Asian-Pacific indices rally on peace hopes

US stock index futures were firmer in early trade on Friday, adding to gains made yesterday. Last night, the Dow posted a new all-time high. All the majors are on course for another positive week, despite a very rocky start.

Last Thursday, the NASDAQ and S&P 500 posted fresh all-time highs, while the Dow closed above 50,000 for the first time in over three months. But they pulled back sharply the next day and continued to struggle in the early part of this week. The S&P lost around 180 points (2.4%) from last week’s high to its lowest point on Tuesday.

Source: TN Trader

Investors were rattled by a surge in US Treasury yields on hotter-than-expected inflation data. There was also disappointment over a lack of concrete progress following President Trump’s trip to China. This added to fears that the war between the US and Iran continues to drag on, and that oil prices remained stubbornly high with the Strait of Hormuz still controlled by Tehran.

Yet since Wednesday morning, US equities have staged an impressive recovery, driven by a significant fall in yields as bond prices have recovered. The yield on the 30-year Treasury Bond topped 5.19% at the beginning of the week, hitting its highest level since 2007, just ahead of the Great Financial Crisis.

This morning, it had dropped back to 5.09%. Likewise, the yield on the 10-year Treasury Note jumped close to 4.70%, hitting its highest level since February last year. This morning, it was trading around 4.57%.

Yet bear in mind it was below 4.0% before the US attacked Iran in late February. The war will have been in progress for three months come this weekend. That is far longer than the consensus view when it started, which was around six weeks. There’s been some chatter that there’s been some positive movement diplomatically. That’s possibly what investors are positioning for – hoping for some good news over the long weekend.

That may help the S&P and NASDAQ push up further towards all-time highs. But there’s also the real danger that nothing is agreed. That would mean a continuation of the war, with oil prices helping to push up inflation expectations and bond yields.

Meanwhile, NVIDIA’s first quarter results came and went. The chip giant beat on every metric, yet the share price has merely drifted since. Could that be an indication that investors have become too blase over the outlook for corporations at the forefront of AI development? Or is it that there’s more fun to be had in other semiconductor stocks for now?

In other news, President Trump will swear in Kevin Warsh as Federal Reserve Chairman today at the White House. The probability that the Fed will be forced to raise rates by 25 basis points before the end of this year has risen to 41%, from zero this time last month.

European stock indices opened higher on Friday as investors balanced reports of improving sentiment around US-Iran negotiations against ongoing concerns over inflation. But all the majors had pulled back from earlier highs by the early afternoon.

Source: TN Trader

The UK’s FTSE 100 was unchanged by lunchtime. Earlier in the day, UK Retail Sales came in well below forecasts, dropping 1.3% in April after rising 0.6% in March.  

Meanwhile, government borrowing reached £24.3 billion in April, exceeding official forecasts by £3.4 billion, while the budget deficit climbed to £17.4 billion, thereby highlighting mounting fiscal pressures. Germany’s ifo Business Climate Survey came in a tad better than expected, bouncing back after last month’s update was considerably weaker than anticipated.

The US dollar continues to show resilience as geopolitical uncertainty, hotter-than-expected inflation data and stubbornly high energy prices all band together to raise US interest rate expectations for the rest of this year. This rather counters the current confidence that investors are displaying towards US equities. But it has proved more than necessary to keep the cash Dollar Index trading around 99.00.

The greenback has put in a solid performance over the past fortnight, and it now appears to be taking a bit of a breather. It has shown signs of consolidating around 99.00 for the past week. If so, then this should help it rebuild its upside momentum and give it sufficient energy to push up to test serious resistance at 100.00.

The alternative is that the Dollar Index has already run into resistance and that it is struggling to break free of 99.00 on a protracted basis and in a significant manner.

Later today, President Trump will swear in Kevin Warsh as the Federal Reserve’s next Chairman. Mr Warsh is replacing Jerome Powell at a critical time for the US central bank. He is the President’s preferred choice, having previously burnished his dovish credentials and, like Mr Trump, indicated that he wants to see lower interest rates.

Yet he joins as upside inflation pressures are building, even as economic growth and the labour market look relatively healthy. This will make it very difficult for Mr Warsh to argue for looser monetary policy, assuming that’s his aim.

