Asian-Pacific stock indices slip

US stock futures edged higher in early trade this morning, making back a chunk of Monday’s losses. Yesterday’s selloff, which saw the Dow lose 1.1%, was triggered by escalating tensions across the Middle East. There were concerns that the fragile ceasefire had broken down. These followed reports saying that the US and Iran traded missiles as the US Navy escorted some shipping through the Strait of Hormuz.

Iran is also understood to have launched drones and missiles at the United Arab Emirates, targeting the Fujairah Oil Industry Zone, the largest oil storage facility in the UAE. The US responded by firing at Iranian boats in the Strait of Hormuz, with President Trump claiming that at least six Iranian gunships had been obliterated. Conflicting reports have emerged about the skirmishes.

Despite the uncertainty, US equities continue to get a boost from the first-quarter earnings season. Last week saw five constituents of the ‘Magnificent Seven’ provide updates, and, except for Meta Platforms, these were well received. More generally, 63% of S&P 500 constituents have now announced results. Of these, according to FactSet, 84% have beaten consensus expectations for earnings, while 81% have exceeded revenue forecasts.

Source: TN Trader

Even more impressive is that the year-on-year earnings growth rate is now 27.1%. If this holds up, it will be the strongest earnings growth rate since the fourth quarter of 2021, when corporations were bouncing back after the COVID disaster.

Aside from the US/Iran war and the struggle for control over the Strait of Hormuz, perhaps the biggest uncertainty concerns the Federal Reserve as Kevin Warsh prepares to replace Jerome Powell as Chair.

In an unusual move, Mr Powell has said he will stay on at the Board of Governors. This means that Stephen Miran, President Trump’s ultra-dovish pick, will have to step down. There’s also plenty of speculation about what Mr Warsh will do once in place.

Interestingly, the probability of a 25-basis point rate hike before the year-end has jumped to 24%, from 0% a week ago, according to the CME’s FedWatch Tool. The likelihood of no-change dropped to 66% from 80% over the same period. The President wants the new Chair to push for rate cuts. But with the FOMC more divided than at any time since 1992, he may be disappointed.

European stock indices were firmer this morning. Despite this, they only managed to make back around half of their thumping losses from yesterday. Investors rushed to cut their exposure to European equities due to the sharp escalation in hostilities between the US and Iran yesterday.

Both sides fired at each other as the US Navy escorted shipping through the Strait of Hormuz. Iran declared this a breach of the ceasefire agreement. It also launched a drone attack on the largest oil storage facility in the United Arab Emirates. Meanwhile, the UK’s FTSE 100 reopened after the May Day holiday. It fell around 1% as traders factored in yesterday’s weakness.

Source: TN Trader

The US dollar was firmer across the board yesterday. Investors rushed in to increase their exposure in a ‘flight to safety’ move as the fragile ceasefire between the US and Iran looked as if it had broken down.

Reports suggest that both sides fired on each other in the Strait of Hormuz, while Iran also attacked the Fujairah Oil Industry Zone, the largest oil storage facility in the United Arab Emirates. The cash Dollar Index was little changed in early trade this morning, and holding on to gains made yesterday.

At the same time, investors are pricing in a more hawkish Fed outlook. The probability of a rate hike by year-end has risen to 24%, up from zero a week ago. This follows news last week of the biggest split in opinion at the FOMC since 1992.

While eight members voted to keep rates unchanged, and President Trump’s favourite dove, Stephen Miran, once again voted for a cut, there were three members who wanted the statement strengthened to warn that higher interest rates were also a possibility. This group included Minneapolis Fed President Neel Kashkari, citing elevated inflation risks due to higher energy prices.

Investors are also keeping a close eye on the Japanese yen. Last week, Japan’s authorities intervened to support the yen after the USD/JPY broke above 160.00. Yesterday, Japan’s Finance Minister Satsuki Katayama warned speculators (in other words, sellers of the yen) to be careful, suggesting that the authorities were prepared to intervene further.

Source: TN Trader

Gold and silver sold off sharply yesterday. The move came in response to a resumption, or increase, in hostilities in the Middle East, as fears grew that the US/Iran ceasefire may be in jeopardy. The news led to a rally in the US dollar, which weighed on precious metals.

Source: TN Trader

Both managed to rally in early trade this morning, but they look likely to remain under pressure for as long as the US dollar strengthens and US bond yields continue to rise. The war between the US and Iran, and crucially the ongoing blockage of the Strait of Hormuz, has kept upside pressure on oil prices.

This, in turn, has raised inflation concerns and boosted expectations of higher interest rates. This reduces the appeal of non-yielding assets like gold and silver. As a result, any short-term gains in gold are viewed with caution, with traders waiting for stronger confirmation before positioning for sustained upside.

Silver remains sensitive to both industrial demand and macroeconomic conditions, and rising oil prices have amplified concerns about prolonged inflation. With policymakers signalling a “higher for longer” rate environment, the outlook for silver remains challenging.

Source: TN Trader

Oil prices eased slightly this morning after rallying sharply on Monday. But both front-month Brent and WTI contracts remained stubbornly above $100 per barrel, reflecting growing concerns over the prospect of supply shortages in certain parts of the world. Yesterday, Chevron’s CEO talked to CNBC about growing fuel shortages in some regions.

Source: TN Trader

Yesterday, the US Navy escorted a Maersk tanker through the Strait of Hormuz, an action which, according to Iran, broke the terms of the ceasefire. President Trump warned that any Iranian vessels that fired on US shipping would be obliterated. He also claimed that US forces had destroyed half a dozen small gunships. Meanwhile, Iran attacked the United Arab Emirates’ largest oil storage facility.

In early trade this morning, Bitcoin topped $81,000 to hit its highest level in just over three months. The move marks a notable breakout, with Bitcoin adding 25% from levels hit at the end of March. The gains have been steady and measured, reflecting a growing resilience in the cryptocurrency, which has outperformed both equities and gold during the ongoing Middle East conflict.

Bitcoin’s recent performance suggests it is increasingly being viewed as an alternative asset during periods of geopolitical stress. But it is on course for its sixth successive day of gains, so a pullback does look overdue.

Despite this, if it can hold above key levels and maintain its upside momentum in the face of broader macro uncertainty, there’s a chance that it can attract fresh buying interest, as it has done a good job of shaking off its image as an unruly and high volatility financial instrument.

US stock market volatility remains relatively contained. But the macro backdrop is busy, with key US data including JOLTS Job Openings, ISM Services and housing figures, while Friday’s Non-Farm Payroll report remains the standout event of the week.

Earnings continue to play a role, with companies such as AMD, Pfizer, DuPont and PayPal reporting. Palantir fell 3% following results after last night’s close despite beating expectations. At the same time, geopolitical developments remain front and centre, with uncertainty surrounding the Iran ceasefire and ongoing military tensions in the Strait of Hormuz.

Markets appear to be balancing optimism in equities, thanks to a strong earnings season against rising risks in energy and geopolitics. Oil prices suggest continued strain, while equities remain relatively resilient, for now.