The market took a sharp downturn on Tuesday as stronger-than-expected economic data stoked concerns about persistent inflation and diminished hopes for Federal Reserve rate cuts later this year. A spike in Treasury yields compounded investor anxiety, while a selloff in major tech stocks, led by Nvidia, weighed heavily on the Nasdaq. Despite early optimism, the S&P 500 and Dow Jones Industrial Average also closed lower, reflecting a recalibration of inflation expectations and profit-taking in the technology sector. Meanwhile, European and Asia-Pacific markets showed mixed results as global economic signals continued to influence sentiment.

Key Takeaways:

  • S&P 500 Falls Over 1% Amid Tech Weakness: The S&P 500 declined by 1.11%, closing at 5,909.03 as investors faced with rising Treasury yields and concerns over persistent inflation. Earlier gains in the index were erased as strong economic data suggested the Federal Reserve might maintain a more hawkish stance, diminishing hopes for rate cuts later in the year.
  • Dow Drops 178 Points: The Dow Jones Industrial Average fell by 178.20 points, or 0.42%, to finish at 42,528.36. The index had traded higher earlier in the day but lost momentum amid growing unease over sticky inflation and recalibrations in investor expectations for Federal Reserve policy. 
  • Nasdaq Suffers Nearly 2% Loss as Tech Stocks Tumble: The tech-heavy Nasdaq Composite experienced the steepest drop of the major indices, sliding 1.89% to close at 19,489.68. The selloff was driven by declines in megacap tech names, including Nvidia, which plunged 6.2%, and Tesla, which fell 4% following a downgrade by Bank of America. 
  • ISM Services Data Beats Expectations, Signals Strong Economy: The Institute for Supply Management’s (ISM) services sector PMI for December came in at 54.1, surpassing expectations of 53.4. The report highlighted robust growth in the US services sector, with the price index component jumping 6.2 points to 64.4. This unexpected strength fuelled concerns about stickier inflation and raised questions about the Federal Reserve’s capacity to cut rates in the near term.
  • Job Openings Rise, But Hiring Slows in November: The US Labour Department’s Job Openings and Labour Turnover Survey (JOLTS) showed an increase of 259,000 in job openings, reaching 8.098 million in November, exceeding forecasts of 7.7 million. However, hiring fell by 125,000 to 5.269 million, reflecting cautious sentiment among employers amid economic uncertainty. Layoffs remained stable at 1.765 million, pointing to a still-resilient labour market.
  • Treasury Yields Spike to Multi-Month Highs: US Treasury yields surged on Tuesday, with the 10-year yield climbing over 7 basis points to 4.693% and briefly hitting an intraday high of 4.699%, its highest level since April. The rise was fuelled by stronger-than-expected economic data, including the ISM services report and JOLTS figures, which tempered expectations for Federal Reserve rate cuts in 2025.
  • Oil Prices Climb Amid Supply and Demand Factors: Brent crude rose 0.98% to settle at $77.05 per barrel, while US West Texas Intermediate (WTI) gained 0.94%, closing at $74.25 per barrel. The gains were attributed to tighter supply from Russia and Iran due to sanctions, alongside expectations of higher Chinese demand following recent stimulus efforts. Middle Eastern oil prices also rose as Saudi Arabia announced its first price increase for Asia in three months.
  • European Markets End Higher Despite Mixed Inflation Signals: European markets closed mostly higher on Tuesday, with the pan-European Stoxx 600 rising 0.32%. Germany’s DAX gained 0.66%, while France’s CAC rose 0.72%. Italy’s FTSE MIB advanced 0.49%, but the UK’s FTSE 100 dipped 0.09%. Inflation data showed annual eurozone inflation climbed to 2.4% in December, up from 2.2% in November. Core inflation held steady at 2.7% for the fourth consecutive month. French inflation rose 1.8%, slightly below expectations of 1.9%, while Swiss inflation fell to 0.6%, down from 0.7% in November, reinforcing expectations of further interest rate cuts by the Swiss National Bank. 
  • Asia-Pacific Markets Rally as Japan Leads Gains: Asia-Pacific markets ended mixed, with Japan’s Nikkei 225 gaining 1.97% to close at 40,083.3. South Korea’s Kospi edged up 0.14% to 2,492.1, while Australia’s S&P/ASX 200 rose 0.34% to 8,285.1. China’s CSI 300 climbed 0.72% to 3,796.1, supported by optimism over potential policy easing for the property sector, while Hong Kong’s Hang Seng fell 1.43% as US sanctions hit major Chinese tech firms like Tencent, whose shares dropped nearly 8%.

