US markets rallied sharply on Wednesday, driven by easing inflation concerns and robust earnings reports from major banks. The Dow Jones Industrial Average surged over 700 points, marking its best day in months, while the S&P 500 posted its strongest performance since November. A tame core inflation report for December provided relief to investors, signalling a potential pause in Federal Reserve rate hikes. Meanwhile, standout earnings from financial giants like JPMorgan Chase, Goldman Sachs, and Citigroup boosted confidence in the broader economy. The tech-heavy Nasdaq also climbed, lifted by gains in mega-cap stocks such as Tesla and Nvidia, as Treasury yields dropped significantly in response to the encouraging data.

Key Takeaways:

  • Dow Posts Best Day in Months with a 700-Point Surge: The Dow Jones Industrial Average rocketed 703.27 points, or 1.65%, to close at 43,221.55, marking its best day in recent months. This sharp rally came in the wake of December’s consumer price index (CPI) report. 
  • S&P 500 Hits Highest Gain Since November: The S&P 500 surged 1.83%, closing at 5,949.91. This marked the index’s strongest daily performance since November, reflecting investor optimism sparked by the tame inflation figures. Treasury yields also fell sharply, with the 10-year yield declining 13 basis points to 4.65%, further boosting sentiment.
  • Nasdaq Rallies 2.45% as Tech Stocks Outperform: The Nasdaq Composite rallied 2.45%, closing at 19,511.23, as growth stocks surged following the inflation report. Tesla soared over 8%, while Nvidia climbed 3%, driving strong gains in the index. 
  • US Inflation Data Eases Rate Hike Fears: December’s CPI report showed core inflation rising by just 3.2% on an annual basis, a notch below the 3.3% forecast. On a monthly basis, core inflation increased by 0.2%, compared to the 0.3% estimate. Headline inflation rose by 2.9% year-over-year and 0.4% month-over-month, driven primarily by a 2.6% gain in energy prices. Gasoline prices surged 4.4% during the month, accounting for approximately 40% of the CPI increase. Despite this, the data overall reassured markets that inflationary pressures are easing.
  • European Markets Log Best Session in Five Months: The pan-European Stoxx 600 rose 1.3%, recording its strongest session since August 2024. The FTSE 100 gained 1.2%, while Germany’s DAX surged 1.72%, and France’s CAC 40 climbed 0.93%. UK inflation fell to 2.5% in December, below the 2.6% expected, leading to a sharp decline in bond yields. The 10-year gilt yield dropped 16 basis points to 4.725%, its lowest level in a week, while the 2-year yield also fell by 16 basis points to 4.44%.
  • Asian Markets Mixed Amid Global Optimism: Asia-Pacific markets showed mixed performance, with mainland China’s CSI 300 rising 2.63%, marking its largest one-day gain since November, and Hong Kong’s Hang Seng Index climbing 1.9%. South Korea’s Kospi advanced 0.31%, while Australia’s S&P/ASX 200 gained 0.48%. Japan’s Nikkei 225 and Topix bucked the trend, falling 1.83% and 1.16%, respectively, extending their losing streak to four days. Japan’s 40-year government bond yield reached an intraday high of 2.774%, its highest level since 2007, further pressuring its equity markets.
  • Oil Prices Reach Five-Month Highs Amid US Crude Draw: US crude oil futures climbed to $80.04 per barrel, their highest since August, while Brent crude futures rose to $81.90. A drawdown in US crude oil inventories to their lowest levels since 2022, coupled with reduced imports and higher exports, supported the rally. OPEC maintained its 2026 oil demand growth forecast at 1.43 million barrels per day, contrasting with IEA predictions of a demand peak within this decade.
  • Treasury Yields Drop as Inflation Cools: The 10-year US Treasury yield fell 13 basis points to 4.653%, retreating from its 14-month high earlier in the week, while the 2-year yield dropped 10 basis points to 4.27%. The cooling core inflation report reduced expectations for additional Federal Reserve rate hikes, leading to significant downward movement in bond yields.

FX Today:

