US markets bounced back sharply on Wednesday, with tech stocks leading the recovery as investors assessed the latest US inflation data and its potential impact on Federal Reserve policy. After a volatile session, the S&P 500 managed to close higher, driven by optimism in the tech sector. Semiconductor giants like Nvidia and AMD surged, helping the Nasdaq post significant gains. Despite initial concerns over rising inflation, market sentiment improved, with traders adjusting expectations for a smaller interest rate cut by the Fed. European stocks saw mixed results, while Asian markets faced losses, particularly in Japan, where the Nikkei continued its downward streak.
Key Takeaways:
- S&P 500 Rallies Over 1%: The S&P 500 surged 1.07% to close at 5,554.13, recovering from an earlier decline of more than 1% during the session. This is the first time since October 2022 that the index dropped over 1% intraday and closed higher by more than 1%. The tech sector played a major role in this rebound, as investors reassessed their outlook following the release of key inflation data.
- Nasdaq Soars Led by Tech and Semiconductor Stocks: The Nasdaq Composite posted a significant gain of 2.17%, closing at 17,395.53, driven largely by a strong performance in mega-cap tech and semiconductor names. Nvidia saw a remarkable increase of 8%, while AMD advanced nearly 5%.
- Dow Gains After Early Volatility: The Dow Jones Industrial Average closed 124.75 points higher, gaining 0.31% to finish at 40,861.71. The index initially dropped by as much as 743.89 points early in the session, but managed to recover throughout the day.
- US Inflation Data Dampens Hopes for Larger Fed Rate Cut: US consumer prices rose moderately in August, with the consumer price index (CPI) increasing 0.2% for the month, bringing the annual inflation rate down to 2.5%, its lowest level since February 2021. However, core inflation, which excludes volatile food and energy prices, rose by 0.3%, slightly above market expectations of 0.2%. Housing costs, particularly shelter, remained a key driver of inflation, rising 0.5% in August, while food prices rose just 0.1%, and energy costs fell 0.8%.
- European Markets End Mixed as Investors Digest Inflation Data: European markets experienced a mixed session, with the pan-European Stoxx 600 finishing 0.02% higher. The UK’s FTSE 100 declined by 0.15%, while France’s CAC 40 dipped by 0.1% to end at 7,397. Germany’s DAX outperformed its regional peers, rising by 0.35%. Investors were cautious as they awaited further guidance from the European Central Bank (ECB) regarding potential rate adjustments, while industrial and household goods stocks in Europe fell 0.4%. Retail stocks, however, posted solid gains of 1.4%, with Spanish fashion giant Inditex surging 4.5%. Meanwhile, the UK economy remained stagnant for the second straight month in July, the GDP was up 1.2% year-on-year, it fell short of the 0.2% monthly growth expected by analysts.
- Asian Markets Falter, Led by Losses in Japan: Asia-Pacific markets struggled on Wednesday, with Japan’s Nikkei 225 tumbling 1.49%, marking its eighth consecutive day of losses. The broader Topix index also fell by 1.8% amid a weakening outlook for Japan’s large manufacturers. In South Korea, unemployment dropped to 2.4% in August, the lowest level since 1999, though the Kospi slipped by 0.4%. Hong Kong’s Hang Seng fell 0.65%, while mainland China’s CSI 300 dipped 0.3%, closing at 3,186.13.
- Oil Prices Rebound Sharply: After a steep sell-off in the previous session, US crude oil prices rebounded by 2.37%, with West Texas Intermediate (WTI) closing at $67.31 per barrel. Brent crude also gained 2.05%, closing at $70.61 per barrel. The recovery in oil prices came amid renewed concerns over supply disruptions due to Hurricane Francine, which is affecting the US oil patch in the Gulf of Mexico.
FX Today:
- EUR/USD Holds Steady as Investors Eye ECB Decision: The EUR/USD pair traded near 1.1010 on Wednesday, extending its weekly decline. The pair showed a modest bounce ahead of the close, but overall sentiment remains bearish. Technical readings indicate the EUR/USD remains under pressure, with the 20 Simple Moving Average (SMA) trending downward and technical indicators in negative territory. Support for the pair is seen around the 1.1000 level, with further downside potential towards 1.0900 if the bearish trend persists. Immediate resistance lies at 1.1050, followed by 1.1090.
- GBP/USD Falls Amid US Inflation Concerns and UK Stagnation: GBP/USD dropped 0.30% on Wednesday, closing near 1.3040 as a combination of US inflation concerns and weak UK economic data weighed on the pair. The pair briefly touched a daily high of 1.3111 before retreating. The first significant support is located around the 1.3044 level, and if the bearish momentum continues, GBP/USD could drop toward the 50-day moving average (DMA) at 1.2995. Resistance is seen at 1.3111, with further potential gains capped at the 1.3150 psychological level.
