Nasdaq Sets New Record While Global Markets Brace for Fed and BoJ Decisions | Daily Market Analysis

Key events:

• USA - Core Retail Sales (MoM) (Nov)
• USA - Retail Sales (MoM) (Nov)

The Nasdaq reached a historic high on Monday as technology stocks led the rally ahead of the Federal Reserve's final policy meeting of the year.

The NASDAQ Composite surged by 1.1%, closing at a record 20,173.74, while the Dow Jones Industrial Average dipped 0.3%. The S&P 500 managed a modest 0.4% gain.

Meanwhile, the Australian Dollar remained flat as domestic consumer confidence data revealed growing pessimism. The Westpac Consumer Confidence Index fell by 2% in December to 92.8, reversing November’s 5.3% gain. Traders are closely monitoring the Fed’s upcoming decision, with speculation mounting around a potential rate cut. The focus will shift to the Fed's 2025 projections and the release of US Retail Sales data later in the day.

In China, the State Administration of Foreign Exchange (SAFE) reported record capital outflows of $45.7 billion in November. Cross-border portfolio investment saw receipts of $188.9 billion against payments of $234.6 billion, marking the largest deficit for the category to date.

The Japanese Yen entered a bearish phase, consolidating near multi-week lows against the US dollar during Asian trading hours on Tuesday. Market expectations that the Bank of Japan will maintain its current interest rate policy continue to weigh on the Yen. Additionally, a broader bullish sentiment in equity markets is reducing the appeal of the safe-haven currency. However, traders remain cautious, refraining from significant bearish positions ahead of key central bank announcements this week.

The EUR/USD pair saw modest gains, trading near 1.0510 during Tuesday's Asian session. However, its upside appears limited as the European Central Bank prepares for further rate cuts. ECB President Christine Lagarde reaffirmed on Monday that if incoming data aligns with projections, the central bank will lower rates. Similarly, ECB board member Isabel Schnabel highlighted the likelihood of gradual borrowing cost reductions as inflation cools and the Eurozone economy falters.

The NZD/USD pair held firm around 0.5780 on Tuesday as traders awaited the Federal Reserve's policy decision. The subdued US Dollar, which remains under pressure for the third consecutive session, offered minor support to the New Zealand Dollar. The US Dollar Index traded near 106.70 at the time of writing.

On the economic front, the preliminary S&P Global Composite PMI rose to 56.6 in December, up from 54.9 previously. The Services PMI also improved to 58.5, though the Manufacturing PMI slipped to 48.3 from 49.7.

In New Zealand, traders are treading carefully ahead of the Q3 Gross Domestic Product (GDP) report due Thursday. Analysts forecast a 0.4% quarter-on-quarter contraction, which could indicate the economy sliding back into recession. Meanwhile, the Business NZ Performance of Services Index climbed to 49.5 in November, up from 46.2 the previous month, its best level since February. Food prices also rose by 1.3% year-on-year in November, slightly above October’s 1.2% increase.

The USD/CAD pair weakened to around 1.4235, ending a three-day winning streak during Tuesday’s Asian trading session. Attention now turns to Canada’s November Consumer Price Index (CPI) data, set for release later in the day.

Comments from Bank of Canada  Governor Tiff Macklem also contributed to the Canadian Dollar’s weakness. Macklem indicated on Monday that Canada faces an increasingly uncertain economic future, with policy decisions likely to follow a gradual approach. He emphasized that the BoC would assess rate adjustments on a meeting-by-meeting basis.

Political turbulence in Canada may further weigh on the Loonie. Prime Minister Justin Trudeau faces mounting pressure to step down after Finance Minister Chrystia Freeland resigned from the Cabinet on Monday. According to reports, Freeland’s resignation followed Trudeau’s decision to replace her as finance minister, a move she publicly confirmed.

Looking ahead, markets are bracing for the Federal Reserve’s policy decision on Wednesday, followed by the Bank of Japan’s announcement on Thursday. US Retail Sales data, expected later today, could influence the trajectory of the US Dollar.