Stocks Struggle to Recover Amid Mixed Economic Signals and Geopolitical Tensions | Daily Market Analysis

Key events:

• USA - Core PCE Price Index (MoM) (Nov)
• USA - Core PCE Price Index (YoY) (Nov)

Stocks showed minimal movement on Thursday, with a late-session dip stifling a potential recovery from the sharp losses seen the day before.

The Dow Jones Industrial Average inched up by less than 0.1%, breaking a 10-day losing streak - the longest in five decades. Meanwhile, the S&P 500 and Nasdaq Composite slipped 0.1%. These small moves followed Wednesday's steep declines, where the Dow dropped 2.6% (over 1,100 points), and the S&P 500 and Nasdaq fell 3% and 3.6%, respectively.

The sell-off came after the Federal Reserve implemented a widely anticipated quarter-point rate cut but signaled a cautious stance on future policy adjustments. Projections from the Fed's policy committee now anticipate two quarter-point rate cuts in 2025, a reduction from the four cuts forecasted in September.

The USD/CHF pair trades positively near 0.8980 during the early European session on Friday. A hawkish Fed rate cut and robust US economic data have bolstered the Greenback against the Swiss Franc. Market participants now await the US Personal Consumption Expenditures (PCE) Price Index, due later today, for further cues.

Meanwhile, the Swiss National Bank is projected to lower its key interest rate to 0.25% in March 2025 following last week’s 50 basis-point cut. Alexander Koch, head of macro and fixed income research at Raiffeisen, noted that the SNB's softened forward guidance supports expectations of continued easing.

Geopolitical tensions further influence market sentiment, with CHF gaining safe-haven appeal. In the Middle East, Israel launched significant strikes on Houthi targets in Yemen early Thursday. These actions were described as retaliation for missile and drone attacks by the Iran-backed group, which had mostly been intercepted, according to CNN.

The EUR/USD pair remains under pressure near the 1.0360 mark during Friday’s Asian session, close to its lowest levels in a month. If the current trend continues, the pair may see its weakest weekly close since November 2022.

This decline stems from contrasting monetary policy outlooks between the European Central Bank and the Federal Reserve. Last week, the ECB implemented its fourth rate cut of the year and left the door open for more reductions in 2025. In contrast, the Fed signaled plans to slow its pace of rate cuts. These diverging stances have created headwinds for the Euro, suggesting further downside for EUR/USD.

Additionally, ongoing geopolitical risks and concerns over US President-elect Donald Trump's tariff policies, combined with a looming government shutdown deadline, continue to weigh on sentiment. The USD, benefiting from these developments, maintains its strong post-FOMC momentum, touching a two-year high.

The Australian Dollar is giving back gains from the previous session against the US Dollar after the People’s Bank of China left its Loan Prime Rates unchanged at 3.10% for one year and 3.60% for five years during its quarterly meeting on Friday.

Australia’s Private Sector Credit data showed a 0.5% month-over-month increase for November, aligning with expectations. On an annual basis, credit growth rose to 6.2%, its highest rate since May 2023. However, signs of economic slowing have fueled speculation that the Reserve Bank of Australia might begin cutting its 4.35% cash rate as early as February. Market focus will now turn to the RBA’s upcoming meeting minutes for further insight.

The Japanese Yen saw a modest rebound after hitting a five-month low against the USD during Friday’s Asian session. A higher-than-expected Consumer Price Index (CPI) report, coupled with risk-off sentiment and a slight dip in US Treasury yields, lent support to the JPY.

Japan’s National CPI rose 2.9% year-over-year in November, up from 2.3% in October. Core CPI, which excludes fresh food, increased to 2.7% versus 2.3% previously, surpassing forecasts. However, the Bank of Japan’s decision to keep its rate target unchanged and its lack of clarity on future tightening limits the Yen's upside potential.

The USD/JPY pair’s next significant driver will be the US Personal Consumption Expenditure Price Index, the Fed’s preferred inflation measure, set for release later today.