In an anticipated move, the Federal Reserve announced it would keep interest rates unchanged, highlighting “modest further progress” towards its 2% inflation target. This decision came alongside the release of May’s US inflation data, which showed cooling price pressures. The Consumer Price Index (CPI) remained flat for the month, and year-over-year, it increased by 3.3%, both figures coming in below expectations. The broader market responded positively to these developments, with the S&P 500 surging to close at a record high, and the Nasdaq Composite climbing 1.53%. However, the Dow Jones Industrial Average slipped very slightly, reflecting a mixed but overall optimistic market sentiment.

Key Takeaways:

  • S&P 500 Breaks 5,400 Threshold: The S&P 500 surged 0.85%, closing at a record high of 5,421.03, marking the first time it has closed above the 5,400 level. This significant milestone reflects strong investor sentiment following the Federal Reserve’s latest policy announcement.
  • Nasdaq Composite Hits New High: The Nasdaq Composite gained 1.53%, ending the day at an all-time high of 17,608.44. The index was driven by positive market reactions to easing inflation data and continued enthusiasm for technology stocks.
  • Dow Jones Industrial Average Slips: The Dow Jones Industrial Average declined slightly by 0.09%, or 35.21 points, closing at 38,712.21. Despite the overall positive market environment, more than two-thirds of Dow stocks ended in the red, with notable declines in Salesforce, Nike, and Chevron, each dropping over 2%.
  • Cooling Inflation Data: US inflation data showed the Consumer Price Index (CPI) was unchanged for May, lower than the 0.1% increase expected. Year-over-year, CPI increased by 3.3%, down from the prior 3.4% pace, indicating a cooling trend in inflation. Core CPI, excluding food and energy, also came in lower than anticipated.
  • Treasury Yields Decline: The 10-year Treasury yield fell to 4.25%, its lowest level since April 1, following the release of cooler-than-expected inflation data. The 2-year Treasury yield also decreased, reaching 4.769%.
  • European Stocks Gain: European markets reacted positively to the US inflation data, with the pan-European Stoxx 600 ending the session up 1.15%. Technology stocks led the gains in Europe, rising by 2.4%. The FTSE 100 Index is up 67.67 points or 0.83% to 8215.48 while the CAC 40 Index rose 82 points or 1.05 percent.
  • Mixed Performance in Asia-Pacific Markets: The Taiwan Weighted Index hit an all-time high of 22,048.96, gaining 1.18%, driven by strong performances from Taiwan Semiconductor Manufacturing Corp and Hon Hai Precision Industry. However, Japan’s Nikkei 225 slipped 0.66% to 38,876.71, and Australia’s S&P/ASX 200 fell 0.51% to 7,715.5.
  • UK Economy Halts in April: UK economic growth ground to a halt in April, aligning with economist expectations. The economy showed no growth following a 0.4% expansion in March, reflecting a slowdown ahead of the national election. Despite this, the GDP rose by 0.7% over the three months to April. Sector performance varied, with construction output falling by 1.4% for the third consecutive month and production output declining by 0.9%. 
  • Oil Prices Increase: Crude oil futures saw gains, with the West Texas Intermediate July contract rising to $78.51 per barrel, up 0.78%, and Brent August contract increasing to $82.61 per barrel, up 0.84%. The gains were supported by expectations of tightening supply and higher demand in the third quarter.

FX Today:

