US markets experienced a mixed session on Tuesday, with the S&P 500 extending its gains for a second straight day as tech stocks rebounded. Optimism in companies like Nvidia helped lift sentiment, but caution persisted as investors braced for key economic reports due later this week. The Nasdaq benefitted from the tech rally, while the Dow lagged, dragged down by financial stocks, particularly JPMorgan. Meanwhile, European markets faced pressure from the auto sector, while Asian markets saw mixed results, with China’s trade data exceeding expectations. Investors now await US inflation data that could significantly influence market sentiment.

Key Takeaways:

  • S&P 500 Gains for Second Straight Day: The S&P 500 rose 0.45%, closing at 5,495.52, marking its second consecutive day of gains. Investors showed optimism in tech stocks, but remained cautious overall as economic uncertainty looms. Nvidia led the gains with a 1.5% rise, while AMD and Microsoft also contributed to the index’s positive performance.
  • Nasdaq Boosted by Tech Rally: The Nasdaq Composite gained 0.84%, closing at 17,025.88. Tech stocks, which have faced recent challenges, saw a resurgence, with Nvidia’s gains driving the tech-heavy index higher. However, investors remain wary of the broader economic outlook, particularly in the tech sector.
  • Dow Jones Slips as JPMorgan Drags: The Dow Jones Industrial Average dropped 92.63 points, or 0.23%, closing at 40,736.96. JPMorgan’s stock declined by more than 5% after the bank provided cautious commentary on its future net interest income, making it the biggest decliner in the Dow.
  • European Markets Struggle as Auto Stocks Tumble: European markets closed lower, with the Stoxx 600 falling 0.5% as auto stocks dropped 3.8%. BMW shares plummeted 11% after the company lowered its 2024 profit margin guidance, largely due to issues with Continental’s brake systems. Continental shares also took a hit, falling more than 10%. The UK’s FTSE 100 fell 0.78% to 8,205.98, reversing gains from earlier in the week. The CAC 40 in France also slipped 0.2% to 7,408 as investors adopted a cautious approach ahead of key US inflation data.
  • Asia-Pacific Markets Mixed as China Trade Data Surprises: China’s exports surged 8.7% year-on-year in August, surpassing expectations, while imports rose 0.5%. However, Asia-Pacific markets posted mixed results. Australia’s S&P/ASX 200 edged up 0.3% to 8,011.9. Japan’s Nikkei 225 dipped 0.16% to 36,159.16, weighed down by a 2.06% loss in the healthcare sector. South Korea’s Kospi fell 0.49% to 2,523.43, and the Kosdaq dropped 1.16% to 706.2. Meanwhile, Hong Kong’s Hang Seng rose 0.37%, with Alibaba gaining over 4% after being added to the Stock Connect cross-border investment scheme.
  • Oil Prices Hit Lowest Levels Since December 2021: Oil prices tumbled to their lowest levels in nearly three years as concerns over demand weighed on the market. West Texas Intermediate crude futures fell 3.55% to settle at $66.28 per barrel, while Brent crude dropped 3.03% to $69.66 per barrel. This decline was triggered by OPEC’s decision to lower its demand forecast for the second time in two months, coupled with concerns about weakening economic conditions in China, one of the world’s largest consumers of oil.
  • Treasury Yields Dip as Investors Eye Inflation Data: US Treasury yields fell as investors awaited key inflation reports due later in the week. The yield on the 10-year Treasury dropped 5 basis points to 3.648%, while the 2-year Treasury yield slipped 6 basis points to 3.607%. Traders are focused on the upcoming consumer price index (CPI) and producer price index (PPI) reports, which are expected to offer further insight into the Federal Reserve’s next move regarding interest rates.
  • German Inflation Falls, UK Pay Growth Cools: German inflation fell to 2.0% in August, the lowest level in over three years, driven by a 5.1% year-on-year drop in energy prices. Meanwhile, in the UK, average weekly earnings (excluding bonuses) grew by 5.1% in the three months to July, marking the slowest rate in over two years. The cooling pay growth, alongside easing inflation in Germany, supports expectations of interest rate cuts from both the European Central Bank and the Bank of England as policymakers aim to manage the economic slowdown across Europe.

