S&P 500 Hits Record High Amid Optimism Over Policy Shifts | Daily Market Analysis

Key events:

• USA - S&P Global US Manufacturing PMI (Nov)
• USA - ISM Manufacturing PMI (Nov)
• USA - ISM Manufacturing Prices (Nov)

The S&P 500 marked a new record high in a shortened holiday trading session on Friday, concluding its best month of 2024. The index gained 0.6%, closing at 6,032.4, while the NASDAQ Composite rose 0.8%, and the Dow Jones Industrial Average climbed 0.4%, or 188 points. This capped a month where all three major indices advanced between 5% and 7%, driven largely by optimism surrounding President-elect Donald Trump’s victory and its anticipated impact on fiscal policy and economic growth. The prospect of expansionary measures has fueled a strong rally, pushing equities to successive record levels.

In the forex market, the Japanese Yen softened against the US Dollar after a robust upward move last week. This shift came as the USD found renewed support from rising bond yields and speculation about the Federal Reserve’s future policy path. Trump’s aggressive tariff rhetoric, including threats of a 100% levy on BRICS nations and punitive measures against major trade partners like Canada and Mexico, has stoked fears of escalating global trade tensions. Despite this, the possibility of inflationary pressures tied to expansionary US policies has encouraged bets that the Fed might pause its rate-cutting cycle or even raise rates sooner than expected, enhancing the Dollar’s appeal over the low-yielding Yen.

Japan’s economic outlook added complexity to the currency dynamics. Capital spending grew by 8.1% year-on-year in the third quarter, underlining strong domestic demand amid a fragile recovery. Bank of Japan Governor Kazuo Ueda hinted over the weekend that the bank might proceed with rate hikes, contingent on sustained economic momentum and fiscal policy outcomes in the coming months. Meanwhile, Tokyo’s inflation data showed underlying price growth strengthening, signaling the possibility of tighter monetary policy from the BoJ. These developments contributed to fluctuating sentiment in the USD/JPY pair as investors weighed contrasting factors.

The Euro and Pound faced similar pressures. The EUR/USD pair slid to around 1.0530 during early trading on Monday, as a firmer Dollar overshadowed Eurozone inflation data. While the Harmonized Index of Consumer Prices rose to 2.3% year-on-year in November, meeting expectations, markets are increasingly certain the European Central Bank will proceed with a 25-basis-point rate cut in December. This would mark the ECB’s fourth reduction this year, reflecting ongoing challenges to the region’s growth trajectory. The likelihood of further easing has kept the Euro on the defensive, with limited support from slightly improving growth forecasts.

The Pound also lost ground, with the GBP/USD pair retreating from a three-week high near 1.2700. Although the Dollar’s strength weighed heavily on the pair, reduced expectations for further Bank of England rate cuts provided some relief. Recent data showed UK inflation accelerating to 2.3% in October, suggesting that the BoE may adopt a more cautious stance moving forward. This balance of factors has limited the downside for the Pound, though it remains under pressure from broader market dynamics.

In commodities, gold prices slipped to around $2,645 in the Asian session on Monday, reflecting the Dollar’s recovery. November marked the yellow metal’s worst monthly performance since September 2023, with a 3% decline fueled by shifting market expectations. Trump’s election win has tempered fears of aggressive Fed rate cuts, which has bolstered the Greenback and weighed on gold prices. However, geopolitical tensions remain a key support factor. Recent reports of intensified conflict in Syria, with Russian and Syrian jets targeting rebel strongholds, have underscored gold’s role as a safe-haven asset. Analysts continue to highlight the metal’s importance amid persistent global uncertainties.

Looking ahead, investor attention will shift to US data releases, including the ISM Manufacturing PMI and November’s nonfarm payrolls. These reports are expected to provide further insight into economic trends and influence market sentiment. As traders navigate these developments, the interplay of monetary policy, geopolitical risks, and macroeconomic data will continue to shape market movements in the days ahead.