FX Today:

  • EUR/USD Declines Amid Rising US Yields and Inflation Concerns: EUR/USD fell by 0.42% to close at 1.0345 on Tuesday, as stronger-than-expected US services sector data fuelled a rise in Treasury yields and reinforced concerns about persistent inflation. The pair remains under pressure, trading below key technical levels, including the 50-day Simple Moving Average (SMA) at 1.0549 and the 100-day SMA at 1.0797. Persistent selling pressure highlights a bearish outlook, with immediate support seen at 1.0300. A break below this level could pave the way for further declines toward 1.0200 and the psychological 1.0000 mark. On the upside, resistance is positioned at 1.0400, with stronger resistance at 1.0500, where the 50-day SMA resides. 
  • GBP/USD Extends Losses, Bears Retain Control: GBP/USD slipped 0.31%, closing at 1.2481, marking its second consecutive decline. The pair failed to sustain momentum above the 1.2500 psychological level. Immediate support lies at 1.2450, with a break below potentially exposing the December low near 1.2300. Additional downside targets include 1.2200 if selling pressure intensifies. Resistance is seen at 1.2550, with a sustained move above this level required to challenge the bearish trend. The pair continues to trade below its 50-day SMA at 1.2693, reflecting a weak medium-term outlook, with rallies likely facing strong selling pressure.
  • USD/CHF Continues Higher, Targets Key Resistance: USD/CHF advanced 0.49% to close at 0.9087, extending its rally toward the critical 0.9100 resistance level. The pair remains firmly above its 50-day SMA at 0.8862 and 100-day SMA at 0.8693, reinforcing the bullish trend. Buyers dominate following the recent breakout above 0.9000, with momentum indicators suggesting further upside potential. A decisive move above 0.9100 could see the pair targeting 0.9200. On the downside, support is seen at 0.9000, with the 50-day SMA providing additional strength. 
  • USD/JPY Consolidates Near Multi-Year Highs: USD/JPY rose 0.15%, closing at 157.809 as the pair consolidates near its multi-year highs. Immediate resistance remains at 158.000, with momentum indicators suggesting a potential breakout higher. A move above this level could see the pair targeting the psychological 160.000 mark. Support lies at 156.500, with additional downside protection at 154.000, where the 100-day SMA aligns. Despite short-term consolidation, the broader trend remains bullish, supported by the 50-day SMA at 153.976. Traders await a breakout above 158.000 to confirm further upside momentum.
  • Gold Climbs Amid Inflation and Rate Concerns: Gold prices edged higher by 0.47%, closing at $2,648.41, as investors sought safety amid concerns over sticky inflation and rising US Treasury yields. The precious metal found support near $2,630 and continues to trade within a broader consolidation range. Immediate resistance lies at $2,650, closely aligned with the 50-day SMA, with a breakout above this level potentially pushing gold toward $2,675 and the psychological $2,700 mark. On the downside, key support is seen at $2,625, reinforced by the 100-day SMA. Despite recent fluctuations, gold remains in a long-term uptrend, with the 200-day SMA at $2,496 providing a solid foundation.

Market Movers:

  • UniFirst Soars on Acquisition Proposal: Shares of UniFirst surged 20.8% after competitor Cintas confirmed it had submitted a proposal to acquire the uniform maker for $275 per share in cash..
  • Getty Images and Shutterstock Rally on $3.7 Billion Merger Announcement: Getty Images climbed over 24%, while Shutterstock surged nearly 15% after the two image database companies announced a $3.7 billion merger. 
  • Aurora Innovation Jumps on Nvidia Partnership: Shares of Aurora Innovation skyrocketed 29.4% following the announcement of a partnership with Nvidia and Continental. 
  • Inari Medical Rises on Stryker Acquisition News: Inari Medical shares surged 22.1% after Stryker announced plans to acquire the medical device maker for $4.9 billion, equivalent to $80 per share in cash. 
  • Moderna Climbs on Bird Flu Vaccine Development: Moderna shares soared 11.7% as the pharmaceutical company emerged as a frontrunner in the development of a vaccine for bird flu. 
  • Tesla Slips Over on Downgrade: Tesla shares fell 4.1% after Bank of America downgraded the electric vehicle maker from “buy” to “neutral,” citing execution risks and concerns over its lofty valuation. The downgrade contributed to broader weakness in the tech sector.

As Tuesday’s session came to a close, US markets faced broad declines driven by rising Treasury yields and stronger-than-expected economic data, which fuelled concerns about persistent inflation and reduced expectations for Federal Reserve rate cuts this year. The tech-heavy Nasdaq suffered the steepest losses, weighed down by a sharp selloff in Nvidia and Tesla. European markets managed to post gains, supported by positive earnings and mixed inflation data, while Asia-Pacific markets saw mixed performances, with Japan leading the region on a tech rally and China lifted by policy optimism. Gold edged higher as investors sought safety amid uncertainty, while oil prices climbed on concerns over tight supply and higher demand from China.