  • EUR/USD Consolidates Near 1.0300 Amid Downward Pressure: EUR/USD closed at 1.0296, down 0.11% for the session, as the pair continued its downward trajectory. Struggles to breach the 50-day Simple Moving Average (SMA) at 1.0482 highlight persistent bearish momentum. The 200-day SMA at 1.0782 remains well above current levels, signalling a broader downtrend. Support is seen at 1.0200, with the psychological level of 1.0000 providing a potential floor. Resistance lies at 1.0400, followed by the 50-day SMA at 1.0482. Momentum indicators are near oversold, suggesting a possible short-term bounce, but the dominant bearish trend since mid-2024 persists without recovery above 1.0500.
  • GBP/USD Attempts Recovery Amid Modest Recovery: GBP/USD ended the day at 1.2244, up 0.24% as the pair attempted to recover from recent declines. Resistance remains firm at 1.2300, a level tested earlier this month, with further barriers at 1.2500. On the downside, support is located at 1.2150, with additional levels near the 1.2000 mark last reached in late 2023. The pair remains below its 50-day SMA at 1.2610 and 200-day SMA at 1.2796, signalling continued bearish momentum. Momentum indicators are slightly improving, with RSI edging higher from oversold levels, but the broader trend remains tilted to the downside unless key resistance levels are breached.
  • USD/JPY Pulls Back as US Inflation Data Cools: USD/JPY closed at 156.46, down 0.94%, retreating sharply from recent highs near 158.00. The pair remains above key support at the 50-day SMA of 154.56 and the 200-day SMA of 152.72, preserving its broader bullish structure. Immediate support is seen at 156.00, with additional levels at 154.00. Resistance lies at 158.00, a level repeatedly tested since December 2024. Momentum indicators suggest a weakening bullish trend, with RSI trending lower, pointing to potential consolidation or a deeper pullback. A decisive move above 158.00 is needed to confirm a continuation of the uptrend, while failure to hold above 156.00 could invite further declines.
  • Gold Rallies Toward $2,700 Amid Falling Yields: Gold surged to $2,695, up 0.70% for the day, approaching the critical $2,700 resistance level. The metal gained as cooling US core inflation data and a sharp decline in Treasury yields boosted demand for safe-haven assets. Key resistance lies at $2,700, with further targets at $2,750, last seen in mid-2024. On the downside, support is located at $2,675, followed by $2,650 and $2,620, which align with the 50-day SMA of $2,641 and the 100-day SMA of $2,637. Momentum indicators remain neutral to positive, suggesting balanced market conditions. A breakout above $2,700 could attract further buying, while failure to do so might lead to consolidation near current levels.
  • Silver Surges, Eyes Key Resistance at $31.00: Silver climbed 2.79% to close at $30.70, continuing its bullish momentum after breaking above the 50-day SMA of $30.35. Resistance is now located at $31.00, a key psychological level that aligns with the 200-day SMA of $29.97. A sustained break above $31.00 could push silver toward $32.50, a level last seen in August 2024. On the downside, support lies at $30.00, with additional levels near $29.50, tested in December 2024. Momentum indicators are trending higher, signalling bullish strength. Silver remains supported by industrial demand and weaker dollar sentiment, with a breakout above $31.00 likely to confirm a continuation of the uptrend.

Market Movers:

  • Goldman Sachs Climbs 6% on Strong Earnings Beat: Shares of Goldman Sachs (GS) advanced over 6% after the bank reported Q4 net revenue of $13.87 billion, significantly surpassing analysts’ expectations of $12.37 billion. 
  • Wells Fargo Rises 6% on Optimistic Outlook: Wells Fargo (WFC) gained more than 6% after reporting Q4 net interest income of $11.84 billion, exceeding the consensus estimate of $11.70 billion. The bank’s updated guidance projecting net interest income growth of 1% to 3% in 2025 further bolstered investor confidence.
  • Citigroup Gains 6% on FICC Trading Revenue Beat: Citigroup (C) rose over 6% after its Q4 fixed income, currencies, and commodities (FICC) trading revenue came in at $3.48 billion, well above market expectations of $2.94 billion. 
  • BlackRock Jumps 5% After Q4 EPS Beats Expectations: BlackRock (BLK) advanced more than 5% after reporting adjusted Q4 earnings per share (EPS) of $11.93, beating the consensus estimate of $11.46. The asset manager’s performance reflects strong demand for its investment products, helping drive gains in its stock.
  • Keros Therapeutics Falls 16% After Trial Termination: Keros Therapeutics (KROS) plummeted more than 16% after announcing the termination of a Phase 2 trial for its experimental lung disorder therapy due to side effect concerns. The news rattled investors, leading to a sharp decline in the stock.

As markets closed out a strong session, investor sentiment was lifted by easing inflation concerns and a wave of better-than-expected earnings from major financial institutions. The Dow surged over 700 points, while the S&P 500 posted its best day since November, reflecting optimism that the Federal Reserve may pause rate hikes following the tame CPI data. Tech and growth stocks led the Nasdaq higher, supported by a sharp drop in Treasury yields. European markets also rallied, logging their best session in five months as UK inflation cooled more than anticipated. Meanwhile, energy prices reached multi-month highs, boosting the sector amid declining crude inventories. With inflation easing and corporate earnings exceeding expectations, markets appear poised for continued gains, although investor focus remains fixed on upcoming economic data and Federal Reserve policy cues.