S&P 500 Slips as Inflation Beats Forecasts, Fed Rate Cut Path Narrows | Daily Market Analysis

Key events:

• UK - GDP (YoY) (Q4)
• UK - GDP (MoM) (Dec)
• UK - GDP (QoQ) (Q4)
• USA - Initial Jobless Claims
• USA - PPI (MoM) (Jan)
• USA - 30-Year Bond Auction

The S&P 500 slipped on Wednesday as unexpected inflation data complicated the Federal Reserve's path toward potential rate cuts. The Dow Jones Industrial Average declined by 224 points, or 0.5%, while the S&P 500 shed 0.3%. Meanwhile, the NASDAQ Composite managed a slight gain of 0.03%.

Cisco Systems Inc. benefited from continued demand driven by artificial intelligence, posting strong earnings and revenue figures. The company's second-quarter earnings, excluding certain costs like stock compensation, came in at 94 cents per share, surpassing Wall Street’s expectation of 91 cents. Revenue reached $13.99 billion, a 9% increase from the prior year, exceeding analyst projections of $13.87 billion. Despite net income falling 8%, the company still secured a profit of $2.43 billion, boosting its stock over 6% in extended trading.

The USD/CHF pair retreated to around 0.9110, breaking a five-day winning streak as the US Dollar weakened. Concerns over potential US tariffs and a cautious stance from traders ahead of upcoming economic data, including weekly Initial Jobless Claims and the Producer Price Index (PPI), pressured the greenback. Market participants closely monitored Federal Reserve Chair Jerome Powell’s remarks, where he reiterated that the Fed was not in a hurry to cut interest rates but acknowledged significant progress on inflation.

Data from the US Bureau of Labor Statistics revealed that the Consumer Price Index (CPI) rose 3.0% year-over-year in January, slightly above the anticipated 2.9%. The core CPI, excluding food and energy costs, climbed to 3.3%, higher than the expected 3.1%. On a monthly basis, the headline CPI increased to 0.5% from 0.4% in December, while the core CPI accelerated to 0.4% from 0.2%.

Geopolitical tensions in the Middle East provided a boost to the Swiss Franc, a traditional safe-haven currency. Israeli Prime Minister Benjamin Netanyahu signaled that a ceasefire agreement would end if Hamas did not release hostages by Saturday, raising concerns over escalating conflict.

The Australian Dollar gained ground against the US Dollar after Australia’s Consumer Inflation Expectations rose to 4.6% in February from 4.0% in the previous month. However, concerns about global trade tensions weighed on the risk-sensitive AUD, particularly as investors awaited potential US retaliatory tariffs. Meanwhile, expectations for a Reserve Bank of Australia rate cut continued to grow. With the current cash rate at 4.35%, markets are pricing in a 95% probability of a reduction to 4.10% following signs of cooling inflation.

The Japanese Yen fluctuated within a narrow range against the US Dollar during Thursday’s Asian session, influenced by mixed economic signals. Japan’s PPI data showed a 0.3% monthly increase in January, with an annual rise of 4.2%, reinforcing expectations of further rate hikes by the Bank of Japan. Recent wage growth figures, combined with inflationary pressures, strengthened the case for additional policy tightening, as indicated by recent statements from BoJ Governor Kazuo Ueda and Deputy Governor Himino.

The EUR/USD pair extended its gains for a third consecutive session, trading near 1.0430 during Asian hours. Investors awaited Germany’s Final Harmonized Index of Consumer Prices (HICP) report, expected to confirm a steady 2.8% year-over-year inflation rate for January. However, global trade uncertainties weighed on the pair, limiting its upward momentum.

The British Pound also continued its advance for a third straight day, hovering around 1.2460. Traders awaited the UK’s preliminary GDP data, with expectations of a contraction in Q4 but a year-over-year expansion. The economic outlook for the UK remained uncertain, with Bank of England Monetary Policy Committee (MPC) member Catherine Mann expressing concerns over weakening demand and the need for looser financial conditions. Mann recently noted that demand levels had significantly declined and had previously advocated for a more aggressive interest rate cut. Last week, the BoE unanimously voted to lower rates by 25 basis points.

Market participants now turn their focus to the upcoming US PPI report and Initial Jobless Claims, which could further influence the direction of the US Dollar.