Asian Pacific equities rebound

After a weaker start, US stock index futures were modestly firmer by mid-morning on Tuesday. The gains added to those from yesterday. These came after all the US majors reversed steep losses from earlier in the day to storm higher and end in positive territory. The rally was led by tech, with the NASDAQ closing 1.4% higher and the S&P 500 up 0.8%. The Dow and Russell 2000 added 0.5% and 1.1%, respectively.

The rebound came after President Trump assured reporters that the war would soon be over, calming fears over energy shortages even as the Strait of Hormuz remained blocked to shipping. US stock indices gapped lower on Sunday night.

The S&P then fell below 6,600 early in the Asian Pacific session to hit its lowest level since the third week of November last year. This represented a decline of over 2% from Friday’s close, with investors desperate to cover long positions as crude oil surged to four-year highs.

Source: TN Trader

US stock indices were already under pressure last week as investors worried about the costs and return on AI investment, as well as the growing concerns over cracks appearing in private credit. The latter has led to significant drops in the stock prices of major players such as Blue Owl and Blackstone. Insurers are also coming under increasing scrutiny.

Despite all this, and as we’ve seen repeatedly since October 2022, traders took the opportunity to ‘buy the dip’. This pushed all the US majors back into positive territory, while filling the downside gap made over the weekend.

Does this mean that all is fine and dandy? One can’t say for sure. Yesterday’s recovery was impressive, and the S&P 500 is much closer to resistance and all-time highs around 7,000 than it was early on Monday.

But the bounce came on an assurance from President Trump that the war is nearly over. Sure, he could quite easily declare it finished later today. But the world would still be no closer to knowing what the aims were and what the Trump administration had achieved through it.

In the meantime, Oracle reports earnings after tonight’s close. CPI and Core PCE will be released tomorrow and Friday, respectively. These may have lost some of their importance given recent moves in energy prices. But if they show additional signs of inflationary pressures, that could sound the death-knell for rate cut expectations this year.

European stock indices opened higher on Tuesday, as oil prices eased and global risk sentiment stabilised. The rebound came after a tricky start to March. The broader Stoxx 600 index lost nearly 6% last week as investors responded to a pullback across US equities.

Source: TN Trader

Concerns around the funding of AI and uncertainty over returns on investment to date have helped to knock back the market leaders. But the financial sector also came into focus as worries over the state of private credit continue to grow.

But it was all about the escalating hostilities between the US/Israeli alliance and Iran that grabbed the weekend headlines. Oil soared initially, sparking global inflation fears, and then dumped.

Market sentiment improved after President Trump suggested that the conflict could be nearing completion, while also signalling that the United States could act to ensure oil continues to flow through the Strait of Hormuz.

Corporate earnings also remained in focus. German auto giant Volkswagen reported a 53% year-on-year drop in operating profit, missing analyst expectations. The company attributed the decline to tariff pressures from the Trump administration, currency fluctuations and costs associated with adjusting its Porsche product strategy. In contrast, Swiss chocolatier Lindt delivered stronger-than-expected results.

The US dollar pulled back from its best levels. In the early hours of Monday morning, the cash Dollar Index soared to a three-and-a –half-month high just under 99.50. The move came as investors sought out safety amid lingering geopolitical uncertainty. This came as hostilities intensified and after Iran announced that hardliner Mojtaba Khamenei had replaced his father as supreme leader.

Iran’s Islamic Revolutionary Guard Corps stated that Tehran, not Washington, would determine when the war ends and warned that continued attacks could lead to a blockade of regional oil exports.

At the same time, President Trump reiterated that any attempt to halt oil flows through the Strait of Hormuz would be met with a forceful response from the United States. These developments have helped sustain safe-haven demand for the US dollar, particularly as markets consider the inflationary implications of higher energy prices.

Rising oil costs could complicate the Federal Reserve’s policy outlook by increasing the risk that inflation remains elevated for longer. But these concerns have eased off to some extent. Mr Trump has insisted that the war is nearly over and that shipping would soon pass safely through the Strait of Hormuz. This led to a drop in both oil and the dollar.

Meanwhile, recent economic data has added another layer of uncertainty. The February Non-Farm Payroll report was dire, while the unemployment rate edged higher to 4.4% from 4.3% in January. The mixed data leaves the Federal Reserve facing a difficult balancing act between supporting growth and controlling inflation.

Expectations for Federal Reserve rate cuts have been reduced in recent sessions as the surge in oil prices raises the risk of renewed inflation pressures. Traders are now awaiting the February Consumer Price Index report, which is expected to show headline inflation rising 2.4% year-on-year, while core CPI is projected to increase 2.5%.

A hotter-than-expected reading could strengthen the US Dollar further by reinforcing expectations that interest rates will remain higher for longer.

Meanwhile, the USD/JPY pair retreated from the 158.00 region and drifted back toward the mid-157s after Japan revised its fourth-quarter GDP growth higher. The Japanese economy expanded at an annualised rate of 1.3% in the October–December period, significantly above the initial estimate of 0.2%.

