S&P 500 and Nasdaq Hit Records as Geopolitical Tensions Rise | Daily Market Analysis

Key events:

• USA - ADP Nonfarm Employment Change (Nov)
• USA - S&P Global Services PMI (Nov)
• USA - ISM Non-Manufacturing PMI (Nov)
• USA - ISM Non-Manufacturing Prices (Nov)
• USA - Crude Oil Inventories
• USA - Fed Chair Powell Speaks 

The S&P 500 and Nasdaq maintained their winning streak, reaching record highs for a second consecutive day on Tuesday, ahead of critical events such as Federal Reserve Chairman Jerome Powell's address and the upcoming monthly employment data.

The S&P 500 edged up by 0.04% to close at a record 6,049.50, while the Nasdaq Composite gained 0.4%, hitting a new high of 19,478.89. However, the Dow Jones Industrial Average declined by 0.2%, marking a mixed session for major US indices.

The Japanese Yen remained under pressure on Wednesday, trading in negative territory. This was driven by robust US data, including upbeat manufacturing PMI and job openings, signaling strength in the US economy and bolstering the US Dollar. However, speculation about an imminent interest rate hike from the Bank of Japan introduced potential support for the Yen. Traders are closely monitoring developments, as a policy shift by the BOJ could significantly impact the currency's trajectory.

Asian markets showed mixed performance. Japan’s Nikkei 225 futures opened slightly higher, gaining 0.15%, while South Korea’s Kospi experienced a sharp 1.97% decline, following parliamentary debates over proposed martial law, which was ultimately rejected. Meanwhile, the final reading of Japan's Jibun Bank Services PMI rose to 50.5 in November, slightly above both the previous reading of 50.2 and market expectations, reflecting a modest improvement in the service sector.

Political instability in France, heightened tensions in South Korea, and escalating geopolitical risks in the Middle East have fueled a flight to safe-haven assets, potentially benefiting the Japanese Yen in the near term. These risks underscore the market's vulnerability to geopolitical developments, which often drive fluctuations in currency values.

The New Zealand Dollar faced selling pressure during Wednesday's Asian session, with the NZD/USD pair dropping to a one-week low before recovering slightly to trade around the mid-0.5800s, down over 0.5% for the day. Weak Chinese economic data added to concerns about global growth. Specifically, China's Caixin Services PMI unexpectedly fell to 51.5 in November, below the prior month's 52.0 reading, reflecting slowing momentum in the world's second-largest economy.

Additionally, US export restrictions and fears of impending tariffs under President-elect Donald Trump weighed on antipodean currencies like the Kiwi. A strong US Dollar, supported by encouraging labor market data and expectations of inflationary pressures under the new administration, compounded the downward pressure on the NZD.

The Australian Dollar faced similar challenges, with a bearish tone prevailing amid concerns about domestic economic growth. The Australian Bureau of Statistics reported third-quarter GDP growth of 0.3% quarter-on-quarter and 0.8% year-on-year, missing market forecasts of 0.4% and 1.1%, respectively. Australia’s Treasurer Jim Chalmers noted the GDP data showed weak but positive growth, highlighting rising real disposable incomes as a silver lining. Markets reacted swiftly, pricing in a likely interest rate cut by the Reserve Bank of Australia in early 2025. This sentiment was further supported by disappointing Chinese services sector data, which raised doubts about the pace of economic recovery in Australia’s largest trading partner.

Elsewhere, the USD/CAD pair remained range-bound near 1.4070, struggling to extend its recent gains. Crude oil prices offered mixed signals, consolidating strong prior gains amid anticipation that OPEC+ would announce an extension of supply cuts. Israel's warnings of potential action against Lebanon if tensions with Hezbollah escalate provided further support to oil prices, benefiting the Canadian Dollar. However, reduced expectations for aggressive rate cuts by the Bank of Canada introduced caution among traders, keeping the USD/CAD pair in check.

Investors are focused on upcoming US economic data, including the ADP Employment Change report, final S&P Global Services PMI, and ISM Services PMI, all of which could influence market sentiment. Additionally, the Federal Reserve’s Beige Book, due later Wednesday, and Jerome Powell’s speech are likely to provide critical insights into the Fed’s monetary policy direction. These events are set to shape investor expectations for the remainder of the year, particularly as markets assess the interplay between geopolitical risks, economic data, and central bank policies.