The financial markets experienced significant fluctuations yesterday as the USD/JPY exchange rate fell below the 155 mark, closing at 154.5. In another notable movement, Nvidia's stock price plunged by 17%, resulting in a substantial $560 billion loss in market capitalization. This comes amid a broader context of shifting economic indicators and financial forecasts, with futures suggesting some stabilization and core bond yields beginning to recover from losses incurred the previous day.
The foreign exchange market witnessed the EUR/CHF currency pair erasing its Friday gains driven by the Purchasing Managers' Index (PMI), as it hovered around the 0.945 area. Simultaneously, the EUR/USD exchange rate dropped to 1.044, influenced by the strengthening of the USD. This strength in the dollar followed comments from former President Donald Trump regarding Treasury Secretary Bessent’s stance on import tariffs.
In the bond market, US Treasuries outperformed German Bunds, with German rates easing approximately 4 basis points across the curve. The Labour Cost Index showed a further slowdown, registering a quarterly increase of 1.4%, significantly lower than last summer's figures. Business conditions saw an improvement, rising from 3 to 6, reversing some of the sharp declines noted in November.
In the commodities market, food price inflation accelerated to 0.5% month-over-month and 1.6% year-over-year. Conversely, non-food product prices fell by 1.8% month-over-month and were 0.9% lower than the previous year. In the UK, shop prices decreased by 0.4% in January compared to December, according to the British Retail Consortium.
As market participants await tomorrow's publication of December and Q4 inflation data, these figures are anticipated to play a crucial role in shaping future economic and monetary policies. Currently, there is an 80% probability that an inaugural 25 basis point interest rate cut is being priced into the market.
Nvidia's dramatic decline contributed significantly to market volatility. As an AI industry leader, Nvidia’s stock performance is closely watched by investors for its implications on the tech sector at large. The company's 17% drop not only wiped out $560 billion in market capitalization but also sent ripples through the technology-heavy indices.
Meanwhile, core bond yields have begun to recoup some of yesterday's losses, signaling potential stabilization within the markets. The volatility witnessed in the foreign exchange and equities markets is indicative of investor sentiment reacting to a combination of geopolitical factors, economic data releases, and corporate announcements.