Markets Navigate Record Highs, Tech Surges and Economic Signals | Daily Market Analysis

Key events:

• USA - Core PCE Price Index (MoM) (Dec)
• USA - Core PCE Price Index (YoY) (Dec)

The S&P 500 achieved consecutive record closes for the fifth day, with positive corporate earnings and optimistic economic growth offsetting concerns about inflation, leading to a decline in Treasury yields. The Dow Jones Industrial Average rose by 242 points (0.6%), while the S&P 500 reached a record of 4,894.92, closing 0.5% higher. The Nasdaq Composite also ended 0.2% higher.

International Business Machines (IBM) witnessed a 9% surge, driving the tech sector's rise, as the company exceeded Q4 expectations and generated upbeat sentiment with an unexpected increase in free cash flow from its 'big blue' artificial intelligence offerings.

Conversely, Tesla Inc (TSLA) experienced a significant 12% drop in post-Q4 results that missed expectations. A gloomy conference call, along with warnings of "notably lower" volume growth, contributed to the decline. Investors had anticipated insights into price cuts, margin structure, and demand fluctuations, but Wedbush labeled the call a "trainwreck."

Boeing's (BA) stock plummeted by nearly 6% following the US saviation regulator's decision to prevent the company from expanding production of its 737 MAX jet, prompted by a recent mid-air incident involving the MAX 9 model.

Gold price maintains a slightly positive trend as the European session unfolds on Friday, yet it hovers near the weekly low from the previous day. The ongoing dip in US Treasury bond yields contributes to a weakened USD, acting as a supporting factor for gold. Geopolitical tensions in the Middle East and global economic uncertainties further bolster the appeal of the safe-haven metal. Despite these factors, a cautious stance prevails among traders due to reduced expectations for a more aggressive Fed policy easing in 2024, restraining substantial moves in XAU/USD.

The Australian Dollar continues its upward trajectory for the second consecutive session on Friday, displaying renewed bullish momentum in the AUD/USD pair. Surprisingly, the Australian Dollar strengthens against an improved US Dollar amid lower US Treasury yields. However, market volatility is expected to ease with the closure of financial markets for the Australia Day Holiday. The AUD responds positively to copper and iron performance and potential stimulus measures by the People's Bank of China. Despite these positive factors, the Reserve Bank of Australia is anticipated to lower borrowing costs later this year, possibly with a slight delay linked to modifications in the stage three tax cut package.

The RBA's Bulletin indicates that businesses foresee a slowdown in price growth over the past six months, with the expectation that prices will generally remain above the RBA's inflation target range of 2.0–3.0%.

The US Dollar Index may capitalize on recent gains following stronger-than-expected US GDP figures, reinforcing the resilience of the US economy. The Q4 Gross Domestic Product Annualized reading of 3.3% surpasses expectations, with Treasury Secretary Janet Yellen expressing optimism about the robust Q4 performance. Yellen attributes the strong GDP data to healthy spending and productivity improvements, downplaying concerns about inflation. Traders eagerly await the upcoming Personal Consumption Expenditures (PCE) Price Index data for further insights into monthly changes in Personal Spending and Personal Income.

The European Central Bank opted to keep interest rates unchanged on Thursday, asserting that inflation is progressing toward its target while refraining from providing clear guidance on the timing of potential rate cuts. Initial expectations of a March rate cut are facing challenges, and even if a late pivot occurs, signaling a live possibility for a rate cut within the next six weeks lacks transparency. President Christine Lagarde, maintaining her stance on a potential rate cut in the summer, highlighted weaker demand and a declining economy.

The euro experienced a modest decline post-ECB press conference and US data, yet it remains within the range observed over the past week. The correction seen since the beginning of the year seems to be losing momentum. The question arises whether this is a temporary pause before a move higher, aiming to break previous highs, or a continuation of the longer-term sideways trend. Key support levels between 1.07 and 1.0850 will provide insights into the unfolding scenario.