Tech Stocks Drive Market Gains in Holiday-Shortened Trading Week | Daily Market Analysis

Key events:

• USA - Initial Jobless Claims

The S&P 500 climbed 1.1% on Tuesday in light trading ahead of the Christmas holiday, with tech stocks driving gains for the second consecutive session.

The Nasdaq 100 advanced 1.4%, while the Dow Jones Industrial Average gained 0.9%, or 350 points. With the New York Stock Exchange closed early for Christmas Eve and markets shut entirely on Christmas Day, the trading volume remained notably thin.

Tech stocks continued their upward trajectory, particularly the so-called "Magnificent Seven," which include Apple Inc., Amazon.com Inc., Meta Platforms Inc., Alphabet Inc., and Tesla Inc. These giants posted solid gains, maintaining momentum built earlier in the week. However, NVIDIA Corporation, a key player in the semiconductor sector, remained flat despite broader optimism in the tech space.

Semiconductor stocks, which rallied on Monday, saw only modest gains on Tuesday amid news of a fresh US trade investigation into Chinese-made legacy chips. The investigation, launched by the Biden administration, could lead to new tariffs on Chinese semiconductors, adding another layer of tension to US-China trade relations.

Apart from that, the EUR/USD pair traded within a tight range near 1.0400, reflecting the broader holiday lull. The Euro’s outlook remained bearish after European Central Bank President Christine Lagarde reiterated that inflation was nearing the ECB’s medium-term target of 2%. However, she cautioned that persistent inflation in the services sector, currently at 3.9%, requires vigilance.

The USD/CAD pair also traded flat around 1.4400 as the Canadian Dollar remained under pressure from the Bank of Canada’s comparatively dovish stance. Having reduced interest rates by a cumulative 175 basis points this year, the BoC has signaled a gradual approach to further easing. Officials stressed the importance of allowing previous cuts to take full effect, a position that continues to weigh on the Canadian currency.

Meanwhile, the British Pound gained ground against its major counterparts despite growing expectations of dovish monetary policy from the Bank of England. Investors have slightly increased bets on a 53-basis-point rate reduction by the BoE in 2025, up from prior estimates of 46 bps. This adjustment follows last week’s policy meeting, where three of the nine Monetary Policy Committee members called for a more aggressive 25-basis-point rate cut, compared to the market consensus of a smaller reduction.

BoE Governor Andrew Bailey struck a cautious tone, emphasizing that heightened economic uncertainty prevents the central bank from committing to a specific path for rate cuts. "Due to heightened uncertainty in the economy, we can't commit to when or by how much we will cut rates in 2025," Bailey stated. Analysts at Deutsche Bank, however, diverge from market expectations, forecasting four rate cuts next year, with one likely in the first half and the remainder in the second.

In the meantime, the Pound remains vulnerable, trading below key technical levels, while major currency pairs continue to consolidate in the absence of significant market-moving events.

The US Dollar Index hovered above 108.00, reflecting its strong footing as markets anticipate a slower pace of rate cuts from the Federal Reserve next year. Fed officials have signaled a cautious approach to monetary easing, influenced by slower-than-expected progress on disinflation and uncertainties tied to potential trade policies under the incoming administration. Projections suggest the federal funds rate could fall to 3.9% by the end of 2025, with fewer cuts than previously anticipated.

Looking ahead, market activity is expected to remain subdued due to the holiday-shortened week. Initial Jobless Claims data, scheduled for release today, may offer a brief window of volatility, with analysts predicting a slight decline to 218,000 claims. However, the broader market focus will shift to early January when December’s nonfarm payrolls report is released, providing fresh insights into the labor market and its implications for monetary policy. As investors navigate thin trading conditions and await clearer signals, the stage is set for potential volatility in the weeks ahead.