Despite recent volatility, US stocks surged on Tuesday, fuelled by encouraging inflation data that hinted at a possible easing of the Federal Reserve’s aggressive rate hike trajectory. The Nasdaq Composite led the charge, while the Dow Jones Industrial Average added 408 points. The S&P 500 also rallied, bringing it within striking distance of its record high from July. This robust market comeback was driven by a lower-than-expected rise in the producer price index (PPI), which increased just 0.1% in July. Investors, encouraged by the possibility that inflation may be cooling, are now turning their attention to the consumer price index (CPI) due out Wednesday, which could further shape the market’s direction.

Key Takeaways:

  • Nasdaq Leads Market Rally with Over 2% Gain: The Nasdaq Composite surged 2.43% to close at 17,187.61, marking a significant recovery after recent market volatility. This strong performance underscores growing investor optimism, driven by the encouraging producer price index (PPI) data that indicated only a 0.1% increase in July. With this rally, the Nasdaq is making strides toward reclaiming its all-time high, from which it had previously fallen by 8.2%.
  • Dow Jones Adds 408 Points as Inflation Fears Ease: The Dow Jones Industrial Average climbed 1.04%, closing at 39,765.64. This 408-point gain is a clear sign of renewed confidence among investors, who are increasingly hopeful that the Federal Reserve might temper its aggressive interest rate hikes in light of the tame inflation data. 
  • S&P 500 Nears Record Levels: The S&P 500 advanced 1.68% to close at 5,434.43, bringing the index within less than 5% of its record high set in July. This gain underscores a strong recovery in the broader market, with the S&P 500 now up 4.2% since the sharp sell-off on August 5. The index’s rise highlights the market’s resilience, lifted by expectations that inflationary pressures are easing.
  • European Markets Show Resilience Amid Mixed Economic Data: European stocks ended Tuesday on a positive note, with the pan-European Stoxx 600 index rising 0.5%. The health care sector led the gains, up 1%, reflecting investor confidence in this traditionally defensive sector amid ongoing economic uncertainty. Meanwhile, the mining sector underperformed, slipping 0.5%, as concerns about global demand weighed on commodity prices. The FTSE 100 Index climbed 0.30% to close at 8,235.23, while France’s CAC 40 rose nearly 0.4%, lifted by gains in high-cap companies, despite fresh signs of economic weakness across the continent.
  • Asian Markets Surge Led by Japan’s Nikkei: Asian markets saw strong gains on Tuesday, with Japan’s Nikkei 225 leading the region, surging 3.45%. This marks the first time the index has breached the 36,000 level since early August, driven by robust performances in the technology and financial sectors. The broader Topix index also gained 2.83% to close at 2,553.55. Elsewhere in Asia, South Korea’s Kospi edged up 0.12%, while Australia’s S&P/ASX 200 climbed 0.16%. Mainland China’s CSI 300 ticked higher by 0.26%, and Hong Kong’s Hang Seng Index gained 0.32%, reflecting optimism across the region as markets reacted positively to both domestic and global economic developments.
  • Oil Prices Fall Amid Slowing Global Demand: US crude oil prices declined 1.5% on Tuesday, with West Texas Intermediate (WTI) settling at $78.41 per barrel and Brent closing at $81.26 per barrel. The drop in oil prices reflects growing concerns over slowing global demand, particularly from China, as well as a shift in market focus back to fundamentals. The International Energy Agency (IEA) and OPEC both flagged softening consumption in China, which has contributed to a broader decline in oil prices. Despite tensions in the Middle East, the market remains focused on the more significant issue of weakening demand.
  • US Treasury Yields Decline as PPI Data Disappoints: US Treasury yields fell on Tuesday as the lower-than-expected PPI data fuelled expectations of a potential easing in the Federal Reserve’s monetary policy. The yield on the 10-year US Treasury declined by approximately 5.7 basis points to 3.852%, while the 2-year Treasury yield dropped by 7.5 basis points to 3.94%. 

FX Today:

  • EUR/USD Approaches Key Resistance as USD Weakens: The EUR/USD pair extended its upward momentum, closing at 1.0995, fuelled by a broad-based sell-off in the US Dollar. The pair is now eyeing a test of the August high of 1.1008, with further potential to reach its December 2023 peak of 1.1139. On the downside, key support levels include 1.0835, followed by 1.0777. Should the pair lose ground, the next significant levels are 1.0666 and 1.0650.
  • GBP/USD Gains as UK Employment Data Lifts Sterling: GBP/USD climbed to fresh weekly highs above 1.2850, driven by strong UK employment data and a softer US Dollar following the PPI release. Immediate resistance is found in the 1.2810-1.2820 range. A break above this area could open the door to the 1.2860 and 1.2900 resistance levels. Support levels to watch include 1.2750, 1.2700, and 1.2660.
  • AUD/USD Holds Steady Above Key SMAs: The AUD/USD pair showed modest strength, rising 0.26% during Tuesday’s session to settle near 0.6610. The pair remains above the 100 and 200-day SMA convergence, a critical technical level indicating potential further upside. Key support levels include 0.6600, 0.6580, and 0.6560, while resistance is expected near 0.6610, which, if breached, could pave the way for a more sustained rally.
  • USD/JPY Targets Higher Levels Amid Dovish BoJ Comments: The USD/JPY pair resumed its upward trend, comfortably trading above the 145.00 mark, driven by dovish remarks from the Bank of Japan (BoJ). The pair is now eyeing the next resistance level at 150.00, reflecting heightened investor interest in the Yen’s movements. Immediate support lies at 146.44, with further downside risk targeting the 146.25 psychological level. A break below this could see the pair testing deeper support levels around 146.00.
  • USD/CHF Faces Resistance Near 38.2% Retracement: The USD/CHF pair saw increased volatility, retreating after initially breaching the 38.2% retracement level of the move down from July to August highs. The pair tested support near 0.8646, which held firm, attracting some buying interest. A sustained move back above 0.8668 could give buyers the edge, with the next target being 0.86227. A break below the 100-hour moving average would likely open the door for further selling pressure.

Market Movers:

  • Starbucks (SBUX) Surges Over 24% on Leadership Change: Starbucks saw a massive rally, closing up more than 24% as the company announced a new CEO, effective September 9. The stock soared as investors reacted positively to the leadership transition. This significant move underscores the market’s confidence in the new CEO’s ability to steer the company towards future growth.
  • Nvidia (NVDA) Jumps 6% as Chip Stocks Rally: Nvidia continued its upward trajectory, closing up more than 6% on Tuesday. This follows a 4% gain on Monday, driven by strong demand in the semiconductor sector. Nvidia’s rally also lifted other chipmakers, including Intel (INTC), which rose more than 5%, ARM Holdings Plc (ARM) up over 6%, and Marvell Technology (MRVL) gaining more than 5%. The chip sector’s strength provided substantial support to the broader market’s performance.
  • Tesla (TSLA) Rises Over 5% Amid Broad Tech Gains: Tesla shares surged more than 5%, contributing to the strong performance of mega-cap technology stocks. The broader rally in tech helped push the Nasdaq Composite up by 2.43%. Tesla’s gains were part of a larger movement in the sector, with companies like Meta Platforms (META) and Netflix (NFLX) also seeing increases of more than 2%, while Apple (AAPL), Amazon.com (AMZN), and Microsoft (MSFT) each rose by over 1%.
  • Dell Technologies (DELL) Gains Over 4% After Analyst Upgrade: Dell Technologies closed up more than 4% after Barclays upgraded the stock to “equal weight” from “underweight.” The upgrade reflects renewed optimism about Dell’s business outlook and operational efficiency, which have bolstered investor sentiment and driven the stock’s recent gains.
  • ARS Pharmaceuticals (SPRY) Skyrockets Over 19% on Strong Buy Rating: ARS Pharmaceuticals saw its shares soar by more than 19% after Raymond James upgraded the stock to “strong buy” from “outperform,” setting a price target of $22. This bullish outlook fuelled a significant rally, as investors anticipate strong future performance from the company.
  • Nike (NKE) Jumps Over 5% on Positive Peer Results: Nike shares increased more than 5%, boosted by positive carryover from a strong performance by peer On Holding (ONON), which reported better-than-expected Q2 results. Nike’s gains reflect broader optimism in the apparel sector, driven by robust earnings reports and favourable market conditions.
  • Chipotle Mexican Grill (CMG) Falls Over 7% as CEO Departs: Chipotle Mexican Grill led the declines in the S&P 500, dropping more than 7% after CEO Niccol announced his departure to become the CEO of Starbucks. The unexpected leadership change raised concerns among investors about potential disruptions in Chipotle’s operations and future growth strategy, leading to a sharp sell-off in the stock.

As Tuesday’s trading session came to a close, the US markets showcased a strong rebound, powered by encouraging inflation data that renewed investor optimism. The Nasdaq’s impressive near 2.5% gain, along with substantial rallies in the Dow Jones and S&P 500, underscores a market regaining confidence amid easing inflation concerns. European and Asian markets also joined the upward trend. However, with key data releases still on the horizon, including the much-anticipated consumer price index, investors remain vigilant, balancing the excitement of the market’s recent performance with the uncertainty of what’s to come.