Asian Pacific stock indices weaken

US stock indices fell sharply on Friday evening. The move saw around $2 trillion in market value wiped off US equities, with indices having their worst day since April. This was when they tumbled in reaction to President Trump’s reciprocal tariff announcement.

All the majors closed near their lows. The tech-heavy NASDAQ had the worst of it, losing 3.6%. But it was closely followed by the small cap Russell 2000, which dropped 3.0%. The S&P and Dow closed down 2.7% and 1.9% respectively. The trigger for the move was President Trump’s response to news that China was placing fresh restrictions on the export of rare earth minerals and other critical manufacturing materials.

Describing China’s decision as “hostile” and “extraordinarily aggressive”, Mr Trump threatened to pull out of trade talks while announcing a fresh 100% tariff on all US imports of Chinese goods. But sentiment improved over the weekend after Mr Trump posted that the US “wants to help China, not hurt it,” hinting that the fresh tariffs might not be implemented after all.

This shift in tone catalysed a strong rebound in US stock index futures in overnight trade. All the majors gapped higher with the NASDAQ leading the charge, having tacked on around 2% at the time of writing. But the fact that investors reacted so violently to a tariff threat from President Trump suggests that sentiment is somewhat fragile.

Source: TN Trader

US stock indices have steadily ground higher to a succession of all-time highs over the past five months or so. Companies involved in the development of artificial intelligence (AI) have been at the vanguard of these gains. But a flurry of recent deals, including OpenAI’s promised deals with NVIDIA, AMD, Oracle, and CoreWeave, have raised concerns about the circulatory nature of much of recent AI investment.

In addition, it’s currently unclear how OpenAI can afford all its recent commitments. This all comes as the US government shutdown drags into another week. Not only is this affecting the collection and publication of important government data releases, but there are also concerns over what will happen on 15th October, which is a key federal payroll date. Will government workers get paid?  

Meanwhile, earnings season begins in earnest this week, led by major US banks including Citigroup, JPMorgan, Goldman Sachs and Wells Fargo.

European stock indices were firmer across the board this morning, following in the wake of US stock index futures. The latter gapped higher at the start of the week after President Trump toned down his attack on China.

Source: TN Trader

On Friday, US and European equities tumbled after he promised fresh 100% tariffs on Chinese exports to the US. This came after China announced restrictions on the export of rare earth minerals and other critical manufacturing materials, actions which led President Trump to accuse China of being “hostile” and "extraordinarily aggressive".  

China’s Ministry of Commerce countered, saying the US was guilty of a “textbook double standard” following the President’s tariff threat. Beijing went on to announce that it was “not afraid” of a trade war.

Mr Trump toned down the rhetoric yesterday when he took to Truth Social, insisting that "it will all be fine" and calling President Xi "highly respected". He characterised the rare earth dispute as a "bad moment" rather than it being part of a prolonged conflict. Mr Trump hinted that he may not go ahead with his tariff threat, although it remains in place for now. Planned trade talks between the US and China also look likely to go ahead.

The Trump administration has set a deadline of 1st November for the two countries to reach a deal. European investors remain alert to potential ripple effects on the region’s industrial and export sectors, given the bloc’s exposure to global trade.

FX markets were also upended as investors responded to President Trump’s new tariff threat against China. The US dollar fell sharply across the board, while alternative currency havens, such as the Japanese yen and Swiss franc, were major beneficiaries. But it’s unclear whether Friday’s US dollar sell-off has done any structural damage to recent trends.

Last Thursday, the Dollar Index broke above 99.00 for the first time in ten weeks. This represented a gain of over 3.5% from the multi-year low of 95.83 hit less than a month ago. Having had a disastrous year so far, it looked as if the greenback was on a path to recovery. But Friday gave it a bit of a knock. It seems to have steadied this morning and has recouped a decent chunk of its losses.

The next obvious upside target for the Dollar Index is 100.00. It’s probably still fair to say that the US dollar remains the cleanest shirt in the FX laundry bag. The euro is not exactly flavour of the month as the French government struggles to push through a budget to get spending under control.