  • EUR/USD Rebounds Amid Fed’s Inflation Outlook: The EUR/USD pair climbed from 1.0800 to reach a high around 1.0850 following the Federal Reserve’s decision to keep interest rates steady and acknowledge modest progress towards the 2% inflation target. EUR/USD remains up by 0.63%, trading at 1.0807, showing resilience amidst fluctuating market sentiments.
  • USD/JPY Faces Resistance: The USD/JPY pair bounced off daily lows at around 155.80 and edged above the 156.00 mark but faced resistance at the 100-Simple Moving Average (SMA) at 156.55. The pair is trading at 156.60, down 0.17%, after reaching a one-week high of 157.40 on Tuesday. Market participants are closely monitoring the Bank of Japan’s upcoming meeting for further direction.
  • USD/CAD Consolidates Lower: USD/CAD backslid half a percent on Wednesday, falling back below 1.3725 as the pair routinely fails to drive further north of the 50-day Exponential Moving Average (EMA). The pair is now testing support around 1.3730, with a potential price floor at the 1.3690 handle, indicating continued consolidation.
  • Gold Prices Stay Firm: Gold prices held strong, trading at $2,318 per ounce, with a 0.13% gain. Despite forming a potential downward Head-and-Shoulders chart pattern, the Fed’s decision to maintain interest rates may support gold prices in the near term. If XAU/USD climbs past the recent high of $2,387, it could test the $2,400 mark. Conversely, a drop below $2,300 could see it testing support levels at $2,277 and $2,222.
  • Bitcoin Rises Post-Fed Decision: Bitcoin saw a modest increase, up about 1.85% to $68,527, following the Fed’s decision to hold interest rates steady. The flagship cryptocurrency had earlier risen to as much as $70,000, reflecting market optimism. Analysts suggest Bitcoin may experience short-term volatility as the market adjusts to the Fed’s stance, but the overall trend remains positive.
  • Dollar Index DXY Declines: The dollar index (DXY) fell 0.5% on the day, last trading at 104.73, after earlier falling to 104.25. This decline comes after reaching a four-week high of 105.46 on Tuesday. The euro’s strength, trading at 1.0807, has contributed to the dollar’s decline.

Market Movers:

  • Oracle Soars on Cloud Deals: Shares of Oracle surged more than 13%, hitting an all-time high after the company announced new cloud partnerships with Google and OpenAI. Despite disappointing Q4 results that fell short of Wall Street expectations, the market responded positively to Oracle’s strategic moves, underscoring investor confidence in its future growth prospects.
  • Apple Gains on AI Announcement: Apple shares climbed nearly 3%, briefly surpassing Microsoft in market value. This follows a significant 7.3% jump on Tuesday after Apple unveiled its new artificial intelligence initiative, Apple Intelligence, during its developers’ conference. The announcement fuelled investor optimism, driving the stock higher.
  • Rentokil Initial Jumps on Trian Partners Stake: Rentokil Initial’s shares surged 13.7% after Nelson Peltz’s Trian Partners disclosed a significant position in the pest-control company. Trian, now one of Rentokil’s top 10 shareholders, expressed intentions to collaborate with the company’s leadership on initiatives to enhance shareholder value, boosting investor sentiment.
  • Klaviyo Rises on Barclays Upgrade: Klaviyo’s stock popped 3.9% following an upgrade from Barclays, which raised its rating to overweight from equal weight. Barclays highlighted Klaviyo as a “rare bright spot” in the market, driving increased investor interest and lifting the stock.
  • Casey’s General Stores Surges on Earnings Beat: Casey’s General Stores saw its shares surge nearly 17% after reporting fiscal Q4 earnings per share of $2.34, significantly above the analyst consensus of $1.72. Revenue also exceeded expectations, coming in at $3.6 billion versus the $3.47 billion estimate, highlighting the company’s strong operational performance.
  • Affirm Spikes on CPI Data: Affirm shares spiked about 5.8% following the cooler-than-expected CPI reading for May. The nonbank loan lender has gained more than 20% this week after announcing that its buy now, pay later loans will be integrated into Apple Pay for U.S. users on iPhones and iPads later this year.
  • Taiwan Semiconductor Manufacturing Gains on AI News: Taiwan Semiconductor Manufacturing (TSMC) shares jumped more than 4% after Bank of America raised its price objective, citing a stronger investment case following Apple’s announcement of its push into artificial intelligence. TSMC is viewed as an “indispensable and reliable partner” of Apple, driving investor confidence.
  • Broadcom Climbs on Earnings Beat and Stock Split: Broadcom posted earnings for the second fiscal quarter that beat analyst estimates and announced a 10-1 stock split, set to begin trading on a split-adjusted basis on July 15. The stock rose about 12% in extended trading, reflecting strong investor enthusiasm for the company’s performance and future prospects.

As markets continue to navigate a complex economic landscape, the record highs achieved by the S&P 500 and Nasdaq Composite underscore a resilient investor sentiment driven by optimism around inflation easing and strategic corporate moves. Despite the Federal Reserve’s cautious stance with just one rate cut projected for the year, the positive reaction to the latest CPI data indicates a growing confidence in the economy’s ability to handle inflationary pressures. However, mixed performances across other indices, fluctuating currency values, and the ongoing geopolitical developments in Europe and Asia highlight the ongoing challenges and opportunities that lie ahead for investors. Particularly, the strong performances of key market movers like Oracle, Apple, and Casey’s General Stores set the stage for a dynamic and closely watched financial environment in the coming months.