Market Swings as Bank Gains Clash with Tech Weakness | Daily Market Analysis

Key events:

• China - GDP (YoY) (Q4)
• Eurozone - CPI (YoY) (Dec)

The stock market saw a reversal on Thursday, with the S&P 500 shedding its earlier gains to close lower. This downturn was fueled by a combination of robust earnings from the banking sector being counterbalanced by a slump in technology stocks, led primarily by Apple. By the end of the session, the Dow Jones Industrial Average had dipped by 68 points, or 0.2%, while the S&P 500 and NASDAQ Composite declined by 0.2% and 0.9%, respectively.

The major Wall Street indices had previously recorded strong advances on Wednesday, buoyed by favorable inflation figures and impressive earnings reports from banks. Investors were also encouraged by a US-brokered ceasefire between Israel and Hamas, which suggested easing tensions in the volatile Middle East region.

Apple emerged as a notable drag on the tech sector, falling by 4%. The slump came after research firm Canalys reported a decline in iPhone sales in China for 2024, with the company losing its leading position to local competitors such as Vivo and Huawei. According to Canalys, Apple sold 42.9 million smartphones in China in 2024, a 17% decrease from the 51.8 million units sold the previous year. This shift highlights the growing competition Apple faces in one of its key markets.

In the currency market, the Australian Dollar surrendered its daily gains against the US Dollar on Friday. Despite this, the AUD/USD pair managed to rise earlier due to strong economic data from China. China’s Gross Domestic Product grew by 5.4% year-over-year in the fourth quarter of 2024, significantly outperforming the market consensus of 5%. This impressive performance followed a 4.6% expansion in the third quarter, indicating a robust rebound in the world's second-largest economy.

Quarterly growth figures showed a 1.6% increase in Q4 2024, aligning with market expectations, while retail sales rose by 3.7% annually in December, beating forecasts of 3.5%. Industrial production also exceeded expectations, growing by 6.2% compared to the predicted 5.4%. The National Bureau of Statistics (NBS) noted ongoing challenges, citing intensifying external pressures and insufficient domestic demand, despite the upbeat data.

Meanwhile, Australia's labor market saw its seasonally adjusted unemployment rate tick up to 4% in December, from 3.9% in November, aligning with forecasts. Employment, however, saw a significant boost, with a net increase of 56.3K jobs, far exceeding the market’s prediction of a 15.0K rise. This uptick in employment reflects a resilient labor market, with the employment-to-population ratio reaching a record high of 64.5%, suggesting that the Australian economy remains robust despite the slight increase in unemployment.

The Euro weakened against the USD, with the EUR/USD pair declining to near 1.0290 during early European trading hours on Friday. The decline was driven by growing expectations of further rate cuts from the European Central Bank. Market participants are now awaiting the release of the Eurozone’s Current Account and Harmonized Index of Consumer Prices (HICP) for more guidance. Comments from ECB board member Piero Cipollone are also anticipated to provide additional market direction.

The ECB’s recently released Monetary Policy Meeting Accounts revealed that policymakers remained cautious about aggressive rate cuts, preferring a gradual approach. However, they did not rule out further reductions, and investors are now fully pricing in a 25 basis point cut at the ECB’s next meeting on January 30. According to a Reuters poll, most economists expect additional rate cuts throughout the year, which could further weigh on the Euro.

The USD/CHF pair remained steady, trading near 0.9110 after three days of losses. The pair faced pressure as the US Dollar Index continued its decline for the fifth consecutive session, largely due to disappointing US retail sales data. Despite these headwinds, the pair held firm, reflecting market uncertainty about the USD's near-term direction.

In Japan, the Yen showed slight weakness against the USD but remained relatively stable. The USD/JPY pair recovered over 50 pips from sub-155.00 levels, aided by expectations that the Bank of Japan will raise interest rates next week. Remarks from BoJ Governor Kazuo Ueda and Deputy Governor Ryozo Himino have fueled these expectations. Rising bets on further BoJ tightening, coupled with a cautious market sentiment, are likely to continue supporting the JPY.

At the same time, investors are considering the possibility that the Federal Reserve may reduce borrowing costs twice this year, given signs of easing inflationary pressures in the US. This expectation has led to a sharp decline in US Treasury bond yields, narrowing the yield differential between the US and Japan, which could further bolster the JPY.

Overall, the confluence of banking strength, tech sector challenges, and dynamic economic data points creates a complex market environment. Investors remain keenly focused on the evolving policy stances of major central banks and the broader economic indicators that will shape the market landscape in the coming months.