S&P 500 hits record high on economic data

Today’s headlines

What’s happening: US stocks closed higher on Tuesday as investors responded to the latest economic reports.

What happened: The S&P 500 climbed to a record close, after the US reported the fastest GDP growth in four quarters.

AI stocks notched gains during the session, recovering from last week’s selloff.

Why it matters: The US Commerce Department said on Tuesday that gross domestic product grew at an annualised rate of 4.3% in the third quarter. This marked the strongest pace since the third quarter of 2023 and topped market expectations of 3.3% growth, driven by strong consumer and government spending.

The report was delayed due to the prolonged federal government shutdown. Although several analysts projected a slowdown in GDP growth in the fourth quarter, investors pulled back speculations of an interest rate cut by the Federal Reserve in January.

Other economic reports released on Tuesday showed a mixed picture of the US economy. Consumer confidence declined in December amid rising concerns around income and jobs. Meanwhile, factory production came in unchanged for November, after falling in the previous month, while industrial production climbed 0.1% in October and November. US durable goods orders contracted 2.2% to $307.4 billion in October, more than market estimates of a 1.5% decline.

AI stocks climbed on Tuesday, after recording sharp losses last week. Nvidia’s stock jumped around 3%, after the company announced plans to ship H200 AI chips to China before the Lunar New Year holiday in mid-February. Shares of Amazon and Apply also rose, with both companies having aggressive plans to expand their AI capabilities.

The Dow Jones index surged 79.73 points, or 0.16%, to close at 48,442.41 on Tuesday, while the S&P 500 added 0.46% to 6,909.79. The Nasdaq 100 jumped 126.13 points, or 0.50%, to settle at 25,587.83.

All three indices are on course to ending the third consecutive year in the black, while the Dow and S&P 500 are on track to notch their eighth straight monthly gain.

Trading volumes remained light on Tuesday and are expected to remain low over the Christmas week.

What to watch: The latest gains in the US stock market raised speculations of a “Santa Claus rally”, in which the S&P 500 has historically risen in the final five trading sessions of the year and the first two sessions in the new year.

Investors await the release of economic data on initial jobless claims (1730 UAE Time) today. Initial jobless claims, which fell by 13,000 to 224,000 in the week ending December 13, are expected to ease further to 223,000 in the latest week.

The markets today

The Australian dollar in focus today after the release of minutes from the RBA’s latest meeting

Context: The AUD/USD forex pair surged to its strongest level since October 2024, as investors raised speculations of the Reserve Bank of Australia hiking interest rates.

Details: Minutes from the latest meeting of the RBA showed that the bank’s board is ready to tighten monetary policy in case inflation does not slow as expected. The minutes triggered speculation of the central bank hiking its benchmark interest rate by 25 basis points next year.

The Aussie also received support from rising commodity prices, with gold and copper prices surging to new record highs, indicating Australia’s strong export profile.

Weakness in the US dollar also provided a boost to the AUD/USD forex pair this morning. The US dollar index, which measures the greenback’s performance versus a basket of major peers, fell around 0.2% to 97.78.

The AUD/USD pair rose around 0.2% to 0.6712 this morning, while the S&P/ASX 200 gained 0.53% to trade at 8,749.20.

What to watch: With no major economic reports due today, investors will continue monitoring the overall geopolitical environment, which is expected to impact the Australian currency.

Data on S&P Global manufacturing PMI will be released on January 2. Analysts expect the S&P Global Australia manufacturing PMI to surge to 52.2 in December from 51.6 in the previous month. Markets will also monitor CPI report due next month, which will provide direction to the RBA’s rate moves.

Other Markets: European indices closed mostly higher on Tuesday, with the FTSE 100, DAX 40 and STOXX Europe 600 Index up by 0.24%, 0.23% and 0.34%, respectively, and the CAC 40 down by 0.21%.

The news shaping the markets

Ukraine’s military troops have withdrawn from the eastern town of Siversk in Ukraine. The news sent the USD/RUB pair lower in forex trading this morning.

Colombia’s trade deficit rose to $2.28 billion in October from $1.42 billion in the year-ago month, which lent support to the USD/COP forex pair.

Canada’s GDP grew 0.1% in November, following a 0.3% contraction in October, which sent the USD/CAD pair lower in forex trading this morning.

Brazil’s mid-month consumer prices climbed 0.25% during the first half of December. This coming in below market estimates of a 0.3% gain exerted pressure on the USD/BRL forex pair.

The Philippines’ budget deficit shrank to ₱157.6 billion in November from ₱213 billion in the year-ago month, sending the USD/PHP lower in forex trading this morning.

What else to watch today

Mexico’s unemployment rate (1600 UAE Time), US MBA mortgage applications (1600 UAE Time), MBA mortgage refinance index (1600 UAE Time), MBA purchase index (1600 UAE Time), continuing jobless claims (1730 UAE Time) as well as Russia’s corporate profits (2000 UAE Time) and industrial production (2000 UAE Time).