Asian-Pacific weakness

Yesterday, all the US majors ended the session little changed but with a slight negative bias. Despite this, they are all on course to post a strong performance over April with the tech-heavy NASDAQ and S&P 500 close to all-time highs. Both the Dow and small-cap Russell 2000 remain a bit adrift of their own record levels.

Source: TN Trader

The Federal Reserve held rates steady at 3.50%–3.75% in an 8–4 vote, marking its most divided decision since 1992. The accompanying statement cited inflation due to the war between the US and Iran as the chief concern.

The overall economy and labour market were both considered to be in decent condition. This was Jerome Powell’s last meeting as Chair, although he will stay on as a governor until the Department of Justice concludes its investigation into the refurbishment overspend on the Fed’s Marriner Eccles building. This means that once Kevin Warsh takes over as Chair, Stephen Miran, a recent Trump pick, will have to vacate his governor’s seat. Politics.

The CME’s FedWatch Tool put the probability of no change in rates this year at 89% following yesterday’s Fed announcements, up from 76% yesterday. There’s also a 1-in10 chance that the Fed may hike rates in 2026.

US stock index futures fluctuated overnight with a slight negative bias in mid-morning London trade. But futures subsequently turned positive after some encouraging first-quarter earnings updates from Caterpillar and Eli Lilly.

Last night saw earnings reports from four members of the ‘Magnificent Seven’ after last night’s close. Meta Platforms was down over 8% this morning as it announced disappointing user growth along with concerns over its higher-than-expected capital expenditure plans.

Alphabet rallied over 6% as it beat estimates and released a positive outlook on cloud revenues. Microsoft was a touch softer despite strong results, which included a 40% surge in Azure revenue. Amazon was up around 2.5% after it also highlighted continued strength in cloud computing.

Apple will report after tonight’s close, while investors must wait until 20th May for the last Mag 7 update from the world’s most valuable stock by market capitalisation, NVIDIA.

Today also sees some key economic data releases, including Advance GDP, weekly Unemployment Claims and the Fed’s preferred inflation measure, Core PCE.

European stock indices were sharply lower first thing but managed to recover most of these losses as lunchtime approached. Oil and gas stocks were major gainers, and this helped the UK’s FTSE 100 to buck early negative sentiment and tack on 1% by midday.

Source: TN Trader

Both BP and Shell put in a solid performance, lifted by continued strength in crude oil prices. This followed reports that the US military was ready to brief President Trump on his options in renewing hostilities against Iran. This would suggest an end to the current, fragile ceasefire, suggesting prolonged supply disruptions.

The Strait of Hormuz remains restricted to most shipping and in Iran’s control. But the ongoing US blockade of Iranian ports across the region is also biting. European indices also got a lift as the Dow suddenly soared. This came after Caterpillar, one of its major price-weighted constituents, released a strong set of Q1 results.

Attention now turns to central bank decisions from both the European Central Bank and the Bank of England, with no rate changes expected, but forward guidance and inflation expectations are in focus.

Overnight, the US dollar made gains across the board. Once again, investors rushed in to increase their exposure to the greenback on a flight to safety. This came as oil prices soared, with June Brent back at levels last seen in the summer of 2022, soon after Russia’s invasion of Ukraine.

The cash Dollar Index pushed up towards 99.00 to trade at a near-four-week high. Yesterday evening, the Federal Reserve held rates unchanged, as expected. But some analysts called it a ‘hawkish hold’ and the probability of no change in interest rates this year quickly rose to 89% from 76%.

Fed Chair Jerome Powell warned that near-term inflation expectations are rising and confirmed he will remain on the Board of Governors even after his term as Chair ends.

The USD/JPY soared overnight, smashing through 160.00 to hit its highest level since June 2024. This move triggered a response from Japan’s Finance Minister, Ms Katayama, when she said the time was getting close to take bold action in FX.

This led to an extraordinary selloff in the USD/JPY as traders rushed to cover their short positions in the Japanese yen. The pair fell below 157.00 for a high-to-low move of close to 10%.

Source: TN Trader

Gold rebounded today. On Wednesday afternoon, it came within a few dollars of $4,500 per ounce. It found some buying interest down there but ran into some resistance around $4,550. It wasn’t helped by some overnight dollar strength, as the monetary policy statement from the Federal Reserve highlighted the FOMC’s concern over building inflationary pressure due to higher energy prices from the US/Iran war.

But the dollar suddenly reversed direction after Japan’s Finance Minister bluntly stated that it was nearing the time for intervention to support the yen. The USD/JPY dropped close to 10% in a few hours, helping to push gold back up towards $4,650. But the broader backdrop remains restrictive.

Source: TN Trader

The Fed’s hawkish stance, combined with rising energy prices and geopolitical uncertainty, continues to limit the upside for non-yielding assets such as gold and silver. Traders have scaled back expectations for rate cuts, and there’s now a 10% chance of a 25-basis point rate hike before year-end.

It was a very similar story for silver. Higher oil prices and reduced expectations for rate cuts are weighing on the metal. The Fed noted its caution about increased inflationary pressures, and this has lessened the likelihood of a rate cut before the end of this year.

Source: TN Trader

Overnight, both Brent and WTI crude oil hit their highest levels since June 2022, just a few months after the Russian invasion of Ukraine. Last night’s surge reflected deepening concerns around near-term supply on fears that the fragile US/Iran ceasefire may not hold much longer. This follows reports that the US may consider resuming military action against Iran.

Source: TN Trader

Flows of shipping through the Strait of Hormuz have effectively ceased, while Tehran still controls the route. In retaliation, the US Navy continues to blockade Iranian ports in the region. It sounds as if this may be proving effective. But there also appears to be an increased urgency from the Trump administration to bring things to a head.

Despite this, both WTI and Brent continue to show a steep backwardation across the forwards going into year-end. This indicates that oil traders expect prices to fall once hostilities conclude.

This backwardation steepened yesterday after the UAE announced that it was leaving OPEC tomorrow after 60 years. This will allow it to increase production, which may go some way to offsetting the economic damage done to the country since the outbreak of the war at the end of February. 

Yesterday evening, Bitcoin briefly dropped below $75,000 before snapping higher again. The drop coincided with the Fed’s announcement that it was keeping its interest rates unchanged, although there were four FOMC members who dissented from agreeing to the released statement, the biggest level of opposition since 1992.

Bitcoin continues to trade below $80,000. Having come close to this level just over a week ago, it has pulled back modestly. It is too early to know if this marks a top for Bitcoin, given its strong rally over the last month, or if this is simply a much-needed period of consolidation ahead of another attempt to push past resistance at $80,000.

Volatility remains relatively contained, which is helping to encourage investor risk appetite. Earnings continue to drive short-term direction, and Apple will update the market after tonight’s close. US stock index futures firmed up after a weak overnight session, while the Fed’s latest meeting, marked by its largest dissent amongst FOMC members since 1992, reinforces uncertainty around the policy path.