S&P 500 Hits Record High as Trump Calls for Interest Rate Cuts | Daily Market Analysis

Key events:

• Japan - BoJ Interest Rate Decision
• USA - S&P Global Manufacturing PMI
• USA - S&P Global Services PMI
• USA - Existing Home Sales (Dec)
• USA - Michigan Consumer Sentiment (Jan)

The S&P 500 reached a historic high on Thursday as investor enthusiasm grew amid strong corporate earnings and remarks from President Donald Trump at the World Economic Forum in Davos. The index climbed 0.5% to close at 6,118.72, while the Dow Jones Industrial Average gained 408 points, or 0.9%, and the NASDAQ Composite inched up by 0.2%. Trump’s call for immediate interest rate cuts added to the speculation about potential changes in monetary policy, influencing market sentiment across the board.

The Japanese Yen surged in response to the Bank of Japan’s decision to raise interest rates by 25 basis points to 0.5%, its highest level since 2008. This policy move came alongside an updated inflation outlook, with the central bank predicting further price pressures driven by rising wages and broadening inflation. Supporting this projection, data from the Japan Statistics Bureau revealed a 3.6% year-over-year rise in the Consumer Price Index (CPI) for December, up from 2.9% the previous month. Core CPI rose to 3.0%, the highest since mid-2023. The BoJ’s hawkish guidance and its commitment to further rate hikes solidify its position as an outlier among global central banks, adding strength to the Yen.

The Australian Dollar extended its rally against the US Dollar for a third consecutive session on Friday. This momentum was supported by steady monetary policy in China, where the People’s Bank of China maintained its benchmark rate at 2.00% and injected 200 billion Yuan into financial institutions through a medium-term lending facility. Additional support for the Australian economy came from improved domestic data, with the Judo Bank Composite PMI ticking up to 50.3 in January, reflecting modest private sector expansion. Manufacturing output reached its highest level in 12 months, while the services sector showed signs of slowing, underscoring the mixed signals from Australia’s economy.

In China, authorities introduced new measures aimed at bolstering confidence in its stock markets. These included plans to increase pension fund investments in domestic equities and a pilot scheme for insurers to buy shares, with an initial scale of at least 100 billion Yuan. These efforts, coupled with the PBoC’s liquidity injection, aim to stabilize the market and foster longer-term growth amid global economic uncertainties.

Meanwhile, the New Zealand Dollar struggled, trading in negative territory near 0.5675 during the early Asian session on Friday. Market participants anticipate further monetary easing from the Reserve Bank of New Zealand as inflation continues to soften. Fourth-quarter CPI data confirmed that inflationary pressures are waning, and swaps markets have priced in a near-certain 50-basis-point rate cut in February. Expectations for an additional 100 basis points of rate cuts later in 2025 further reflect the dovish sentiment surrounding the RBNZ.

The GBP/USD pair gained for the second consecutive day, trading around 1.2400 during Friday’s Asian session. This upward momentum was partly driven by Trump’s comments in Davos, where he urged the Federal Reserve to cut interest rates immediately. However, the Pound Sterling’s gains were tempered by weaker-than-expected economic data from the UK. Sluggish inflation, disappointing retail sales, and tepid GDP growth have fueled speculation of a 25-basis-point rate cut by the Bank of England at its upcoming meeting.

On the US front, upcoming data releases such as the preliminary S&P Global PMI and the Michigan Consumer Sentiment Index are expected to provide valuable insights into short-term economic trends. These indicators are critical for assessing whether the Federal Reserve will adjust its monetary stance. For now, markets anticipate that the Fed will hold its benchmark rate steady at its January meeting, but inflationary risks tied to Trump’s fiscal policies could prompt further evaluation.

Global markets remain in flux as shifting monetary policies and economic data dictate investor sentiment. From Japan’s aggressive tightening to China’s liquidity-driven stability measures and the Federal Reserve’s cautious approach, traders are navigating a rapidly changing financial landscape. These developments highlight the importance of staying attuned to global trends, as every policy shift has the potential to reverberate across borders.