Earnings Reports, Fed Decisions, and Global Trade Tensions Shape S&P 500's Weekly Performance | Daily Market Analysis 

Key events:

• China - Manufacturing PMI (Jan)
• USA - New Home Sales (Dec)

The S&P 500 wrapped up its second consecutive week of gains, despite finishing lower on Friday after retreating from an intraday record high. During the session, Investors processed corporate earnings reports and economic data.

The S&P 500 index slipped 0.3% after reaching a record intraday peak of 6,128.18 earlier in the day. The NASDAQ Composite also declined by 0.5%, while the Dow Jones Industrial Average dropped 140 points, or 0.3%.

All three major indices managed to secure a second straight week of positive performance. The S&P 500 hit its record high following comments from former President Donald Trump, who urged world leaders at the Davos summit to “immediately demand a drop in interest rates.”

Among individual stocks, Verizon Communications (NYSE: VZ) saw its shares climb nearly 1% after the company reported its strongest quarterly wireless subscriber growth in five years. Meanwhile, Boeing (NYSE: BA) shares fell 1.4% as the aerospace giant projected a larger-than-expected $4 billion loss for the quarter, citing a prolonged workers' strike, charges tied to U.S. government contracts, and expenses related to job cuts.

The Japanese Yen gave up a significant portion of its earlier gains against the US Dollar during Monday's Asian session. This came after the White House announced that Colombia had agreed to accept illegal migrants returned from the United States. Additionally, the USD regained some strength after hitting a one-month low on Friday, helping the USD/JPY pair climb back toward its daily highs. However, the depreciation of the JPY remains limited due to the Bank of Japan's hawkish stance.

The uncertain outlook on US trade policies, particularly under former President Donald Trump's administration, continues to provide support for the safe-haven JPY. Moreover, expectations of potential policy easing by the Federal Reserve may deter USD bulls from making aggressive moves. The divergence in monetary policy between the BoJ and the Fed has narrowed the US-Japan yield gap, which benefits the lower-yielding JPY and puts a ceiling on further gains for the USD/JPY pair.

Meanwhile, the Australian Dollar ended its three-day winning streak against the USD as mixed Chinese economic data weighed on market sentiment. The AUD/USD pair traded under pressure following the release of China's Purchasing Managers' Index (PMI) data. The National Bureau of Statistics (NBS) reported that the Manufacturing PMI fell to 49.1 in January from 50.1 in December, missing expectations of 50.1. Similarly, the Non-Manufacturing PMI dropped to 50.2 from 52.2.

Despite China’s fresh stimulus measures to promote the development of index investment products, including long-term stock investment pilot programs valued at 52 billion Yuan ($7.25 billion), the Australian Dollar struggled to find support. This is largely due to China's ongoing economic challenges, such as weak industrial profits, which declined 3.3% year-over-year in 2024, reflecting the prolonged slump in its property sector and rising deflationary pressures.

Elsewhere, the USD/CAD pair recovered its losses from the previous two sessions, trading near 1.4390 during the Asian session on Monday. The pair's upside was driven by reports from the Wall Street Journal indicating that former President Trump’s advisers were pushing to impose 25% tariffs on Mexico and Canada by February 1, bypassing further negotiations. Additionally, the Canadian Dollar faced headwinds as the Bank of Canada was expected to announce a quarter-point rate cut on Wednesday. In contrast, the Fed is anticipated to hold rates steady, further widening the interest rate differential.

In the EUR/USD market, the pair edged lower to around 1.0480 during Monday’s Asian session as the US Dollar Index rebounded from its monthly low of 107.22, reached on Friday. The USD's recovery followed mixed US PMI data released last week. While the Composite PMI declined to 52.4 in January from 55.4 in December, the Manufacturing PMI showed improvement, rising to 50.1 in January from 49.4 and exceeding expectations of 49.6. However, the Services PMI dropped to 52.8, falling short of market forecasts of 56.5.

On the Euro’s side, the HCOB Eurozone Composite PMI for January rose to 50.2 from 49.6 in December, signaling a recovery in business activity after two months of contraction. While this supported the Euro, its momentum was capped by the European Central Bank’s dovish outlook. The ECB is widely expected to reduce its Deposit Facility Rate by 25 basis points to 2.75% on Thursday and maintain this approach over the next three meetings, as officials are confident inflation will return to the target rate of 2%.

The focus now shifts to the Federal Reserve’s policy meeting next week, where interest rates are expected to remain unchanged. Analysts at Goldman Sachs noted that Fed officials are likely to dismiss any inflationary effects from tariffs imposed during Donald Trump’s presidency, viewing them as temporary price adjustments rather than indicators of sustained inflationary pressure.