US markets faced renewed pressure on Wednesday after a hotter-than-expected consumer inflation report fuelled concerns over the Federal Reserve’s monetary policy path. The S&P 500 extended losses, while the Dow Jones Industrial Average tumbled over 200 points as investors reacted to January’s consumer price index (CPI) data, which came in above estimates. Treasury yields surged, reflecting expectations that interest rates could remain elevated for longer. However, the Nasdaq managed to make a modest gain, supported by strength in select tech stocks, including Tesla and Palantir. Meanwhile, European markets closed higher despite initial weakness, and Asia-Pacific equities saw mostly positive momentum as traders assessed the broader implications of US economic data.

Key Takeaways:

  • S&P 500 Declines as Inflation Concerns Weigh on Markets: The S&P 500 slipped 0.27% on Wednesday, closing at 6,051.97, as investors digested hotter-than-expected inflation data. January’s Consumer Price Index (CPI) rose 0.5% for the month, exceeding economists’ expectations of 0.3%, while the annual inflation rate hit 3.0%, slightly above the projected 2.9%. 
  • Dow Drops Over 200 Points Amid CPI Shock: The Dow Jones Industrial Average tumbled 225.09 points, or 0.5%, to settle at 44,368.56, reflecting investor unease following the inflation report. Core CPI, which excludes volatile food and energy prices, rose 0.4% for the month and 3.3% year-over-year, both surpassing estimates. 
  • Nasdaq Holds Steady as Tech Stocks Provide Support: The Nasdaq Composite managed to post a marginal gain, rising 0.03% to close at 19,649.95. The index benefited from resilience in major technology stocks, with Tesla, Apple, and Palantir helping to offset broader market losses. 
  • US Consumer Prices Rise More Than Expected, Raising Inflation Concerns: Inflation accelerated in January, with consumer prices rising 0.5% for the month, outpacing expectations of a 0.3% increase. The annual inflation rate ticked up to 3.0%, higher than the projected 2.9%. Excluding food and energy, core CPI climbed 0.4% for the month and 3.3% year-over-year, both exceeding forecasts. 
  • Treasury Yields Surge as Rate Cut Hopes Fade: US Treasury yields spiked in response to the inflation data, with the 10-year yield jumping more than 8 basis points to 4.625%, while the 2-year yield climbed 7 basis points to 4.355%. Investors increasingly priced in the possibility that the Federal Reserve will maintain its restrictive policy stance for longer than previously expected. 
  • European Markets End Higher Despite Inflation Jitters: European stocks managed to close slightly higher after initial declines, as traders assessed the US inflation report’s impact on global markets. The pan-European Stoxx 600 edged up 0.11%, recovering from early losses. In London, the FTSE 100 gained 30.05 points, or 0.34%, to close at 8,807.44. France’s CAC 40 rose 0.2% to 8,042, marking its third consecutive session of gains and reaching its highest level since May 2024. However, Italy’s FTSE MIB lagged behind, slipping into negative territory to finish at 37,531.2, weighed down by losses in energy and utilities stocks. Meanwhile, Germany’s DAX regained ground, climbing 0.5% to close at 22,143.
  • Asia-Pacific Markets Mostly Rise as Traders Weigh US Data: Asian equities largely ended the day in positive territory despite concerns over US inflation and interest rate policy. Japan’s Nikkei 225 advanced 0.42% to 38,963.70 after resuming trading following a holiday, while the broader Topix index remained flat at 2,733.33. In South Korea, the Kospi added 0.37% to 2,548.39, though the smaller-cap Kosdaq slid 0.59% to 745.18. Hong Kong’s Hang Seng Index rallied 2.41% in the final hour of trade, while China’s CSI 300 gained 0.95% to finish at 3,919.86. Australia’s S&P/ASX 200 also posted gains, rising 0.6% to close at 8,535.30. 
  • Oil Prices Slide as US Crude Stocks Rise and Fed Stance Remains Hawkish: Oil markets faced a sharp decline on Wednesday, with Brent crude dropping $1.82, or 2.36%, to settle at $75.18 per barrel. US West Texas Intermediate (WTI) crude fell even further, slipping $1.95, or 2.66%, to close at $71.37 per barrel. The losses came after three consecutive days of gains, during which Brent had climbed 3.6% and WTI had risen 3.7%. The Energy Information Administration (EIA) raised its forecast for US crude output, now projecting 13.59 million barrels per day in 2025, up from a prior estimate of 13.55 million bpd.

