Markets Mixed as Tech Stocks Recover and Fed Signals Slower Rate Cuts Ahead

Key events:

• USA - Initial Jobless Claims

The S&P 500 edged slightly higher on Wednesday, recovering from earlier losses as tech stocks found some stability following the easing of Treasury yields. The Federal Reserve's minutes from the December meeting hinted at a slower pace of rate cuts, reinforcing market caution.

The Dow Jones Industrial Average climbed 94 points, or 0.2%, the S&P 500 gained 0.1%, while the NASDAQ Composite slipped by 0.1%.

Although major tech stocks, including Apple (NASDAQ: AAPL), Alphabet (NASDAQ: GOOG), and Meta Platforms (NASDAQ: META), ended the session in the red, they managed to close above their session lows. Nvidia (NASDAQ: NVDA) stayed near breakeven, demonstrating resilience amid broader market pressures.

In the currency markets, the Australian Dollar extended its decline against the US Dollar for the third straight day. The AUD/USD pair hovered near two-year lows as Australian economic data, coupled with China’s inflation report, weighed heavily on the currency. Market participants now await the US nonfarm payrolls (NFP) report on Friday for further direction.

Australia's trade surplus jumped to 7,079 million in November, surpassing the expected 5,750 million and a revised 5,953 million from the previous month. Exports surged by 4.8% month-on-month (MoM), while imports rose by 1.7% MoM. However, retail sales, a key indicator of consumer spending, increased by 0.8% MoM, below the 1.0% market forecast, highlighting mixed signals from the Australian economy.

Adding to the Australian Dollar's woes, China's Consumer Price Index (CPI) data signaled growing deflationary pressures. The annual inflation rate rose by just 0.1% in December, a slight decrease from the 0.2% in November, aligning with market expectations. Any shifts in China's economic landscape could ripple through the Australian market, given the close trade ties between the two nations.

The USD/CAD pair edged lower, trading around 1.4370 during Thursday's Asian session, after gaining in the previous sessions. The US Dollar continued to appreciate amid increased hawkish sentiment surrounding the Federal Reserve’s policy outlook for 2025.

The Federal Open Market Committee minutes revealed that Fed officials expressed concerns over inflation and the potential impacts of incoming policies under President-elect Donald Trump. They indicated a more cautious approach to rate cuts, reducing the expected cuts in 2025 from four to two.

The US Dollar Index, which tracks the greenback against a basket of six major currencies, held steady near 109.00 as US bond yields remained elevated. The 10-year yield stood at 4.66%, while the 30-year yield approached 4.90%.

Canadian Prime Minister Justin Trudeau’s announcement of his resignation after nine years in office added political uncertainty to the mix. Trudeau’s decision comes amid rising tariff threats, political instability, and declining approval ratings, potentially leading to snap elections.

The Canadian Dollar faced additional pressure from falling crude oil prices, a significant factor given Canada's status as the largest oil exporter to the U.S. West Texas Intermediate (WTI) crude continued its decline, trading around $72.70 per barrel.

Meanwhile, the EUR/USD pair traded lower for the third consecutive day, around 1.0310, as disappointing German factory orders and the anticipation of aggressive rate cuts by the European Central Bank weighed on the Euro. German factory orders fell by 5.4% MoM in November, far below the expected 0%, contributing to the euro’s weakness.

The Japanese Yen trimmed some intraday gains, aiding the USD/JPY pair to rebound slightly from the session's lows. Strong wage growth data from Japan, along with inflationary pressures, supported the case for further policy tightening by the Bank of Japan. However, speculation about the timing of rate hikes and potential market intervention by Japanese authorities to support the yen kept investors cautious.

Market participants now turn their attention to upcoming speeches from influential FOMC members and the closely-watched US nonfarm payrolls report on Friday, which could provide further insights into the economic outlook and monetary policy trajectory.