- USD/CHF Shows Strong Momentum on Uptrend Continuation: USD/CHF continued its recent uptrend, trading near 0.8520 on Wednesday after breaking past several key resistance levels. The pair continued bullish momentum. A series of higher highs and higher lows supports the uptrend, with immediate resistance expected around 0.8545 and 0.8560. On the downside, key support levels include 0.8500 and 0.8470, which could provide dynamic support if the pair experiences a pullback. The outlook remains bullish as long as USD/CHF holds above the cloud and the 0.8500 level.
- EUR/GBP Advances but Faces Key Resistance Levels: EUR/GBP posted gains of 0.40% on Wednesday, nearing the 0.8450 level as the euro found support amid ongoing concerns about the UK’s economic stagnation. The pair is showing signs of a potential recovery, with the Relative Strength Index (RSI) moving back towards the midpoint of 50 and the Moving Average Convergence Divergence (MACD) histogram flattening out, signalling easing selling pressure. Immediate resistance lies at 0.8460, marked by the 20-day Simple Moving Average (SMA), and a break above this level could confirm a more sustained recovery for the euro. Support remains around 0.8400, with the pair still vulnerable to further consolidation if it fails to break key resistance levels.
- Gold Pulls Back After CPI Data but Remains in Bullish Territory: Gold prices retreated from an intraday high of $2,523, closing slightly lower at $2,512 on Wednesday following the release of US inflation data. The stronger-than-expected core CPI reading dampened the prospects of a larger rate cut by the Federal Reserve, causing some profit-taking in the precious metal. Despite the pullback, gold continues to trade above the 20 Simple Moving Average, indicating that bullish sentiment remains intact. Key support levels are seen at $2,507.60 and $2,489.60, while resistance stands at $2,519.75 and $2,531.60, with any breach above this range potentially pushing gold higher toward the psychological $2,550 mark.
Market Movers:
- Nvidia Surges on Tech Rally: Nvidia shares soared by 8% on Wednesday, leading the tech sector rebound as investors snapped up semiconductor stocks following a volatile session. This strong performance helped drive the Nasdaq higher by 2.17%, marking a substantial recovery from earlier losses. Nvidia’s rally comes amid continued optimism surrounding the company’s position in AI and chip demand, helping the broader tech market regain momentum.
- AMD Gains Nearly as Semiconductor Stocks Climb: AMD rose 4.9% on Wednesday, mirroring the broader surge in semiconductor stocks, with the VanEck Semiconductor ETF (SMH) climbing about 5%. Investors flocked to semiconductor companies following the release of US inflation data, hoping that the sector’s growth prospects would remain resilient despite broader market concerns.
- Tesla Adds to Nasdaq Strength: Tesla shares contributed to the Nasdaq’s strength, posting a 3.7% gain as part of the broader recovery in tech stocks. The news of a rebound in mega-cap stocks fuelled a strong rally in the Nasdaq, with tech shares leading the index’s recovery.
- Rentokil Shares Plummet After Weak North American Sales: Rentokil shares plunged 20% after the pest control company reported weaker-than-expected sales in its largest market, North America. The sharp drop came as the company warned that its second-half organic sales growth would slow to around 1% in the region. Rentokil’s disappointing results weighed heavily on European industrial stocks, which pulled back 0.4% on Wednesday.
- Trump Media & Technology Falls Over 10% After Presidential Debate: Trump Media & Technology shares dropped more than 10% on Wednesday, reaching their lowest intraday level since going public on the Nasdaq in March. The sharp decline followed Tuesday’s presidential debate between majority shareholder former President Donald Trump and Democratic Vice President Kamala Harris.
- Solar Stocks Surge as US Election Optimism Grows: Solar stocks rallied sharply on Wednesday, with the Invesco Solar ETF (TAN) jumping 6% and the iShares Global Clean Energy ETF (ICLN) gaining 3.5%. Shares of First Solar surged 15%, while SolarEdge Technology rose over 8%. The rally was fuelled by increasing confidence in a Democratic victory in the upcoming US presidential election, following Vice President Kamala Harris’s performance in Tuesday’s debate.
As markets closed on Wednesday, investor attention remained focused on the latest US inflation data, which played a pivotal role in shaping expectations for Federal Reserve policy. The CPI report showed that inflation continues to moderate. However, the slightly higher-than-expected core inflation reading of 0.3% dampened hopes for a more aggressive rate cut. Instead, the focus has shifted to a probable 25 basis-point reduction in interest rates at the upcoming Fed meeting. While tech stocks led a strong rebound in the markets, inflationary pressures, particularly from rising housing costs, continue to weigh on investor sentiment as they look ahead to the Fed’s next move.