Meanwhile, the Japanese yen continues to weaken and has given back some of Friday’s gains overnight. Throughout the year, the Bank of Japan (BOJ) had indicated that it was preparing to raise interest rates again. But this hawkishness was dialled back sharply following Sanae Takaichi’s surprise victory just over a week ago to lead the ruling Liberal Democratic Party (LDP). Ms Takaichi is known to favour lower interest rates. But as Komeito, the LDP’s coalition partner, has now left the alliance, she doesn’t have the votes to become Prime Minister.

Source: TN Trader

Precious metals took centre stage overnight. Gold and silver surged to new all-time highs as investors continued to add to their exposure. Gold pushed up to $4,080, getting ever closer to its next upside target of $4,100. 

Source: TN Trader

Silver soared to $51.78 before it pulled back and consolidated. The rally in both metals has become relentless, as recent gains have now extended over multiple sessions and show little sign of fatigue despite being considered extremely overbought. It appears that every event only increases the appeal of both gold and silver.

Source: TN Trader

Certainly, President Trump’s fresh tariff threat increased demand, while prices rose again after he toned down his attack over the weekend. Could this be evidence of a blow-off top? Maybe. So far, there has been no significant pullback, which forces traders who feel underweight in the two metals to pay up as they trade at record levels.

Crude oil slumped on Friday. Prices had already come under selling pressure earlier in the week. This was despite oil gapping higher last Monday after OPEC+ announced an output increase, which was much lower than expected. But traders soon stepped in to take advantage of this brief bounce, as overall the oil market continues to see plenty of additional supply, even as forecasts for future demand growth continue to get dialled down.

President Trump’s threat of fresh 100% tariffs on US imports of Chinese goods came after China said it was imposing restrictions on exports of rare earths and other critical minerals. The move was seen as yet another impediment to global trade, which would rationally lead to a drop in demand for energy products.

Traders rushed to sell oil, and front-month WTI sliced below $60 per barrel and went on to break $58, hitting its lowest level since early May. It has bounced this morning. Even so, sentiment remains fragile, and the market continues to wrestle with the same underlying concerns around global growth and supply imbalances.

Source: TN Trader

Natural gas found some support in early trade this morning, but then prices turned lower once again. The move continues a sharp reversal after recent volatility, highlighting how quickly momentum can shift in this market.

For now, gas appears to be struggling to find a solid footing, with traders cautious and worried about further downside risk. The ongoing weakness comes despite recent attempts at recovery, and the pace of the decline reinforces how sensitive the market remains to shifts in sentiment and positioning. Volatility in gas continues to stand out, with large intraday moves now becoming the norm.

This time last week, Bitcoin topped off a rally which saw it register a fresh all-time high above $126,000. Along with other risk assets, it tumbled on Friday after President Trump threatened fresh tariffs on US imports from China. But it appears to have found some support around $110,000, and prices have recovered somewhat.

Having broken back below $4,000 on Friday, Ether also appears to have found some support. By early afternoon trade in Europe, it was back above the key $4,000 level.

While sentiment in the space remains broadly positive, the lack of momentum suggests that investors are pausing to reassess risk amid wider uncertainty across financial markets. The overall tone is one of quiet consolidation rather than renewed enthusiasm.

Volatility shot higher on Friday, hitting levels last seen around four months ago. The VIX settled down in early trade this morning, falling roughly 6% after Friday’s sharp spike. But it has yet to fall back to levels seen on Thursday, prior to President Trump’s threat of fresh 100% tariffs on Chinese exports to the US. Investors remain wary. 

Traders continue to keep a close eye on developments in Washington and Beijing, as renewed uncertainty could quickly see the VIX move higher again.

Trump’s tariff rhetoric has once again taken centre stage, injecting fresh volatility into global markets. While Friday’s rout rattled investors, the swift recovery in stock index futures suggests that traders remain eager to buy dips, particularly as the third quarter earnings season gets underway and the Fed is still expected to lean dovish.

The dollar remains mixed, precious metals continue to dominate headlines, and increased volatility looks set to persist as long as uncertainty over trade and fiscal policy lingers. With the US government still shuttered and data flow restricted, attention this week turns to bank earnings and whether corporate results can steady sentiment.