Dow Jones Faces Nine-Day Decline Amid Easing Inflation in Canada

As of Tuesday's close, the Dow Jones Index (US30) has dropped by -0.61%, marking its ninth straight day of losses. The S&P 500 index (US500) also fell, decreasing by -0.39%, while the Nasdaq Technology Index (US100) experienced a loss of -0.43%. The overall decline in US stocks on Tuesday was attributed to investors being cautious ahead of the highly anticipated Federal Reserve decision scheduled for Wednesday.

Federal Reserve Decision

The Federal Open Market Committee (FOMC) is expected to lower the target range for the federal funds rate by -25 basis points during its meeting. Traders are closely observing Fed Chair Jerome Powell’s comments following the meeting for hints about the future trajectory of monetary policy. Powell has recently indicated a reduction in risks associated with the labor market; however, the prevailing inflation concerns have led to discussions about a potential rate cut, signaling a hawkish approach for future meetings extending into 2025.

Economic Indicators

In other economic news, the US retail sales report for November, released on Tuesday, exceeded expectations, showcasing robust consumer spending. Retail sales increased by +0.7% month-over-month, surpassing forecasts of +0.6% growth. However, retail sales excluding motor vehicles rose by only +0.2%, which was below the anticipated +0.4% increase. Manufacturing production also saw a modest rise of +0.2%, falling short of the expected +0.5%.

Healthcare Stocks Impact

The healthcare sector saw a decline in shares of companies with pharmacy benefit management units on Tuesday, following remarks from Pfizer's CEO about potential reforms under President-elect Trump. Notably, Humana (HUM) shares fell by more than -10%, landing at the bottom of the S&P 500 losers. Conversely, Pfizer (PFE) saw its stock price rise by over +4% after reaffirming its 2024 outlook and projecting an adjusted EPS guidance for 2025 of $2.80-$3.00, surpassing the average consensus estimate of $2.89.

Canadian Inflation Rates

Shifting focus to Canada, the annual inflation rate for November 2024 stood at 1.9%, down from 2% the previous month and below market expectations of 2%. This result aligns with the Bank of Canada's forecast, which anticipates inflation remaining near the 2% target in the near future. However, the average prime rate has remained unchanged at 2.7%, despite expectations for a cut to 2.5%. This situation limits the extent of potential rate cuts that could be utilized to encourage economic growth.

European Market Movements

European equity markets primarily showed declines on Tuesday. Germany's DAX (DE40) fell by -0.33%, while France’s CAC 40 (FR40) slightly increased by +0.12%. Spain’s IBEX 35 (ES35) dropped by -1.62%, and the UK's FTSE 100 (UK100) lost -0.81%. The downtrend in European equities is attributed to emerging pessimistic signals regarding the economy as central banks are preparing for significant policy decisions this week. Notably, Germany's Ifo business climate index fell more than anticipated, while the ZEW economic sentiment index unexpectedly rose. Market swaps indicate a complete likelihood of a -25 basis point rate cut by the European Central Bank (ECB) at its January 30 meeting.

Oil Prices and Asian Markets

On the commodities front, WTI crude oil prices remained above $69 per barrel. API data indicated that US crude inventories had fallen by 4.7 million barrels last week, surpassing forecasts for a decline of 1.9 million barrels. If confirmed by official data later on Wednesday, this marks the fourth consecutive week of inventory drops. Nonetheless, oil prices face downward pressure due to renewed concerns over weak demand signals from China and predictions of increased non-OPEC+ production in the upcoming year.

Asian markets ended the day mixed. Japan’s Nikkei 225 (JP225) dipped by -0.24%, while China’s FTSE China A50 (CHA50) gained +0.67%. Hong Kong’s Hang Seng (HK50) fell by -0.48%, but Australia’s ASX 200 (AU200) experienced a +0.78% increase.

In Australia, the Westpac-Melbourne Institute leading economic index for November 2024 saw a slight increase of +0.1%, marking its first positive reading in over two years. The rise suggests a slowly improving outlook for economic growth over the next few quarters, with forecasts for Australia’s GDP to grow from the current 0.8% year-on-year to 2.2% by the end of 2025.

Upcoming Economic Releases

Looking ahead, several important economic indicators will be released, including the UK Consumer Price Index and various interest rate decisions across several countries.

DowJones, Inflation, Economy