Global Markets Start 2025 with Volatility Amid Mixed Economic Signals | Daily Market Analysis

Key events:

• USA - ISM Manufacturing PMI (Dec)
• USA - ISM Manufacturing Prices (Dec)

US stocks closed lower on Thursday, erasing earlier gains as concerns over domestic security incidents weighed on market sentiment.

The Dow Jones Industrial Average fell 156 points (0.4%), while the S&P 500 dropped 10 points (0.2%), and the NASDAQ Composite lost 30 points (0.2%). This cautious start to the year comes after a strong 2024 performance, where the NASDAQ surged over 28%, the S&P 500 gained 23%, and the Dow climbed nearly 13%, largely driven by an AI-fueled rally in technology stocks.

Tesla shares faced significant pressure, falling more than 6% after the company announced record Q4 vehicle deliveries of 495,570, missing consensus expectations of 512,277. The electric vehicle manufacturer also reported producing approximately 459,000 vehicles during the quarter. Despite the record numbers, investors expressed disappointment over the delivery shortfall, which could signal production challenges or weaker-than-expected demand.

Apple also struggled, with its stock dropping nearly 3%. The tech giant is offering rare discounts on its latest iPhone models in China, reflecting intensifying competition from domestic smartphone makers. As Apple grapples with declining market share in the world's largest smartphone market, the move highlights the growing threat posed by local manufacturers. The company’s ability to maintain its foothold in China remains uncertain amid these headwinds.

In the currency markets, the New Zealand Dollar recovered some losses, supported by expectations that the People's Bank of China will cut interest rates at an appropriate time this year. Chinese officials have indicated confidence in achieving continued economic recovery in 2025, with ample room for macroeconomic policy adjustments. As China is a major trading partner for New Zealand, such supportive measures boost the Kiwi Dollar. However, lingering concerns over potential tariff threats from US President-elect Donald Trump could weigh on the NZD in the coming months, given the ripple effects on China’s economy and its trading partners.

The Australian Dollar also extended its gains against the US Dollar, recovering from recent lows. Rising commodity prices, particularly in oil and gold, provided support, reinforcing Australia’s position as a leading exporter of these resources. Market optimism was further bolstered by reports of potential PBoC interest rate cuts, which could stimulate economic growth in China and positively impact Australian markets. The Reserve Bank of Australia remains cautious about easing monetary policy, citing robust labor market conditions. Still, weaker-than-expected economic data could prompt the central bank to adjust its stance.

Meanwhile, the Canadian Dollar benefited from stronger oil prices, with the USD/CAD pair softening to near 1.4395. Canada, as the largest oil exporter to the US, often sees its currency strengthen alongside rising crude prices. Additionally, Canadian manufacturing activity showed modest improvement, with the December PMI rising to 52.2 - its highest level since February 2023. However, uncertainties related to potential US tariffs and domestic political challenges could pose risks for the Loonie.

The Euro faced significant pressure, with the EUR/USD pair plunging to 1.0250, marking a 26-month low. Disappointing European Manufacturing PMI data and dovish remarks from European Central Bank officials fueled the decline. The ECB signaled plans for steady rate cuts throughout 2025, aiming to stimulate the economy amid sluggish growth. This dovish approach contrasts with the Federal Reserve’s cautious stance on rate reductions, widening the interest rate differential and keeping downward pressure on the Euro. Some analysts predict the Euro could reach parity with the US Dollar if current trends persist.

Looking ahead, traders will focus on key US economic data, including the December Manufacturing PMI, to gain insights into the strength of the US economy and the Federal Reserve’s monetary policy trajectory. The mixed signals from global markets underscore the challenges facing investors in 2025. Geopolitical developments, central bank strategies, and China’s economic recovery are expected to shape market dynamics in the months ahead.