FX Today:

  • EUR/USD Slides as Dollar Demand Picks Up: The EUR/USD pair extended its losses on Tuesday, closing down at 1.1024 as the US Dollar gained strength ahead of key inflation data. The pair remains under pressure near the 1.1015 support zone, and a break below this level could lead to a test of lower levels in the coming sessions. Traders are increasingly focused on the US Consumer Price Index (CPI) release, which could fuel further volatility. On the upside, immediate resistance stands at 1.1155, followed by the August high of 1.1201, which the pair would need to clear to regain bullish momentum.
  • GBP/USD Loses Momentum After Brief Surge: The GBP/USD pair lost steam after reaching an intraday high of 1.3107, retreating to close at 1.3085. While a robust UK jobs report initially provided support, market attention has shifted to the upcoming US inflation data, which could dictate the pair’s next move. A failure to hold above 1.3100 could see the pair test support at 1.3044, with the psychological 1.3000 mark acting as a key floor. On the upside, resistance lies at 1.3143, and a sustained break above this level could signal a move toward 1.3200 if US data disappoints.
  • USD/CHF Stabilises Amid Rising Treasury Yields: USD/CHF consolidated around 0.8465, finding support as rising US Treasury yields helped the Greenback recover. The pair remains supported at 0.8466, where the 100- and 200-period SMAs converge, and a sustained move below this level could accelerate downside momentum, pushing the pair toward the 0.8400 psychological level. On the upside, resistance is seen at 0.8519 and 0.8532, which aligns with the 38.2% Fibonacci retracement of the recent downtrend. A break above these levels could signal the beginning of a broader recovery.
  • AUD/USD Declines as Dollar Extends Gains: AUD/USD continued its downward trajectory, closing near 0.6640 as the US Dollar extended its gains. The pair has struggled to find support, with the 200-period SMA at 0.6640 offering the last line of defence before a potential decline toward the 0.6600 mark. If the pair breaks below this level, further bearish pressure could drive the Aussie down to 0.6560. On the upside, immediate resistance is seen at 0.6725, with stronger resistance at 0.6740, where the 100-period SMA resides. A move above these levels is necessary to shift the near-term sentiment.
  • Gold Holds Firm Above $2,510 as Markets Await US Inflation Data: Gold prices remained steady on Tuesday, consolidating above $2,510 as investors took a cautious approach ahead of the US CPI report. The precious metal struggled to break higher but managed to maintain a neutral-to-bullish bias, as it trades above key support levels. Immediate resistance lies at $2,519.75, with a break above opening the door for a test of $2,531.60. On the downside, support is seen at $2,507.60, and a failure to hold this level could push gold toward $2,489.60. Traders are likely to hold off on major positions until more clarity emerges from the upcoming inflation data, which could provide a clearer direction for gold’s next move.

Market Movers:

  • JPMorgan Falls on Cautious Outlook: JPMorgan shares tumbled 5.3%, making it the biggest decliner in the Dow Jones Industrial Average. The drop followed the company’s cautious guidance on net interest income for 2025, raising concerns about future profitability. The stock’s sharp decline put pressure on the broader market, contributing to the Dow’s 92.63-point loss on the day.
  • Nvidia Gains as Tech Stocks Rebound: Nvidia shares climbed 1.5% on Tuesday, helping to boost both the S&P 500 and Nasdaq Composite. Despite broader market concerns, Nvidia’s gains helped offset recent struggles in the tech sector, which has been under pressure throughout the quarter. The stock’s rise also supported the Nasdaq’s 0.84% gain, closing at 17,025.88.
  • BMW Drops on Profit Warning: BMW shares plunged 11% after the company lowered its 2024 profit margin guidance. The automaker cited challenges with its supplier, Continental, and ongoing issues with brake systems, leading to a sharp selloff. The news also dragged down the broader European auto sector, which fell 3.8% on the day, contributing to the Stoxx 600’s 0.5% decline.
  • Alibaba Jumps After Stock Connect Addition: Shares of Alibaba surged 4% after the tech giant was added to the Stock Connect cross-border investment scheme, allowing investors from mainland China to trade its Hong Kong-listed shares. This news boosted investor confidence, driving gains in the Hang Seng index, which rose 0.37% in the final hour of trading.
  • Continental Sinks on Warranty Provisions: Continental shares dropped more than 10% following an announcement that the company would take a mid-double-digit million euro provision related to a warranty issue involving its brake systems. This news further compounded the challenges faced by the European auto sector, which saw broad declines, with Continental leading the losses.

As markets closed on Tuesday, investor sentiment remained mixed, with tech stocks helping lift the S&P 500 and Nasdaq while the Dow Jones struggled under the weight of JPMorgan’s 5% decline. European markets faced significant pressure, particularly from the auto sector, where BMW and Continental’s steep losses dragged the Stoxx 600 lower. In Asia, mixed results emerged as investors digested China’s better-than-expected trade data, with Alibaba’s addition to the Stock Connect program providing a bright spot for the Hong Kong market. Meanwhile, oil prices hit their lowest levels since December 2021, and US Treasury yields dipped ahead of crucial inflation reports, leaving traders cautious about the Federal Reserve’s next steps. All eyes are now on upcoming US CPI data, which is expected to shape market direction in the coming days.