The dollar index held its recent advance to above 108.5 on Wednesday, supported by higher Treasury yields as strong US economic data diminished the likelihood of further Federal Reserve interest rate cuts. Growth in the US services sector accelerated in December, boosting business activity and pushing prices to their highest levels since early 2023. Job openings also rose by 259,000 to 8.098 million in November, surpassing expectations and reaching a six-month high. Investors are now focused on Friday’s monthly jobs report, one of the last major data releases before the Fed’s upcoming monetary policy decision. Currently, markets are pricing in less than 50 basis points of total easing this year. The dollar strengthened across the board, with the yen experiencing the most significant decline.

WTI crude oil futures rose toward $75 per barrel on Wednesday, extending gains and approaching three-month highs amid signs of declining US crude inventories. API data showed a 4.022 million-barrel drop last week, far exceeding the expected 0.25 million-barrel decrease. If confirmed by government data, this would mark the fourth consecutive weekly decline and the seventh in 12 weeks, the longest streak in three years. Oil prices recently gained support from tighter global supplies due to escalating Western sanctions on Russia and Iran, driving demand for Middle Eastern oil. This was evident in Saudi Arabia's decision to raise oil prices for Asia for the first time in three months. Additionally, China's Shandong Port Group banned US-sanctioned oil vessels, further straining supply, while colder weather in the US and Europe increased heating oil demand.

The Nikkei 225 Index dropped 0.8% to fall below 39,800, while the broader Topix Index lost 0.7%, settling at 2,767 on Wednesday, reversing gains from the previous session as US Treasury yields surged. Japanese shares also mirrored a tech-driven selloff on Wall Street overnight, fueled by concerns over persistent inflation and reduced expectations of further interest rate cuts by the Federal Reserve. Investors in Japan are also looking ahead to local wage data this week, which could offer further insights into the Bank of Japan's monetary policy outlook. Notable losses were seen in index heavyweights such as IHI Corp (-2%), Mitsubishi Heavy Industries (-0.7%), SoftBank Group (-1.5%), Tokio Marine (-3.8%), and Fast Retailing (-1.5%).

The ISM Services PMI rose to 54.1 in December 2024 from 52.1 in November, above market expectations of 53.3. The reading marked the 10th time the composite index has been in expansion territory this year. The Business Activity Index registered 58.2 percent in December, 4.5 percentage points higher than the 53.7 percent recorded in November, indicating a sixth consecutive month of expansion and finishing the year with its third-highest reading for 2024. The New Orders Index recorded a reading of 54.2 percent in December, 0.5 percentage point higher than November’s figure of 53.7 percent. The Employment Index remained in expansion territory for the fifth time in six months; the reading of 51.4 percent is a 0.1-percentage point decrease compared to the 51.5 percent recorded in November.

Imports of goods and services into the US rose 3.4% to $351.6 billion in November 2024, the largest increase since March 2022, as companies rushed shipments ahead of a potential dockworkers’ strike and anticipated Trump administration tariffs. Goods imports increased $11.6 billion to $280.9 billion, due to higher purchases of nonmonetary gold (up by $1.0 billion), crude oil (up by $1.0 billion), semiconductors (up by $1.2 billion), civilian aircraft (up by $1.1 billion), foods, feeds, and beverages (up by $1.4 billion) and automotive vehicles, parts, and engines (up by $1.1 billion). Meanwhile, imports of services increased less than $0.1 billion to $70.6 billion.

The annual inflation rate in the Euro Area accelerated for a third straight month to 2.4% in December 2024, the highest rate since July, compared to 2.2% in November and in line with expectations, preliminary estimates showed. This year-end increase was largely expected due to base effects, as last year’s sharp declines in energy prices are no longer factored into annual rates. Prices of energy increased for the first time since July (0.1% vs -2% in November) and inflation accelerated for services (4% vs 3.9%). On the other hand, inflation steadied for food, alcohol and tobacco (2.7%) and eased for non-energy industrial goods (0.5% vs 0.6%). Considering the bloc's largest economies, inflation increased in Germany (2.8% vs 2.4%), France (1.8% vs 1.7%), and Spain (2.8% vs 2.4%) but slowed in Italy (1.4% vs 1.5%). Meanwhile, core inflation which excludes prices for energy, food, alcohol & tobacco steadied at 2.7%. The ECB expects inflation to move back to the 2% target by the year-end.