Strong data and rising yields dim rate cut hopes

General market commentary

Equity markets in the U.S. declined on Tuesday, reversing earlier gains after strong economic data raised concerns about inflation and the Federal Reserve's interest-rate trajectory. The ISM services PMI exceeded expectations at 54.1 for December, signalling continued strength in the services sector, while a rise in the prices subindex to a near two-year high of 64.4 heightened inflationary worries. Additionally, job openings in November rose to 8.1 million, indicating persistent labour market strength. These reports pushed bond yields higher, with the 10-year Treasury yield nearing 4.7%, dampening investor sentiment and leading to broad declines across major indices. The S&P 500 fell 1.1%, the Nasdaq dropped 1.9%, and the Dow shed over 0.4%.

Growth-focused sectors, particularly technology and consumer discretionary, were the hardest hit, with Nvidia shares sliding more than 6% and Tesla falling 4% after a downgrade. Defensive sectors such as healthcare showed resilience, while energy shares outperformed due to rising oil prices. Micron Technology provided a rare bright spot, gaining 2.7% following Nvidia's confirmation of its role as a memory supplier for the new Blackwell gaming chips. Overall, the strong economic data and higher bond yields have tempered expectations of rate cuts this year, further pressuring equity markets.

Latest market and economic update

Asian equity markets were mixed this morning, with Chinese shares extending losses after U.S. blacklisting of major firms, while Japanese shares fell on yen intervention warnings. South Korea and Australia saw gains, driven by Samsung’s rise and easing inflation concerns, respectively.

U.S. equity futures steadied on Wednesday as investors awaited key economic data and assessed inflation concerns. Markets remain cautious amid elevated Treasury yields and ongoing pressure on technology and AI-focused equities.

European markets closed mixed, with Germany's DAX and France's CAC 40 up and the UK's FTSE 100 down slightly. Gains in energy, retail, and industrials offset declines in real estate and construction as investors assessed inflation data and ECB policy prospects.

The dollar index held firm above 108.5, bolstered by higher Treasury yields and robust US economic data, while markets priced in limited Fed rate cuts. The dollar strengthened broadly, pushing the euro down to 1.0354, as strong services growth and rising job openings supported the greenback.

The US 10-year Treasury yield held steady at 4.69%, an eight-month high, as strong economic data dampened hopes for significant Federal Reserve rate cuts. November’s rise in job openings and accelerating services activity have shifted focus to Friday's jobs report ahead of the Fed's upcoming policy decision.

Oil prices rose on Wednesday as tightening supplies from Russia and OPEC, alongside robust U.S. economic data, boosted demand prospects. However, analysts forecast lower average oil prices in 2025 due to non-OPEC supply growth outpacing demand.

US services sector activity exceeded expectations in December, with the ISM non-manufacturing PMI rising to 54.1, signalling solid economic growth in late 2024. Separately, US job openings increased to 8.098 million in November, reflecting strong labour demand as concerns over tariffs and inflation persist.

Eurozone inflation rose to 2.4% in December, driven by energy and services costs, but is expected to trend downward towards the ECB's 2% target later this year. Despite underlying price pressures, the ECB is likely to continue cutting interest rates, though the pace of easing may slow.

Equities on the move

The following companies experienced moves in their share price driven by analyst ratings, quarterly earnings, or other news:

Samsung Electronics' fourth-quarter operating profit estimate missed expectations, impacted by rising R&D costs and slowing demand for memory chips. Despite a year-on-year increase, earnings fell from the previous quarter, with delays in supplying high-bandwidth memory chips to Nvidia weighing on performance.

Meta has scrapped its U.S. fact-checking program and eased restrictions on political content, prioritising "free expression" with a new Community Notes system. The changes, influenced by political considerations, have drawn criticism for weakening content moderation amid rising concerns over disinformation.

Toronto-Dominion Bank is reviewing its 10% stake in Charles Schwab as part of a broader strategic assessment following a U.S. money-laundering scandal. The bank remains committed to its U.S. operations while focusing on restructuring its balance sheet and enhancing anti-money-laundering controls.

Micron has been highlighted as a key memory chip supplier for Nvidia's new GeForce RTX 50 Blackwell GPUs, further boosting investor interest in the company. The announcement comes as Nvidia continues to expand its influence in AI hardware and gaming technology, with Blackwell chips optimized for AI models and advanced gaming performance.

Microsoft plans to implement job cuts across the company while tightening its approach to underperforming employees. Despite the layoffs, the firm’s overall headcount remains largely unchanged due to backfilling roles, with the company having already reduced its workforce by around 14,000 in recent years.

Flutter expects lower earnings for its U.S. FanDuel brand in 2024 due to an unprecedented winning streak for NFL gamblers. However, the company anticipates stronger results in other markets, with higher revenue and adjusted EBITDA outside the U.S. than previously forecasted.

Mercedes-Benz plans to lower its mid-term profitability targets for its passenger car business, citing ongoing market weakness and the transition to electric vehicles. The company will revise the targets set in 2022 by February 20, aiming for a double-digit profit margin in the best-case scenario.

Goodyear Tire & Rubber Co has agreed to sell its Dunlop brand to Japan's Sumitomo Rubber Industries for $701 million as part of a business streamlining plan. The sale includes trademarks in Europe, North America, and Oceania, with Goodyear continuing to supply certain Dunlop-branded tires for the next five years.

Apple's share was downgraded to a "Sell" rating by MoffettNathanson, citing concerns over legal challenges, weakening performance in China, and disappointing consumer response to its AI features. The analysts believe Apple's share price is overpriced, with little growth expected compared to its peers.

Piper Sandler initiated coverage on soda shares, rating PepsiCo and Coca-Cola "overweight" with price targets of $171 and $74, respectively, citing strong brand growth and emerging market opportunities. However, Keurig Dr Pepper was rated "Neutral" with a $35 target, facing challenges from rising coffee bean costs and weak sales momentum.

Wells Fargo has named Cloudflare its top software infrastructure pick for 2025, citing strong revenue growth potential driven by diverse offerings like SASE, Workers, and Workers AI. The bank forecasts increased IT spending, particularly in cybersecurity, with AI Security, Zero Trust, and automation as key priorities.

RBC Capital Markets upgraded Carvana shares to "Outperform" and raised the target price to $280, citing factors such as increased retail unit sales, gross profit per unit sustainability, and balance sheet improvements. The firm believes Carvana has strong growth potential, despite investor concerns about volume re-acceleration and GPU sustainability.

Upcoming data and events

Today, key economic data includes Germany's retail sales for November, Eurozone producer prices for November, and sentiment surveys for December. These figures could provide insight into the region's economic performance and influence market sentiment.

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