S&P 500 Holds Steady While Oil Prices Climb and Currency Markets React to Economic Shifts | Daily Market Analysis

Key events:

• USA - Crude Oil Inventories

The S&P 500 ended Thursday nearly unchanged after fluctuating between gains and losses amid reduced trading activity during a shortened holiday week.

By the session’s close, the S&P 500 dipped 0.1%, and the NASDAQ Composite matched the same loss, while the Dow Jones Industrial Average edged up 0.07%, or 28 points. Technology heavyweights showed mixed performance, with Apple slightly gaining despite a bullish upgrade from Wedbush.

Apple Inc. (NASDAQ: AAPL) closed 0.3% higher, hitting a record $259.02 per share. Wedbush raised its price target for Apple to $325, citing an anticipated AI-driven iPhone upgrade cycle expected to sustain growth through 2025.

In currency markets, the USD/CAD pair softened after two days of gains, trading near 1.4410 during Friday’s Asian session. The Canadian Dollar benefited from a rise in crude oil prices, as Canada remains the leading oil exporter to the United States.

West Texas Intermediate (WTI) crude climbed to approximately $69.50 per barrel, supported by reports that major European energy firms are prioritizing oil and gas projects for near-term profits over renewable energy investments, a trend projected to persist into 2025.

Meanwhile, Canada’s economy likely contracted by 0.1% month-over-month in November, marking the year’s first monthly decline. Downgraded GDP forecasts - reducing 2025 growth to 1.7% and 2026 to 2.1% - reflect warnings from the Bank of Canada. Expectations for further rate cuts to support economic growth could erode the Canadian Dollar’s appeal against its US counterpart.

The Japanese Yen strengthened against the US Dollar, pulling the USD/JPY pair lower during Friday’s trading session. This rebound followed Tokyo’s inflation data, which pointed to accelerating price pressures, reinforcing expectations of a potential rate hike by the Bank of Japan in January.

Tokyo’s headline Consumer Price Index (CPI) rose to 3.0% year-over-year in December, up from 2.6% in November. Core CPI, which excludes fresh food and energy, increased to 2.4%, signaling persistent inflationary pressures. The BoJ’s summary of opinions from its December meeting highlighted a readiness to adjust easing measures if conditions warrant, with board members emphasizing careful data monitoring.

In the Pacific region, the New Zealand Dollar extended its decline, with the NZD/USD pair trading near 0.5615 on Friday. Weak Chinese consumer demand and prolonged struggles in China’s property market weighed on the Kiwi, as China remains New Zealand’s largest trading partner.

Adding to the downside pressure, concerns over potential US tariff increases on Chinese goods under a revived policy initiative further impacted sentiment. Analysts anticipate such measures could stoke inflation, potentially influencing the Federal Reserve to moderate its pace of rate adjustments next year.

In New Zealand, expectations of more aggressive rate cuts by the Reserve Bank of New Zealand have risen, following the country’s entry into a recession in the third quarter. Markets are pricing in a 70% probability of a 50-basis-point cut in February, with rates projected to drop to 3.0% by the end of 2025.

Elsewhere, the British Pound remained subdued for a third consecutive day, trading around 1.2520 in quiet post-holiday conditions. The US Dollar’s resilience, fueled by expectations of fewer Federal Reserve rate cuts in 2025, added pressure on the GBP/USD pair.

During its December meeting, the Fed reduced rates by a quarter point and revised its 2025 outlook, forecasting only two rate cuts instead of four. However, moderate US PCE inflation data tempered expectations for additional rate reductions next year.

The US Dollar Index stayed above 108.00, reflecting its robust position despite subdued Treasury yields. Yields on the 2-year and 10-year Treasury notes settled at 4.33% and 4.58%, respectively.

The British Pound also faced headwinds as the Bank of England’s (BoE) dovish signals came into sharper focus. Despite holding the benchmark rate at 4.75% in December, the BoE’s 6-3 vote revealed a growing inclination toward rate cuts, with three members advocating for a 25-basis-point reduction. As a result, market expectations now price in a 53-basis-point cut for 2025, up from prior estimates of 46 bps.