Source: TN Trader

Despite the stronger growth data, gains in the Japanese yen remain limited as traders continue to monitor oil price developments. As one of the world’s largest energy importers, Japan is particularly vulnerable to rising energy costs, which could weaken its trade balance and complicate the Bank of Japan’s policy normalisation efforts.

Gold bulls were somewhat disappointed that the metal failed to soar yesterday as oil prices surged upward to near-four-year highs. In normal circumstances, where gold hadn’t just experienced a parabolic surge to record highs just over a month ago, prices may well have taken off to the upside.

But not now. Instead, gold continues to consolidate, with $5,000 holding as support, while prices continue to run into resistance just below $5,200. Gold has looked a touch perkier this morning. It has built on yesterday’s gains, but it still hasn’t managed to build enough upside momentum to break through resistance.

Source: TN Trader

It has been helped by a pullback in the US dollar, and it is getting some support from persistent geopolitical risks following the escalation in the Middle East. Iranian officials dismissed President Trump’s claims that the conflict could end soon and warned that regional security could deteriorate further if hostilities continue.

Silver outperformed gold throughout yesterday. While gold prices were negative for most of the session, silver rallied, extending its gains for a third consecutive session. It appears to have found some decent support around $80 per ounce, while the upside looks capped to some extent, with resistance building around $90.

Source: TN Trader

The rally follows a period of intense volatility in energy markets that previously pushed both WTI and Brent up to around $116 per barrel. This added to existing concerns around rising inflation and tighter monetary policy, which could result. The latest pullback in oil prices has helped stabilise markets. But concerns about inflation and higher interest rates continue to be voiced.

Higher borrowing costs increase the opportunity cost of holding non-yielding assets such as silver, while a stronger US Dollar and rising bond yields also act as headwinds.

At the same time, ongoing geopolitical risks have continued to support demand for safe-haven assets. Traders remain cautious, however, as sustained high energy costs could weaken global economic growth and thereby reduce industrial demand for silver.

Crude oil was sharply lower this morning. Both front-month WTI and Brent pulled back sharply from the four-year highs hit early on Monday. Both were trading back under $100 per barrel, and both were also significantly below Friday’s closing prices. Oil gapped higher on Sunday night as fears grew that there was unlikely to be a quick end to the war between the US/Israeli alliance and Iran.

Source: TN Trader

Over the weekend, Tehran announced Mojtaba Khamenei as the new supreme leader, replacing his father, Ali, who was killed last week. Mojtaba Khamenei is viewed as a hardliner and therefore unlikely to surrender unconditionally, as demanded by President Trump.

Meanwhile, the Strait of Hormuz remained effectively blocked, with just 10% of the usual traffic daring to sail through the chokepoint. The surge in oil prices saw equities slump and the US dollar rise as investors priced in the possibility of central bank rate hikes as a response to higher inflation. But overnight, President Trump suggested that the war with Iran could end soon.

He also warned that Tehran would face severe retaliation if it attempted to disrupt shipments through the Strait of Hormuz. The waterway remains one of the most important transit routes in the global energy market. It connects major Gulf producers, including Saudi Arabia, Kuwait, Qatar, Iran, Iraq and the United Arab Emirates to international markets.

For now, investors appear to be betting that the situation will soon stabilise and that shipping through the Strait will resume quickly. Should it become apparent that the US can’t ensure that the Strait is back open by the end of this week, then there’s the danger that oil market volatility will resume.

Bitcoin climbed back above $70,000 overnight, bouncing along with other risk assets as markets reversed sharply. Investors took comfort from the pullback in oil prices as both WTI and Brent skidded down below $100 per barrel. This eased fears of an inflation spike that could force central banks to raise rates even as labour markets across the world show signs of deterioration.

Reclaiming the $70,000 level is seen as an important psychological milestone for traders. If Bitcoin manages to hold this level as support on any pullbacks, it could strengthen bullish sentiment and encourage further buying.

Market volatility, as measured by the VIX, eased slightly after the sharp spike seen at the beginning of the week. The March VIX index fell from over 30.0 yesterday to just above 24.0, an overall decline of 20%.

The move follows Monday’s surge above 30.0 at the height of the oil-driven sell-off. The retreat suggests that while geopolitical tensions remain elevated, investors are beginning to price in the possibility that the conflict may end soon. Yet volatility remains well above the calmer levels seen earlier this year, highlighting the fragile nature of current market sentiment.

Markets remain highly sensitive to developments across the Middle East, with oil continuing to dictate the broader tone across global assets. President Trump’s comments suggesting the conflict could end soon have helped stabilise sentiment. But the situation remains fluid. Any disruption to shipping through the Strait of Hormuz could quickly reignite volatility across equities, currencies and commodities.

Investors are preparing for some key inflation updates, with the US Consumer Price Index due tomorrow and the Personal Consumption Expenditures inflation report scheduled for Friday. Corporate earnings from Oracle later this evening will also be watched closely.