FX Today:

  • EUR/USD Recovers as Markets Absorb Inflation Shock: The EUR/USD pair clawed back losses on Wednesday, closing at 1.0394 with a 0.33% gain after briefly dipping earlier in the session. The pair reached a high of 1.0429, while support held firm at 1.0360. Despite the US inflation print exceeding forecasts, the euro stabilised as traders reassessed the Federal Reserve’s policy trajectory. The 50-day moving average at 1.0398 remains an immediate barrier, while the 100-day and 200-day moving averages at 1.0599 and 1.0750 indicate that the broader trend remains tilted to the downside. If EUR/USD pushes past 1.0400, the next upside target sits at 1.0450. However, if the pair fails to hold gains, a slide back toward 1.0350 remains a possibility.
  • GBP/USD Finds Footing as Dollar Strength Eases: The British pound held steady on Wednesday, with GBP/USD closing at 1.2449, a modest 0.02% gain for the session. The pair peaked at 1.2483 but remained supported at 1.2376 despite broad dollar strength following the CPI release. With the Federal Reserve maintaining a cautious stance, sterling found buying interest, though upside remains limited by the 50-day moving average at 1.2480. The 100-day and 200-day moving averages at 1.2712 and 1.2787 suggest that the pair remains in a longer-term downtrend. A break above 1.2450 could see GBP/USD test 1.2500, but any weakness may send it back toward 1.2400.
  • USD/JPY Rallies Past 154.50 as Yields Surge: The USD/JPY pair posted a strong rally on Wednesday, closing at 154.33 after surging 1.22% for the session. The pair hit an intraday high of 154.79, with firm support established at 152.34 as US Treasury yields climbed in response to the hotter CPI report. The 10-year yield jumped above 4.62%, driving the dollar higher against the yen. The 50-day moving average at 154.95 now stands as a key resistance level, while the 100-day and 200-day moving averages at 152.87 and 152.70 confirm the ongoing bullish trend. If the pair holds above 154.50, a move toward 155.00 is in sight, but any rejection could lead to a retracement toward 153.00.
  • Canadian Dollar Strengthens as USD/CAD Slips Lower: The Canadian dollar advanced on Wednesday, briefly testing an eight-week high as USD/CAD slipped to its lowest level since mid-December. The pair closed at 1.4285, recording a marginal 0.04% gain for the session. USD/CAD touched a high of 1.4341, while support remained at 1.4279. The broader uptrend remains intact, with the 50-day moving average at 1.4327 acting as near-term resistance. Meanwhile, the 100-day and 200-day moving averages at 1.4075 and 1.3870 provide additional downside support. If USD/CAD breaks above 1.4350, further upside toward 1.4400 is possible, while failure to hold above 1.4300 could trigger a pullback toward 1.4250.
  • Gold Steadies Near Highs as Powell Maintains Restrictive Stance: Gold prices held firm on Wednesday, closing at 2,900.69, up 0.12% from the previous session, as investors weighed the Federal Reserve’s commitment to keeping policy restrictive. The metal hit a high of 2,909.19 during the day, while support was found at 2,864.26. Gold remains in an uptrend, with the 50-day moving average at 2,706.55 acting as a key support zone. The 100-day and 200-day moving averages at 2,687.66 and 2,553.06 further reinforce bullish momentum. Immediate resistance lies at 2,920, with a break above this level opening the door for a push toward 2,950. However, any near-term pullback could see gold testing 2,880, where buyers may step in to defend gains.

Market Movers:

  • CVS surges on strong earnings beat: CVS Health shares soared 15% on Wednesday after the company reported fourth-quarter adjusted earnings of $1.19 per share, surpassing analyst expectations of $0.93 per share. 
  • Upstart Holdings rallies over 30% after upbeat guidance: Shares of Upstart Holdings surged 32% as the company posted stronger-than-expected fourth-quarter earnings and provided optimistic first-quarter guidance. 
  • Firefly Neuroscience extends massive rally: Firefly Neuroscience continued its explosive run, climbing 54% on Wednesday. This followed a staggering 171% gain on Tuesday after news emerged that the company had been accepted into Nvidia’s Connect Program. 
  • Zillow slumps on weak guidance: Zillow shares tumbled 9% after the company issued disappointing first-quarter revenue guidance. The company expects revenue to range between $575 million and $590 million, missing FactSet’s consensus estimate of $599.8 million. 
  • Alibaba pops as Apple AI deal speculation grows: Alibaba shares climbed 5% after reports emerged that Apple is partnering with the Chinese tech giant to bring AI-driven features to iPhones in China. 

As markets digested the hotter-than-expected US inflation report, equities saw mixed movements, with the S&P 500 and Dow Jones retreating while the Nasdaq managed to hold steady. Treasury yields surged, reflecting investor concerns that the Federal Reserve may keep interest rates elevated for longer, dampening hopes for near-term cuts. European markets ended slightly higher, overcoming initial losses, while Asian equities largely posted gains, with Japan’s Nikkei and Hong Kong’s Hang Seng leading the region. Oil prices fell sharply after three days of gains, weighed down by rising US crude inventories and a hawkish Fed stance, while gold steadied near multi-month highs as traders sought safe-haven assets. With inflation concerns resurfacing, all eyes remain on the Federal Reserve’s next move and its implications for global markets.