Market Sell-Off Deepens as Nvidia Plunges and Tariff Concerns Weigh on Sentiment | Daily Market Analysis

Key events:

• USA - Core PCE Price Index (MoM) (Jan)
• USA - Core PCE Price Index (YoY) (Jan)
• USA - Chicago PMI (Feb)

The S&P 500 ended sharply lower on Thursday as renewed tariff concerns and a decline in Nvidia (NASDAQ: NVDA) weighed on market sentiment. Despite reporting strong quarterly results and upbeat revenue guidance, Nvidia's warning about declining profit margins led to a sharp sell-off, dragging the broader tech sector down.

The S&P 500 closed 1.6% lower, while the Nasdaq Composite tumbled 2.8%. The Dow Jones Industrial Average slipped 192 points, or 0.4%.

Nvidia plunged more than 8% as investors reacted to its weaker-than-expected forecast for first-quarter profit margins. The chipmaker attributed the margin squeeze to rising costs associated with its new data center hardware and increased compensation expenses for its expanding workforce.

Meanwhile, the USD/CAD pair extended its winning streak for the sixth consecutive session on Friday, climbing to a nearly four-week high around 1.4450 during Asian trading. The US dollar remained in demand following data that signaled persistent inflationary pressures. The second estimate of US Gross Domestic Product, released on Thursday, showed firming inflation, fueling expectations that the Federal Reserve will maintain its hawkish stance.

Additionally, investor concerns about President Donald Trump's trade policies and their potential inflationary impact further bolstered the dollar. Trump reaffirmed that his proposed tariffs on Canada and Mexico would take effect on March 4 as planned, adding pressure on the Canadian dollar. A slight dip in crude oil prices also weighed on the commodity-linked loonie, providing further support to USD/CAD.

In the Japanese yen market, the USD/JPY pair erased early losses and rebounded toward the 149.00 level. The yen initially strengthened after Japanese Prime Minister Shigeru Ishiba’s government revised the fiscal 2025/26 budget plan down to ¥115.2 trillion. However, the broader strength in the US dollar helped the pair recover. Despite the yen’s intraday weakness, expectations for further Bank of Japan rate hikes limited downside risks. BoJ Deputy Governor Shinichi Uchida reinforced these expectations by noting that underlying inflation was steadily rising toward the central bank’s 2% target.

The Australian dollar also remained under pressure, with the AUD/USD pair extending its losing streak for a sixth straight session. The Australian economy showed signs of slowing, as private capital expenditure unexpectedly contracted by 0.2% in the fourth quarter of 2024, missing forecasts of 0.8% growth. This followed an upwardly revised 1.6% expansion in the previous quarter.

Reserve Bank of Australia Deputy Governor Andrew Hauser cautioned that while inflationary progress was being made, Australia’s tight labor market remained a challenge. His comments reinforced expectations that the central bank would maintain a cautious stance on interest rates.

In the European market, the EUR/USD pair continued its downward trend for a third consecutive day, slipping to around 1.0390 in the Asian session on Friday. Heightened trade tensions between the US and the European Union intensified selling pressure on the euro. Trump’s tariff threats against the EU posed a significant risk to the already struggling Eurozone economy, which continues to grapple with weak demand.

Looking ahead, the US Personal Consumption Expenditure Price Index - the Fed’s preferred inflation gauge - is set for release later in the day. The data could influence expectations for future Fed policy decisions, potentially driving further volatility in the US dollar.