Reports indicate that the U.S. is considering wider trade sanctions on exports to Russia and could potentially target Chinese and Hong Kong chip resellers who are potentially supplying Moscow. This move against Chinese companies could raise concerns over worsening trade ties between the world’s biggest economies.

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In other news the CME Fedwatch tool shows that bets for the first rate hike to take place in September rose from 46.7% to 48.3% while for the same scenario to occur in November, bets rose from 47.5% to 48%.

After hitting record highs at $2,449.89 a few weeks ago, driven by interest rate cut expectations, central bank buying and geopolitical tensions, gold prices dropped to as low as $2,288 per ounce last week and are hovering close to key support levels around $2,300 an ounce ever since. Some support came from U.S. bond auction showing that the yield of 10-year Treasury bills fell by 7.4 basis points to 4.397% on Wednesday.

In corporate news, Apple finally moved higher, a day after unveiling its long-awaited AI strategy on Monday, which involves a partnership with OpenAI to integrate ChatGPT chatbot into its products, as the tech giant looks to enhance its artificial intelligence capabilities. Apple price gained almost 7% hiting record highs after its AI strategy was cheered by Wall Street.

Economic data this week could set the direction for the markets, with the CPI report expected to show inflation remaining well above the Fed’s 2% and the Federal Reserve expected to leave interest rates unchanged in a range of 5.25% to 5.5%.

EUR/USD

The EUR/USD pair slid into a third straight loss on Tuesday ending the session 0.22% lower as market sentiment sours on the back of roiled EU parliamentary elections.

An update in US Consumer Price Index (CPI) inflation and the latest Federal Reserve (Fed) rate call are due later today, and market sentiment is coiling around itself as investors fear a steep shift in the Fed’s “dot plot”, or summary of Interest Rate Expectations looking forward. The Fed is broadly expected to hold interest rates this week, but markets will be piling into the latest dot plot to see if the Fed is still expecting to deliver some rate cuts in 2024.

Markets are expecting US CPI inflation to cool down to 0.1% MoM in April compared to the previous month’s 0.3%, and annualized Core CPI inflation is expected to tick down to 3.5% YoY compared to the previous 3.6%.

Gold

Gold prices advanced for the second straight day amid a stronger US Dollar, yet it remains near familiar levels as traders brace for the release of crucial data from the United States (US).

On Wednesday, the Consumer Price Index (CPI) is expected to remain firm near April’s numbers. After the CPI, the Fed, led by its Chair Jerome Powell, will release its monetary policy statement and the Summary of Economic Projections (SEP), which includes the famous ‘dot plot’ that depicts a “probable path’ for monetary policy.

WTI Oil

Oil prices settled higher Tuesday, underpinned by a stronger demand outlook, though concerns that the Federal Reserve may deliver a hawkish on Wednesday pause kept gains in check.?????

The Energy Information Administration lifted its forecast for global oil demand by 180,000 barrels per day to 1.1mbpd for 2024, and by 80,000 bpd to 1.5m in 2025.

The American Petroleum Institute reported domestic crude stocks fell more than expected last week, stoking optimism that the seasonal rise in summer demand is finally underway. The official government inventory report is due Wednesday.

US 500

The US 500 and US Tech 100 climbed to a record close for the second-straight day Tuesday, underpinned by falling Treasury yields fell and a surge in Apple to all-time highs, though there was an element of caution ahead of Federal Reserve interest rate decision.

Apple rose 7%, hitting a record high after its AI strategy, which was unveiled a day earlier at its annual developer conference was cheered by Wall Street.

Market focus was squarely on the conclusion of a two-day Fed meeting on Wednesday, where the central bank is widely expected to keep interest rates steady. Before the rate decision, consumer price index data for May is expected to offer more cues on inflation.