It was risk-off on Tuesday; Stocks took a hit, and demand for precious metals took hold. Gold and Silver recently carved out floors around US$4,402 and US$71.32, respectively, and caught bids. Record highs are within reach for both metals, particularly after Gold found acceptance above US$5,000.
In the equities space, major US Stock indices closed on the ropes, with the overarching narrative centred on software shares, with notable losses in companies such as ServiceNow (NYSE:NOW) and Salesforce (NYSE:CRM), down nearly 7.0% at the close. Losses were also seen across the Magnificent Seven Stocks, with Microsoft (NASDAQ:MSFT) and NVIDIA (NASDAQ:NVDA) shedding nearly 3.0%.
Despite broad losses, market breadth was actually positive in the S&P 500, with around 270 companies reporting gains, and 230 ending in the red. The catalyst proved to be AI startup Anthropic’s release of a legal plugin for its Claude Cowork platform, which can handle things such as contract review. This sparked concerns about AI, prompting fears about whether this new release would help or hurt traditional software vendors.
In the FX space, the US Dollar Index pencilled in modest losses following a two-day winning streak; the trend remains to the downside for the US dollar, with key daily resistance visible around 97.87. High-beta currencies were largely bid, with safe havens also experiencing modest demand.
Bitcoin continues to nurse losses at levels not seen since Trump’s election victory, with most altcoins following suit. However, the session ended at its worst levels by the close.
You will recall that the RBA unanimously voted to increase the cash rate by 25 bps to 3.85% from 3.60%, which bolstered the AUD across the board. The decision was largely priced in and follows the central bank leaving the rate on hold for three consecutive meetings at the end of last year.
The statement, which I thought was a blend of caution and hawkish, clearly laid out its rationale for hiking the cash rate: inflation is expected to remain above target, increased private demand, greater capacity pressures, and a slightly tight labour market.
In her press conference, Governor Michelle Bullock essentially kept the door open for additional tightening, though I thought her tone was largely neutral – the Governor was cautious to indicate that the increase was the beginning of a series of hikes and noted that the Board remains data dependent. Markets are pricing in another 40 bps of hikes this year – meaning two more rate hikes are on the table.
Based on the recent decision and guidance, Aussie inflation data will naturally be an important print to keep an eye on. GDP readings could also prove interesting, as well as jobs figures. You may note that Bullock specifically mentioned unemployment – a tight labour market can increase price pressures, feeding directly into wage growth.
As a result, any upside surprises in these data would help validate the market’s hawkish pricing and bolster the AUD; softer data, on the other hand, could prompt a reduction in rate-hike bets and may weigh on the AUD.
