Most Asian Pacific markets closed

US stock index futures were lower in early trade as Wall Street returned from the Presidents’ Day holiday. The losses were led by the tech sector, with ‘Mag 7’ and semiconductors mostly negative overnight. But most then traded off their lows as the European session progressed. The weakness followed a fortnight of losses for the S&P 500, with AI-related disruption fears weighing heavily on sentiment across multiple sectors.

Last week, the S&P 500 and Dow both fell over 1%, while the Nasdaq dropped over 2%. This marked the tech-heavy index’s fifth straight weekly decline, its longest losing streak since 2022.  Investors brushed off Wednesday’s relatively strong Non-Farm Payroll report and the softer-than-expected CPI data from Friday.

Source: TN Trader

Attention now turns to the Federal Reserve meeting minutes on Wednesday and Friday’s Core PCE inflation update. On the earnings front, Palo Alto Networks reports after the bell on Tuesday, with DoorDash, Walmart, and Wayfair due later in the week.

Overall, there has been a decline in upside momentum across the US majors since the beginning of this month. Many big tech and certain AI-related stocks have taken a hit as investors continue to question the likely return on investment.

The spending commitments are so large that many cash-rich corporations have halted share buybacks. Some have issued more stock, and others have turned to debt markets to raise funds for AI investment.

Meanwhile, software companies have come under scrutiny as investors question their business models, given growing competition from AI. The S&P 500 remains stuck under 7,000.

While there has been no significant break of support so far, investors appear wary of adding to their exposure at current levels. They seem to be sitting on their hands and waiting for a catalyst which will either provide a reason to sell or be the trigger to reload and thereby restart the bull market.

European stock indices were mixed in early trade on Tuesday. The early tone follows cautious trading on Monday as investors digested developments from the Munich Security Conference and declines across US stock index futures. But with volumes light due to holidays across the US and Asian Pacific regions, European investors chose not to read too much into Monday’s price action.

Data from the UK this morning showed a jump in the Claimant Count while the Unemployment Rate ticked up to a five-year high of 5.2%. In addition, there was a significant drop in the Average Earnings Index.

Put these numbers together, and traders saw an increased probability of further rate cuts from the Bank of England, with the first likely to come next month. This helped lift the FTSE 100, while sterling sold off.

Source: TN Trader

Meanwhile, German inflation rose to 2.1% in January from 1.8%, reinforcing the view that price pressures are firming at the start of the year, though the data did little to shift ECB expectations. In contrast, the ZEW Economic Sentiment Surveys for both the Eurozone and Germany inched down from last month’s readings, while coming in significantly below expectations.

Sterling came under heavy selling pressure after UK data showed a sharper-than-expected deterioration across the labour market. The British pound fell to 1.3550 against the US dollar following the release.

Source: TN Trader

But by mid-morning in Europe, it had recovered a touch and was trading around 1.3600. This still represented a decline of around 2% from the highs hit at the end of last month. The Unemployment Rate rose to 5.2% from 5.1% to register its highest level in nearly five years, while wage growth slowed materially. This should encourage the Bank of England (BoE) to ease monetary policy further, particularly given last week’s weak GDP data.

Markets are now fully pricing in a 25-basis point rate cut from the BoE next month, with expectations for a total of two cuts this year. The softer UK outlook has also pushed EUR/GBP higher, with the pair trading above 0.8700.

The Japanese yen was stronger across the board, making back most of yesterday’s losses, which followed a poor GDP update. Otherwise, the US dollar was little changed, with the Dollar Index still hovering around 96.00.

Gold fell sharply overnight. It had drifted lower throughout Monday afternoon, falling back below $5,000 per ounce. But the selling accelerated during the Asian Pacific session, with prices dropping towards $4,850 before buyers reemerged. The selloff came during an extended period of market illiquidity due to holidays across the US and Asian Pacific regions.

So, traders will be paying close attention as the US markets reopen later today. Could this early weakness be a precursor to a larger pullback, or will it be viewed as a significant buying opportunity? Perhaps we’ll know more once the US exchanges reopen in an hour or two.

Source: TN Trader

It should not come as a surprise to anyone who has followed precious metals recently that silver’s price action proved more extreme than gold’s. Once again, silver overshot to the downside, breaking below $73 per ounce before some modest buying offered up some support.

Source: TN Trader

While silver’s price swings have been less violent than the ones witnessed just a few weeks ago, that’s not really saying very much. Those were extraordinary circumstances as the price corrected following an epic multi-generational blow-off top.

Now gold’s unruly sibling is doing what it is known for: exhibiting oversized intra-day volatility as traders knock it around as they attempt to find clear areas of support and resistance. That could mean that $70 is retested soon, or that dip buyers come in to take advantage of lower prices once the US reopens.

Sentiment remains uncertain and skittish. The bulls are wary of getting burnt again, while the bears can’t be sure that the highs are in.

Crude oil was little changed in subdued trade this morning. Front-month WTI was trading just south of $64 per barrel, having fallen below $63 overnight.  Volumes remain thin due to holiday conditions across Asia and the US, and this helped to keep price action contained within February’s range.

Source: TN Trader

The focus remains squarely on geopolitical developments, with US-Iran talks taking place in Geneva, as are peace negotiations between Russia and Ukraine, with the US in attendance too. Over the weekend, President Trump expressed a preference for regime change in Iran.

Meanwhile, Russia unleashed an overnight bombardment on Ukraine's energy infrastructure ahead of discussions due to take place today. There are also reports which suggest OPEC+ may resume output hikes from April in anticipation of stronger summer demand. This prospect has capped rallies despite the heightened military presence in the region and continued uncertainty around negotiations.

Bitcoin continues to trade above recent lows, but there is still scant evidence of a strong increase in demand. February marks the fifth consecutive month of red candles for Bitcoin, while ‘whale’ inflow data points to persistent selling pressure. Elevated historical volatility suggests that the risk of sharp price swings remains high.

For now, moves across cryptocurrencies remain closely tied to broader risk sentiment, with traders cautious amid ongoing equity market uncertainty.

The VIX continues to climb and is now up around 14% in just over a week. Investors are increasing their hedges against further equity downside. With US stock index futures drifting lower, sentiment appears fragile.

Markets are considering last Friday’s inflation print and why it offered equities little in the way of support. With AI disruption concerns resurfacing and central bank policy firmly in focus, traders are defensive as the week unfolds.

Markets face a busy macro backdrop with Federal Reserve speakers dominating the agenda. Earnings remain light, keeping the focus firmly on policy signals and inflation dynamics. Despite Friday’s inflation print, price action suggests the better-than-expected data has been largely shrugged off.

In rates, the latest UK labour numbers have increased the likelihood of two 25-basis point rate cuts from the Bank of England this year, which is weighing on sterling. Metals are also under pressure, reflecting both the small bid under the dollar and a cautious risk tone. Elsewhere, Bank of America has flagged the AI bubble as the biggest risk to markets, a reminder that stretched positioning remains a vulnerability.

On the corporate front, French prosecutors have opened investigations into Danone and Nestlé over contaminated baby formula. Futures point lower following the Monday holiday, suggesting risk appetite may be tested as the week unfolds.