Asian-Pacific stock indices end mixed

The US exchanges were closed for Memorial Day on Monday. But US stock index futures were sharply higher yesterday, as hopes for a diplomatic breakthrough in the Middle East and a pullback in oil prices boosted investor confidence. At one stage, the S&P 500 was up 1% from Friday’s close. But a significant chunk of those gains evaporated overnight following news that the US had carried out attacks on targets in Southern Iran.

Source: TN Trader

Iran’s foreign minister joined Iranian negotiators in Qatar over the weekend. But it appears that the Trump administration was unhappy with the speed of progress, and this is what led to today’s limited attacks. US Secretary of State Marco Rubio said that negotiations were likely to take a few more days.

Despite this setback, futures on the S&P were up around 0.5% from Friday’s close, indicating that investors remain convinced that peace is about to break out. Hopefully so, because there’s very little going on which has the potential to move markets this week. The first quarter earnings season is coming to an end, with 94% of S&P 500 constituents having reported as of Friday’s close.

According to FactSet, the blended year-on-year earnings growth rate for the S&P 500 is 28.4%. If this is maintained, it will mark the highest earnings growth rate for the index since the fourth quarter of 2021, when the world reopened after the Covid shutdown.

Corporations updating this week include Marvell, Salesforce, Snowflake, Costco and Dell. The key data release is Core PCE on Thursday. This has always been known as the Fed’s preferred inflation measure. But new Fed Chair Kevin Warsh is understood to favour a ‘trimmed mean’ version, which tends, typically, to be a smidge closer to the Fed’s 2% target rate.

Mr Warsh has taken on this role at a difficult time. Before the war began at the end of February, the expectation had been that the Fed would cut rates by 50 basis points before year-end. Now, there’s no chance of any rate cuts, with the CME’s FedWatch Tool currently forecasting a 41% probability of a 25-basis point hike this year, along with a 14% chance of a second hike as well.

European stock indices broadly aped US futures markets over the long, Bank Holiday weekend. While the underlying exchanges were closed yesterday, all the corresponding futures markets posted strong gains on Monday as investors put their faith in hearing a positive outcome from US and Iranian negotiations.

Source: TN Trader

But those gains were trimmed back this morning following news that US forces had attacked Iranian targets across Southern Iran. These were understood to include mine-laying vessels as well as missile launch sites around the Strait of Hormuz.

Investors were also monitoring escalating tensions in Ukraine. Russian Foreign Minister Sergei Lavrov reportedly warned the US to evacuate diplomats and citizens from Kyiv ahead of further strikes on the Ukrainian capital.

The US Dollar Index gapped lower on Monday. Investors unwound some of their ‘safety trades’ following speculation that the US and Iran were closing in on a deal to bring an end to the war, which has just entered its seventeenth week.

President Trump insisted that talks with Iran were “proceeding nicely,” although he warned that Washington could resume military action if negotiations collapse. And while there’s no confirmation that they have collapsed, there is some evidence that they’re not proceeding at a fast enough pace for the Trump administration.

Overnight, US forces attacked Iranian targets across Southern Iran, including mine-laying vessels as well as missile launch sites around the Strait of Hormuz. Iran is yet to respond officially. But there have been reports that the US responded to threatening action from the Islamic Revolutionary Guard Corps. As far as negotiations were concerned, Iran’s Foreign Ministry said that progress had been made, but no breakthrough had been reached.

Meanwhile, persistent inflation concerns continue to strengthen the case for a more hawkish Federal Reserve stance. This is supporting the dollar currently, even as other major central banks such as the ECB, BOJ and BOE are also expected to raise rates this year to try and stem inflationary pressures.

The USD/JPY pair pushed back above 159.00. But gains remained capped to some extent as the pair crept ever closer towards 160.00 on fears of intervention to support the yen, and as investors still believe a diplomatic agreement between Washington and Tehran remains possible.

Source: TN Trader

As the Asian Pacific session opened overnight, gold pushed up to hit $4,580, its best level since this time last week. But since then, it has pulled back sharply, once again a victim to a ‘risk-off’ rally in the US dollar.

Source: TN Trader

The precious metal continues to struggle to maintain upside momentum as dollar strength and rising rate expectations weigh on prices. After a long weekend of growing optimism, in which investors managed to convince themselves that an end to the US/Iran war was imminent, the situation suddenly changed.

This followed the news that the US had attacked Iranian targets in the south of the country. Details were sketchy, but it appears that the US responded to hostile action from Iran’s Islamic Revolutionary Guard Corps by attacking missile-launching sites and mine-laying vessels around the Strait of Hormuz.

But a sharp drop in bond yields this morning is helping to calm nerves following last week’s jump in US borrowing costs. Investors also expect at least one Fed rate hike in 2026, according to CME FedWatch data.

Silver also came under sustained selling pressure overnight. It broke below $76 per ounce on a couple of occasions. But it looks as if there’s currently some buying interest around this level.

Source: TN Trader

Yet again, silver and gold both find themselves inversely correlated to the US dollar. This isn’t always the case, and great care must be taken when considering such correlations, as they invariably break down. But in the current environment, precious metals are out of favour as ‘safe havens’ even as geopolitical risk remains elevated.

That role is currently filled by the dollar, which continues to find a bid on the prospect of rate hikes later this year on upside inflationary pressures. These continue to build due to the war and higher energy costs.

Oil prices gapped lower when they reopened on Sunday night. Traders rushed to cut their long side exposure on increased speculation that the US and Iran were close to agreeing on a deal that could bring an end to the war. The Trump administration made several encouraging noises over the long weekend to keep those hopes alive. But Iranian voices were far more circumspect.

They said that progress had been made, yet the two sides were still far from reaching a mutually acceptable agreement to end hostilities. That was brought into stark relief this morning after the US reported that it had attacked several Iranian targets in and around the Strait of Hormuz. These included missile launch sites and mine-laying vessels.

Despite this setback, front-month WTI and Brent were only a touch firmer this morning, and both contracts were trading below $100 per barrel.

Source: TN Trader

Over the weekend, Bitcoin briefly dropped below $75,000 before it found significant buying interest. It has struggled to regain momentum after failing to sustain gains above $82,000 from earlier this month.

Despite this, the price action since Saturday looks quite constructive from a bullish perspective. There has not been a significant breach of support around $75,000 as yet. And there does appear to be some decent buying interest at current levels. The next big test is to see if it can break back and hold above $80,000.

The daily MACD has reset to neutral levels. But there’s always a danger that Bitcoin reverts to its behaviour patterns prior to the war, and correlates to other headline risk assets like tech stocks.

Investor sentiment continues to hinge largely on developments in the Middle East, with markets reacting to every headline surrounding US-Iran negotiations.

While optimism around a potential peace deal has supported equities and reduced volatility in some asset classes, geopolitical risks remain elevated. The ongoing standoff over Iran’s nuclear programme and the Strait of Hormuz continues to threaten global energy supplies and inflation expectations.

Markets are also preparing for key US economic data later this week, including an update to GDP and inflation figures on Thursday. Despite signs that inflation pressures remain elevated, equity markets have largely shrugged off the risk of higher interest rates for now.

For the moment, investors appear willing to maintain risk exposure, although the broader market environment remains highly headline-driven and vulnerable to sudden shifts in sentiment.

* The information provided does not constitute investment advice nor take into account the individual financial circumstances or objectives of any investor. Any information that may be provided relating to past performance is not a reliable indicator of future results or performance.