In addition, the FOMC’s April meeting demonstrated a clear division between the members, indicating less consensus than at any time since 1992. According to the CME’s FedWatch Tool, the probability of a 25-basis point rate hike in 2026 now stands at 41%, up from zero last month. Bear in mind, investors were forecasting 50-basis-point-worth of cuts at the beginning of this year.

The USD/JPY pair appears to be bedding in above 159.00, not a million miles below 160.00 - the level which is thought to have triggered intervention to support the yen at the end of April. Investors monitored developments surrounding the Middle East conflict and shifting expectations for central bank policy.

Source: TN Trader

Japan’s Core (ex-food and energy) National CPI slowed to 1.4% year-on-year last month, reinforcing expectations that the Bank of Japan may remain cautious about tightening monetary policy further. Earlier today, Bank of Japan Governor Kazuo Ueda met with Prime Minister Sanae Takaichi to talk about monetary policy. Mr Ueda declined to answer press questions about the likelihood of a rate hike in June.

Gold prices met some selling pressure on Friday morning, thanks to continued US dollar strength and elevated Treasury yields. The precious metal had bounced off the seven-week low just above $4,450 hit on Wednesday. Yesterday, it got up to $4,570 before concerted selling pushed it back towards $4,500 this morning.

Source: TN Trader

Last week’s hotter-than-expected US inflation numbers boosted speculation that the Federal Reserve will turn increasingly hawkish, particularly if the war between the US and Iran drags on into the summer.

This weekend will see the war complete its third month, and energy prices remain elevated. Investors have now fully priced out the possibility of Fed rate cuts for the remainder of 2026 and are increasingly expecting at least one rate hike before year-end.

Silver prices edged lower on Friday after recording gains during the previous two sessions. Higher oil prices linked to the effective closure of the Strait of Hormuz by Iran have raised concerns that inflation could remain elevated for longer. This has increased the likelihood that the Federal Reserve will maintain restrictive monetary policy, rather than loosening it as forecast earlier this year.

Source: TN Trader

In fact, it now looks increasingly unlikely that the new Fed Chair, Kevin Warsh, who will be sworn in later today, will be in any position to even argue for rate cuts anytime soon. This may not please President Trump, who had put enormous pressure on Jerome Powell to slash rates to goose an economy already awash with fiscal stimulus through Trump's tax cuts.

Over recent weeks, Fed members have made it clear that additional tightening could become necessary if inflation does not moderate.

Oil prices were a touch firmer on Friday morning following a significant pullback over the preceding two sessions. Traders were searching for solid news after a surge of conflicting headlines emerged over the state of Iranian peace negotiations.

Source: TN Trader

Recent reports have suggested that a peace agreement between the United States and Iran was close. Although it appears that there is still significant disagreement concerning what happens to Iran’s existing uranium stockpiles. The mood wasn’t helped by reports that Iran could implement a toll system for shipping through the Strait of Hormuz.

Meanwhile, Fatih Birol, executive director at the International Energy Agency (IEA), warned that global oil markets are approaching a “red zone”. Supply disruptions persist, even as the last ships to pass through the Strait of Hormuz ahead of the war disgorge their cargoes, and as the positive effects of increased supply from strategic petroleum reserves fade. This is happening as demand starts to pick up as the holiday season approaches.

Bitcoin remained under pressure on Friday, dropping back below the $78,000 level and giving back some of the gains made since Tuesday. Market analysts noted that recent ETF outflows continue to weigh on sentiment, with many investors using short-term rebounds as opportunities to reduce exposure rather than accumulate positions.

Some analysts believe capital has rotated away from cryptocurrencies and into high-performing semiconductor and artificial intelligence-related stocks, leaving digital assets struggling to regain momentum. Despite this, Bitcoin was trading comfortably above its first significant area of support around $75,000.

Investor sentiment improved as this week progressed, as investors priced in the possibility that the worst of the Iran conflict may be over. However, conflicting headlines from Tehran continue to create uncertainty and keep markets highly reactive to geopolitical developments. Investors will be wary about taking on excessive exposure ahead of the long weekend.

Oil prices remain central to the broader market narrative, with investors closely monitoring any developments surrounding the Strait of Hormuz and future supply disruptions. At the same time, inflation concerns and elevated bond yields continue to shape expectations for global central banks, particularly the Federal Reserve.

Despite the volatile and choppy trading conditions seen throughout the week, equity markets continue to display resilience, with the bulls apparently back in control, for now.