US Stocks Retreat Amidst Inflation Caution, CAD Declines, and Global Economic Signals | Daily Market Analysis

Key events:

• Eurozone - ECB's De Guindos Speaks
• Eurozone - ECB's Schnabel Speaks
• UK - BoE Gov Bailey Speaks
• USA - Crude Oil Inventories
• USA - 10-Year Note Auction
• USA - FOMC Member Williams Speaks

On Tuesday, US stocks retreated, relinquishing some of the previous session's tech-driven gains, reflecting a sense of caution ahead of the impending release of crucial inflation data later in the week. The Dow Jones Industrial Average witnessed a decline of 170 points, equivalent to 0.45%, while the S&P 500 traded 6 points, or 0.1%, lower. In contrast, the NASDAQ Composite experienced a modest rise of 19 points or 0.1%.

In the prior session, the main equity indices had concluded on a positive note, primarily fueled by robust performances from chip designer Nvidia (NASDAQ: NVDA), a prominent figure in artificial intelligence. This notable contribution from Nvidia led to the tech-heavy Nasdaq Composite registering its most impressive day since mid-November.

Despite the recent market upswing, investor sentiment remains cautious as they brace for Thursday's release of the latest US inflation data. This data is anticipated to provide more clarity regarding the US central bank's intentions regarding interest rates in the first quarter of the new year.

Of particular significance, the core inflation figure is showing a month-on-month increase of 0.2%, contributing to a decline in the annual pace to 3.8%, a level not observed since mid-2021.

Earlier on Tuesday, released data indicated an unexpected narrowing of the US trade deficit in November, attributed to a decline in imports.

In the corporate sector, Boeing (NYSE: BA) initially witnessed a 1.3% decline in its stock, recovering slightly from its initial losses. Reports surfaced that loose parts were found on certain grounded models of Boeing's 737 Max 9 jet by both United Airlines and Alaska Airlines. Currently, the stock is down by 1%.

On Tuesday, the Canadian Dollar experienced continued declines, reaching a new low for the week as market sentiment retreated in the final quarter of the trading day. The shift towards the US Dollar contributed to the further weakening of the CAD, driven by disappointing Canadian economic figures.

Canada’s International Merchandise Trade in November retreated from October’s 14-month high, and Canadian Building Permits in November saw a nearly 4% decline.

Crude Oil is attempting a rebound from Monday’s downside, but its upside momentum remains constrained, resulting in a relatively flat performance for Crude Oil throughout the week as barrel bids struggle to recover.

Bitcoin maintained stability at $46,120 after a spike on Tuesday, triggered by an unauthorized party accessing the US Securities and Exchange Commission's X social media account and posting a false statement about approving exchange-traded funds for bitcoin.

The Gold price faced some supply pressure after a rise to the $2,040 area on Tuesday, settling with only modest gains. The precious metal continues to grapple with challenges in gaining meaningful traction during the Asian session on Wednesday, as traders seek more clarity on the Federal Reserve's (Fed) rate cut path before making directional bets.

The Japanese Yen sustained losses for the second consecutive day on Wednesday, propelling the USD/JPY pair to a fresh weekly high near the 145.00 psychological mark during the Asian session. Wage growth in Japan slowed for the 20th month in November, reinforcing market expectations that the Bank of Japan will maintain the status quo at the January 22-23 policy meeting. Additionally, Tokyo's consumer inflation showed a further slowdown, coupled with government stimulus measures following a New Year's Day earthquake, potentially delaying the BoJ's plan to pivot away from its ultra-dovish stance and undermining the domestic currency.

Despite softer-than-expected Australian consumer inflation data released on Wednesday, the Australian Dollar is rebounding from recent losses. In the previous session, the AUD/USD pair faced declines as the US Dollar strengthened amidst risk-off sentiment.

Australia's economic landscape presents a mixed picture, with the Monthly Consumer Price Index (YoY) for November showing a slight decrease to 4.3%, slightly below the market expectation of 4.4% and the previous figure of 4.9%. This points to a modest easing in year-on-year inflationary pressures within the country.

On a positive note, Aussie Retail Sales (MoM) displayed an increase on Tuesday, indicating a boost in consumer spending. Moreover, the monthly Building Permits data showed growth, contrary to expectations of a decline. These favorable trends in retail sales and building permits suggest some resilience in the domestic economy.

The US Dollar Index is exhibiting a sideways movement after gaining ground despite weaker US Treasury yields on Tuesday. However, the risk-on sentiment, fueled by remarks from Federal Reserve (Fed) members speculating on interest rate cuts by the end of 2024, might have limited the USD's profits.

Traders are anxiously anticipating the release of December’s Consumer Price Index (CPI) data from the United States on Thursday. This economic indicator holds significant weight in assessing inflationary pressures and can substantially impact market expectations regarding the Fed's monetary policy stance.