Selloff across Asian-Pacific markets

US stock index futures fell sharply late Wednesday as oil prices resumed their surge in extended trading. The rebound in crude exacerbated concerns over higher inflation and what that could mean for the prospect of further monetary loosening. The S&P 500 retested support around 6,700 during the Asian Pacific session. But US futures then rallied off their overnight lows, reducing their early losses as Europe opened for business.

Source: TN Trader

Yesterday, the Dow, S&P 500 and Russell 2000 all ended down, while the tech-heavy NASDAQ eked out a gain of 0.1%. So far today, it is the small cap Russell which is showing the most weakness. Investors were rattled by news of Iranian attacks on oil tankers and energy infrastructure across the region.

This saw crude oil rally despite announcements from both the International Energy Agency (EIA) and the US government that they had decided to tap key reserves to provide a supply boost. The IEA said it would release 400 million barrels of crude oil from emergency reserves to offset supply disruptions linked to the Iran conflict. This would represent its largest release in the IEA’s history.

Meanwhile, the US Energy Secretary, Chris Wright, confirmed the release of 172 million barrels from the Strategic Petroleum Reserve. But there was no clear timeline for when the additional supply would reach markets.

In addition, these are effectively ‘one and done’ decisions as strategic reserves aren’t bottomless. In some respects, the news was negative for markets as it suggested some panic as hostilities across the Middle East intensified.

Technically, US stock indices remain in limbo. Looking at the S&P 500, support at 6,700 held overnight, and the market has not yet retested Monday’s low just south of 6,600. The bears need to get the index down further to retest the November low around 6,500 to really get the ball rolling. These levels seem a long way away. Yet the index appears to be rolling over, which makes a rebound to all-time highs around 7,000 an even trickier task.

European stock indices were mixed in early trade on Thursday. As with the US and Asian Pacific markets, traders had to consider the economic impact of rising oil prices amid growing concerns that the US-Israeli war with Iran may not prove to be a short one.

Source: TN Trader

Yet many will still be worried about cutting their exposure to equities aggressively, let alone shorting the market. Many will be considering how buying the dip has proved highly profitable over the past three years or so, as they look ahead and speculate that, despite some military setbacks, the war could still end quickly. If that were the case, then traders wouldn’t want to be on the wrong side of a swift, short-covering, risk-on rally.

As if waging another war in the Middle East wasn’t enough, the Trump administration announced new trade investigations targeting the European Union and more than a dozen other economies. It is utilising a legal mechanism that allows the United States to impose tariffs on imports from countries deemed to have engaged in unfair trade practices.

FX was relatively subdued this morning as traders took a breather following yesterday’s sharp moves. On Wednesday, the US dollar jumped in response to news of Iranian attacks on shipping in the Persian Gulf, while the Strait of Hormuz remains closed. Oil prices rallied, despite announcements by both the International Energy Agency and the US Energy Department of significant releases from strategic reserves.

Source: TN Trader

Overall, the major takeaway is that there’s no sign that the war between the US/Israel and Iran will reach a conclusion anytime soon. This could be the darkness before the dawn, but for now, there’s a general move to derisk now and ask questions later. The Dollar Index was a touch weaker in early trade on Thursday. But it was still hovering above 99.00.

The dollar is acting as the big ‘flight to safety’ trade. But it would take a significant break above 100.00 on cash to suggest that a significant bottom is in for the greenback.

Meanwhile, the Japanese yen continues to come under pressure. The USD/JPY pushed above 159.00 overnight, hitting its highest level in two months. This yen weakness is once again creating issues for both the Bank of Japan and Prime Minister Sanae Takaichi.

How this will resolve is far from clear. But if the USD/JPY heads up towards 160.00 again, then speculation will intensify over the likelihood of intervention to strengthen the yen.

Yesterday’s US inflation update showed consumer prices rising 0.3% month-on-month and 2.4% year-on-year in February, broadly in line with expectations. Core CPI, which excludes food and energy, increased 0.2% monthly and 2.5% annually.

While the figures suggest inflation remains relatively contained for now, analysts note that they do not yet reflect the latest surge in oil prices driven by the Middle East conflict. Market participants are now focused on tomorrow’s Core Personal Consumption Expenditures report, the Federal Reserve’s preferred inflation gauge.

