The markets saw a mixed day on Tuesday, with the Dow Jones Industrial Average climbing over 200 points after a lighter-than-expected wholesale inflation report provided some relief to investor concerns about the Federal Reserve’s next moves. While the S&P 500 inched higher, the tech-heavy Nasdaq slipped as Big Tech stocks faltered under selling pressure. Traders focused on sectors like utilities and financials, which led gains amid optimism that easing inflation could pave the way for a steadier interest rate environment. Meanwhile, attention turns to Wednesday’s consumer price index report, which could set the tone for the Fed’s upcoming policy decisions.

Key Takeaways:

  • Dow Climbs Over 200 Points on Cooler Inflation Data: The Dow Jones Industrial Average rose 221.16 points, or 0.52%, to close at 42,518.28, lifted by optimism following a lighter-than-expected Producer Price Index (PPI) report. This fuelled hopes that the Federal Reserve’s measures to combat inflation are taking effect.
  • S&P 500 Inches Higher, Nasdaq Dips as Tech Slides: The S&P 500 advanced 0.11% to 5,842.91, while the Nasdaq Composite fell 0.23% to 19,044.39. Weakness in Big Tech stocks dragged the Nasdaq lower, with Nvidia slipping 1.1% and Meta Platforms dropping 2.3%. Gains in other sectors helped offset the losses in the broader market.
  • US Inflation Data Shows Signs of Easing: The Producer Price Index (PPI), a key measure of wholesale inflation, showed a modest 0.2% increase in December, down from the prior month’s 0.4%. Core PPI, which excludes food and energy, remained flat. On an annual basis, headline PPI rose by 3.3% for 2024, a stark contrast to the 1.1% recorded in 2023. The decline reflects softening inflation pressures, although gains in gasoline prices (+9.7%) offset drops in fresh and dry vegetables (-14.7%).
  • European Markets Close Mixed After US Inflation Report: European markets were volatile, with the pan-European Stoxx 600 index slipping 0.08% by the close. The FTSE 100 fell 0.28% to 8,201.54, weighed down by oil and gas stocks after BP announced a $300 million fourth-quarter profit hit. In contrast, France’s CAC 40 climbed 0.2% to 7,424, buoyed by strong performance in banking and luxury stocks. Germany’s DAX gained 0.64% to 20,327, while Italy’s FTSE MIB rose 0.93%.
  • Asia-Pacific Markets Mostly Higher Amid Inflation Optimism: Asian markets were largely positive, with China’s CSI 300 surging 2.63% to 3,820.53, marking its largest one-day gain since November. Hong Kong’s Hang Seng rose 1.9%, reflecting optimism over inflation data. Meanwhile, Australia’s S&P/ASX 200 gained 0.48%, snapping a three-day losing streak. Japan lagged behind, with the Nikkei 225 dropping 1.83% to 38,474.30 and the Topix down 1.16%. South Korea’s Kospi ended the day up 0.31%, while the Kosdaq jumped 1.39%.
  • Oil Prices Decline on Demand Forecasts: Oil prices fell as the US Energy Information Administration forecasted steady US oil demand for 2025. Brent crude dropped 91 cents, or 1.12%, to $80.10 per barrel, while West Texas Intermediate (WTI) slid $1.06, or 1.34%, to $77.76. Sanctions on Russian oil exports to India and China limited further losses, balancing geopolitical pressures with muted demand expectations.
  • Treasury Yields Hold Steady Ahead of CPI Data: US Treasury yields showed little movement on Tuesday, with the 10-year yield down 2 basis points at 4.782% and the 2-year yield dropping 4 basis points to 4.363%. The softer-than-expected PPI data helped ease market concerns about inflation and interest rate cuts. All eyes are now on Wednesday’s consumer price index (CPI) release, which could influence the Federal Reserve’s policy stance.

FX Today:

  • EUR/USD Attempts a Recovery Amid Bearish Trend: EUR/USD rose 0.58% to 1.0303, showing signs of recovery after prolonged declines. However, the pair remains below critical resistance levels, including the 50-day SMA at 1.0493. Immediate resistance lies at 1.0400, and a sustained break above this could pave the way for a more substantial rebound. On the downside, key support levels are at 1.0200, with a breach potentially targeting parity at 1.0000. While momentum indicators hint at a short-term rally, the broader trend remains bearish unless the pair reclaims 1.0500.
  • GBP/USD Struggles to Gain Traction Above 1.2200: GBP/USD traded at 1.2205, managing only a modest 0.02% rise as it battled to regain momentum after steep losses. The pair remains under pressure, with resistance at the 50-day SMA at 1.2624 and the 200-day SMA at 1.2798. Immediate support lies at 1.2100, with further downside potentially testing 1.2000. Upside attempts are likely capped at 1.2300 and 1.2500. Momentum indicators show oversold conditions, which could spark a short-term bounce, but the long-term outlook stays bearish unless critical resistance levels are broken.
  • USD/JPY Strengthens, Nears Key Resistance: USD/JPY climbed 0.33% to 157.97, continuing its bullish run. The pair remains well above its 50-day SMA at 154.47, with immediate resistance at 158.50, a level last tested in November 2024. A break above this could set the stage for a move toward 160.00. On the downside, key support is at 156.50, followed by 154.000. Despite bullish momentum, RSI suggests overbought conditions, signalling the potential for consolidation or a minor pullback.
  • EUR/GBP Breaks Higher, Approaches Key Levels: EUR/GBP climbed 0.58% to trade at 0.8440, marking a strong upward move as buyers pushed the pair beyond its 50-day SMA at 0.8310 and 100-day SMA at 0.8344. The next key test lies at the 200-day SMA at 0.8425, a significant resistance level throughout 2024. Should the pair sustain this breakout, it could aim for the 0.8500 mark, aligning with highs from September. However, RSI nearing overbought levels suggests potential for a short-term pullback, with immediate support at 0.8350 and further downside to 0.8300.
  • Gold Consolidates Below $2,700: Gold gained 0.46% to trade at $2,674, holding just below the critical resistance level of $2,700. Strong support remains at the 50-day SMA at $2,642 and the 100-day SMA at $2,635, underpinning the broader bullish trend. A break above $2,700 could drive prices toward $2,750, last seen in August 2024. On the downside, support is located at $2,650, with further protection at $2,620. Neutral momentum indicators reflect indecision among traders, as they await further direction from inflation data and geopolitical factors.

Market Movers:

  • Eli Lilly Drops on Lower Revenue Guidance: Shares of Eli Lilly plunged 6.6% after the company announced that demand for its weight loss and diabetes drugs would not meet expectations. The pharmaceutical giant revised its full-year 2024 revenue projection to approximately $45 billion, down from its earlier guidance of $45.4 billion to $46 billion.
  • Boeing Slips as Deliveries Lag Airbus: Boeing shares fell 2.1% after reporting 2024 airplane deliveries of 348, significantly fewer than Airbus’ 766 deliveries. This widened the gap between the two aerospace rivals and raised concerns about Boeing’s ability to regain market share.
  • Applied Digital Surges on $5 Billion Investment: Applied Digital’s stock soared 10% after announcing that Macquarie would invest up to $5 billion in its artificial intelligence data centres. Under the agreement, Macquarie will acquire a 15% stake in Applied Digital’s high-performance computing (HPC) segment, fuelling investor confidence in the company’s growth potential.
  • Hesai Gains on Goldman Sachs Upgrade: Hesai Group, a Chinese automotive supplier, saw its shares jump 10% after Goldman Sachs upgraded the stock to a “buy” rating from “neutral.” Analyst Tina Hou highlighted the company’s attractive valuation and its strong operating leverage from a new product cycle as key reasons for the upgrade.
  • Signet Jewelers Tanks on Weak Holiday Sales: Signet Jewelers, the parent company of Kay Jewelers and Zales, saw its stock plummet 21.7% after lowering its fourth-quarter guidance. Weak holiday sales, attributed to consumers opting for lower price points, weighed heavily on investor sentiment.
  • H&E Equipment Services Skyrockets on Acquisition News: H&E Equipment Services saw its stock surge 105.5% after United Rentals announced plans to acquire the company for $92 per share in cash, valuing H&E at approximately $4.8 billion. United Rentals shares also climbed 5.9% following the announcement.
  • Instacart Rises on Analyst Upgrade: Grocery delivery service Instacart’s stock climbed 4.4% after BTIG upgraded the company to a “buy” rating. The firm cited strong order growth and highlighted Instacart as a “secular growth category leader,” bolstering investor confidence.
  • Celanese Jumps on Double Upgrade: Shares of Celanese rose 5.4% after Bank of America issued a rare double upgrade from “underperform” to “buy.” The firm noted favourable valuations and anticipated a recovery in demand for most of Celanese’s products, driving investor enthusiasm.

As markets digested a lighter-than-expected wholesale inflation report, the Dow Jones climbed over 200 points, reflecting optimism about the Federal Reserve’s inflation control efforts. While the S&P 500 edged higher, tech sector weakness weighed on the Nasdaq, highlighting mixed sentiment among investors. European markets closed with varied results, supported by gains in France’s CAC 40 and Germany’s DAX, but weighed down by losses in the FTSE 100. In Asia, strong performances in China’s CSI 300 and Hong Kong’s Hang Seng signalled regional resilience, even as Japan’s Nikkei extended its losing streak. With inflation easing but uncertainties around future Federal Reserve policies and key US CPI data looming, markets remain on edge, awaiting clearer direction in the days ahead.