Markets Steady Ahead of Holidays: Tech Leads Gains, Currencies Show Mixed Performance | Daily Market Analysis

Key events:

• Christmas - Early close

The S&P 500 closed in positive territory on Monday, as technology stocks surged, led by a robust rally in semiconductor equities. This strong start to a holiday-shortened week set a positive tone for the markets.

By the close of trading, the Dow Jones Industrial Average had risen 67 points, or 0.2%, while the S&P 500 gained 0.7%, and the NASDAQ Composite advanced by 1%.

The New York Stock Exchange will close early on Tuesday in observance of Christmas Eve and remain shut on Christmas Day.

The Australian Dollar fell for the second consecutive day against the US Dollar on Tuesday following the release of the Reserve Bank of Australia’s Meeting Minutes for December. Trading activity is anticipated to remain subdued as markets approach the Christmas holiday.

The RBA’s minutes revealed growing optimism regarding inflation, though risks remain. The board reiterated its stance on maintaining a "sufficiently restrictive" monetary policy until inflation stabilizes more predictably.

The minutes also highlighted that if incoming data aligns with or falls below forecasts, this could bolster confidence in easing inflationary pressures and potentially pave the way for a shift toward monetary easing. Conversely, stronger-than-expected data may necessitate extended restrictive policies.

RBA Governor Michele Bullock emphasized the resilience of the Australian labor market as a key factor in the central bank’s cautious approach compared to other global monetary policymakers.

The Japanese Yen stabilized on Tuesday after recent declines but lacked significant bullish momentum, staying close to multi-month lows reached last week. The Bank of Japan’s cautious approach to interest rate hikes, coupled with the Federal Reserve’s hawkish stance, has widened the US-Japan rate differential, creating headwinds for the Yen.

While a potential BoJ rate hike in January or March remains plausible, driven by strong domestic inflation data, broader geopolitical risks - such as the Russia-Ukraine conflict and Middle East tensions - provide some support to the safe-haven JPY. However, the subdued performance of the US Dollar limited gains for the USD/JPY pair, particularly as traders speculated about possible intervention by Japanese authorities to stabilize the Yen.

The NZD/USD pair hovered near 0.5645 during Tuesday’s Asian trading session, with market caution prevailing ahead of the Christmas holiday. The announcement of fresh fiscal support measures by China failed to lift the New Zealand Dollar, as traders remained cautious about global growth prospects.

China’s Ministry of Finance pledged to increase fiscal spending in 2025, with a focus on boosting consumption and improving livelihoods. However, the news had minimal impact on the Kiwi, as broader market sentiment overshadowed regional developments.

Meanwhile, a recent 25 basis-point rate cut by the US Federal Reserve brought the federal funds rate down to 4.25%-4.50%. Analysts suggest that uncertainties surrounding the incoming US administration’s trade policies, particularly potential tariffs on imports, could impact the Fed’s rate decisions in 2025. These developments may provide support for the Greenback, limiting upward momentum for NZD/USD.

The GBP/USD pair opened the holiday week on a weaker note, trading near 1.2550 on Monday, down 0.3%. The pair faced pressure as UK economic data missed expectations, adding to a cautious market environment.

UK Gross Domestic Product (GDP) figures showed stagnation, with quarterly growth flat at 0.0% for the third quarter, missing the forecasted 0.1%. Year-on-year growth also disappointed, coming in at 0.9%, below the expected 1.0%.

In the US, Durable Goods Orders for November fell by 1.1%, a sharper decline than the anticipated 0.4% drop. Core Durable Goods Orders (excluding automotive) also weakened, declining by 0.1% compared to the 0.3% forecast. These figures highlighted slowing economic momentum, dampening sentiment across global markets.

As the holiday-shortened week progresses, trading activity is expected to thin further, with major markets set to close for Christmas. While US Initial Jobless Claims for the week ending December 20 are scheduled for release on Thursday, the impact is likely to be muted given the limited participation from traders.

Market liquidity is expected to remain low until after the holidays, with meaningful economic data and broader trading activity likely resuming in the new year.