Gold has made a couple of attempts to hold above $5,200 this week but has failed on both occasions. It got up to $5,223 in the early hours of yesterday morning but then drifted down for the rest of the session, ending on its lows around $5,130.

It has picked up a touch this morning, but so far, there doesn’t appear to be much conviction amongst buyers. This is despite Iran’s Islamic Revolutionary Guard Corps announcing joint military operations with Hezbollah targeting locations in Israel, Jordan and Saudi Arabia.

Overall, gold remains rangebound, with $5,200 offering resistance and support coming in at $5,000. That support has yet to be tested this month. But the danger for the bulls is that another failure to take out resistance significantly could lead to sentiment turning negative.

Source: TN Trader

While geopolitical risks may help underpin gold to some extent, rising US Treasury yields could limit further upside if inflationary pressures force the Federal Reserve to tighten monetary policy.

Like gold, silver is also rangebound currently. On Tuesday, it attempted a break above resistance at $90 per ounce. But this failed, and the rejection saw silver drop steadily throughout yesterday’s session until it found some support around $84.

Silver found some buyers at this level, and it has picked up nicely overnight. But there is still room to the downside as $80 remains the most significant level of near-term support. There may well be some short-term trading opportunities within this range. But these are high risk, given the tendency of silver to move violently without any warning.

Source: TN Trader

Crude oil rallied sharply yesterday in a move which continued into this morning. Front-month WTI and Brent began today, coming within a few cents of $95 and $100, respectively. They subsequently pulled back a touch, but prices remain elevated.

In early European trade, both contracts were trading above Friday’s close, before they gapped up over the weekend. Energy markets have been rattled by news of Iranian attacks on shipping in the Persian Gulf, along with missiles aimed at countries across the region.

Source: TN Trader

Meanwhile, the Strait of Hormuz remains effectively closed to all shipping, thereby choking off 20% of the global supply of crude oil and Liquefied Natural Gas. The reality of the situation undermines President Trump’s assertion at the beginning of the week that the war had already been won.

The US’s inability to reopen the Strait of Hormuz and provide security for the shipping passing through suggests that there are limits to their dominance. And Iran’s military, far from being wiped out by an unprecedented and relentless bombing campaign, can still strike back, just as the mullahs threatened.

Traders were unimpressed when both the International Energy Agency and the US Energy Department announced the release of 400 million and 172 million barrels of crude from their respective strategic reserves. If these announcements were supposed to cap prices, then they failed dismally. And that ship has now sailed, just like HMS Dragon. Strategic reserves aren’t bottomless pits after all.

Bitcoin was a touch softer overnight but was still trading north of $70,000 in early European trade. It is proving to be quite resilient, given the ongoing shakeout across risk assets as the US/Israeli war with Iran approaches the end of its second week.

It continues to consolidate within a relatively tight range, which has held for over a month now. This is despite another oil price spike overnight, and as the Strait of Hormuz remains closed to traffic.

Bitcoin has not yet been able to break out above $70,000 convincingly, despite its daily MACD, which shows that upside momentum continues to build from the oversold levels which were prevalent four weeks ago.

Yesterday’s US CPI update showed consumer prices rising 2.4% annually in line with expectations. Yet the data collected for this release didn’t include the sharp rise in energy prices which followed the US/Israeli attack on Iran at the beginning of March.

Market volatility remains elevated as geopolitical tensions continue to dominate global sentiment. The March VIX was hovering around the 25.00 level this morning, signalling increased uncertainty across financial markets. Although the index remains below this week’s high, just above 30.00, it continues to reflect heightened nervousness among investors as markets react to rapidly evolving developments in the Middle East.

Investors remain focused on geopolitical developments and energy markets, with oil prices continuing to dictate short-term market direction. Reports that Iran may continue targeting shipping in the Strait of Hormuz and warnings of potential $200 oil have added to the uncertainty, particularly after attacks on regional energy infrastructure, including a Bahraini facility.

Markets will also watch incoming economic data, including today’s US Unemployment Claims and tomorrow’s Core PCE update. Despite steady US inflation data earlier in the week, the recent surge in oil prices may yet feed into future price pressures. With futures pointing lower and geopolitical risks still escalating, traders are likely to remain cautious in the near term as energy markets and conflict developments continue to dominate sentiment.