Market Optimism Grows Amid Trump's Economic Plans and Global Market Moves | Daily Market Analysis

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• Eurozone - ECB President Lagarde Speaks

On Tuesday, the S&P 500 ended the day on a high note as investor enthusiasm grew around President Donald Trump's proposed economic policies. These policies are expected to spur economic growth, prompting bullish sentiments in the stock market. The S&P 500 saw a rise of 0.9%, the tech-focused Nasdaq Composite climbed 0.6%, and the Dow Jones Industrial Average surged by 1.2%, translating to a 538-point gain.

President Trump hinted at a potential 25% tariff on Canada and Mexico starting February 1, citing border policy concerns. In his first day in office, Trump issued numerous executive orders targeting various areas, including immigration and border control. These orders, legally binding without needing Congressional approval, are part of his broader policy agenda.

Despite the tough talk on trade, Trump refrained from imposing immediate heavy tariffs on allies and adversaries alike. Instead, he instructed federal agencies to scrutinize persistent US trade deficits and the fairness of international trade practices. A directive was issued to the Commerce and Treasury departments and the US Trade Representative to assess the economic and national security implications of these deficits. They were tasked with proposing responses, possibly including global supplemental tariffs, to address these issues.

In a significant shift, Trump also announced executive orders related to immigration, notably one to end birthright citizenship. This policy change, set to take effect in 30 days, is likely to face legal opposition.

Meanwhile, the Japanese Yen weakened during the Asian session on Wednesday, retreating from a one-month peak against the US Dollar. A positive risk sentiment and a slight rebound in US Treasury yields contributed to the yen's depreciation. The USD/JPY pair climbed to the 156.00 mark as some investors moved back into the dollar. However, the potential for a JPY downturn remains limited due to expectations of an imminent interest rate hike by the Bank of Japan and ongoing market predictions of two rate cuts by the Federal Reserve this year. These factors continue to influence the USD/JPY pair, necessitating caution for those betting on a further yen decline.

Adding to this scenario, the BoJ's optimistic stance on wage growth sustaining the 2% inflation target supports the prospect of a near-term rate increase. Tomoko Yoshino, head of Japan's largest trade union, Rengo, echoed the BoJ's confidence in the momentum of wage increases, a crucial factor for potential rate hikes.

On the other side of the globe, the Australian Dollar struggled against the USD on Wednesday. The currency pair faced hurdles after Trump's announcement of a possible 10% tariff on Chinese imports, a move tied to concerns over fentanyl shipments through Mexico and Canada. Trump also connected this tariff proposal to a delayed TikTok ban, linking the decision to China's potential non-compliance with a deal. Given Australia's strong trade ties with China, these developments could have significant ramifications for the Australian economy.

China’s Vice Premier Ding Xuexiang warned of the consequences of a trade war, emphasizing that no one wins in such scenarios, particularly as China's economy braces for potential new tariffs under Trump's administration. This sentiment was reported by CNBC, reflecting the tensions in international trade relations.

The Australian stock market, however, found support, with the S&P/ASX 200 Index reaching a seven-week high of around 8,450. This rally was fueled by the positive lead from Wall Street and Trump's decision to postpone tariff impositions, providing some relief to global markets.

Apart from that, the GBP/USD pair experienced a pause in its recent rally, trading around 1.2330 during the Asian session. The pound came under pressure following the release of UK labor market data, which showed a surprise increase in the unemployment rate to 4.4% and a significant drop in payroll numbers, suggesting potential labor market weakness. This data led analysts to believe that the Bank of England might have the green light to cut rates in February, with further reductions possibly on the horizon.

The BoE's anticipated move comes amid signs of slowing inflation and weaker economic growth, with markets broadly expecting a 25-basis-point cut to 4.5% during the upcoming policy meeting on February 6.

Gold prices, meanwhile, continued their upward trajectory, hitting their highest levels since November 1, around $2,750 during the Asian session. This increase was driven by safe-haven demand amid uncertainty surrounding Trump's trade policies and a decline in US Treasury yields. Despite a slight recovery in the USD and positive equity market sentiment, the underlying fundamentals appear to favor gold bulls. The recent breakout through the $2,720 level suggests that the path of least resistance for gold remains upward, even as investors keep an eye on potential rate hikes from the BoJ and the Fed's future monetary policy moves.

This diverse global market activity reflects the intricate interplay between policy announcements, economic indicators, and investor sentiment, underscoring the dynamic nature of financial markets in response to geopolitical and economic developments.