S&P 500 Inches Closer to All-Time Highs, Tech Giants Set the Pace, and Global Trends Signal Optimism Amidst Rate Cut Expectations and Currency Moves | Daily Market Analysis

Key events:

• UK - CPI (YoY) (Nov)
• USA - CB Consumer Confidence (Dec)
• USA - Existing Home Sales (Nov)
• USA - Crude Oil Inventories

On Tuesday, the S&P 500 closed on a positive note, edging closer to a historic high amid a broadening rally in stocks beyond the tech sector. The index gained 0.6% to reach 4,768.37, now standing just 0.6% away from its previous all-time closing peak of 4,796.56. The Dow Jones Industrial Average climbed 251 points, or 0.7%, achieving its fifth consecutive record high, while the NASDAQ Composite rose by 0.7%.

In significant tech developments, Google's parent company, Alphabet (NASDAQ: GOOGL), agreed to a $700 million settlement in a lawsuit related to anticompetitive practices at its Play app store on Android devices. Alphabet's stock saw a 1% increase. Microsoft Corporation (NASDAQ: MSFT) closed slightly above the flatline, gaining attention as Oppenheimer named it a "top large cap pick" for 2024, citing the company's unique AI position, which is expected to receive a boost.

Global markets responded positively to dovish signals from central banks, fueling optimism in Asian trading. Expectations for an early rate cut by the Federal Reserve strengthened, with traders now seeing a more than 75% chance of a quarter-point reduction by March, according to the CME's FedWatch tool.

The dollar remained near a four-month low, except against the yen, impacted by the Bank of Japan's persistent dovish stance. Japanese government bond yields slid to multi-month lows, mirroring the cautious policy guidance.

Japan's Nikkei rose 1.6%, approaching a 33-year peak, supported by positive trends from both the US and Japanese central banks.

Despite warnings from ECB President Christine Lagarde against complacency, investors expressed confidence in anticipated rate cuts, especially following data indicating a notable easing of price pressures in the eurozone.

The UK's Office for National Statistics revealed that inflation, as measured by the Consumer Price Index (CPI), decreased to 3.9% in November from the October figure of 4.6%. The monthly CPI registered a 0.2% decline. The Core CPI, excluding volatile food and energy prices, saw a notable drop in its increase, coming in at 5.1% compared to the 5.7% recorded in October. Weaker-than-expected inflation data exerted bearish pressure on Pound Sterling, leading to GBP/USD trading well below 1.2700 at the time of reporting.

GBP/USD daily chart

USD/CAD experienced a sharp decline, reaching its lowest level since early August, falling below 1.3350 on Tuesday. Statistics Canada's data indicated that annual CPI in November rose by 3.1%, surpassing market expectations of 2.9% and matching the October reading. As of early Wednesday, the currency pair remained in a consolidation phase, trading within a narrow channel around 1.3350.

Bitcoin maintained a nearly 3% weekly gain, holding steady above the $42,500 level on Wednesday. A recent report from Glassnode on Bitcoin highlighted that in 2023, long-term, short-term, and average holders transitioned from an unprofitable to a moderately profitable state, thanks to fourth-quarter gains in Bitcoin prices. While the unrealized profit-loss ratio hasn't reached euphoric highs, it has surpassed the break-even level.

Key indicators in European time include inflation figures from Germany and Britain, along with consumer confidence readings from Germany and the euro area. The US is set to release its consumer confidence numbers, with the Fed's preferred inflation gauge, the PCE deflator, scheduled for Thursday.