Asian-Pacific indices mostly lower

US stock index futures were sharply lower on Wednesday. The US military responded to an attack which brought down one of its Apache helicopters patrolling the Strait of Hormuz. Tehran has not claimed responsibility.

But the US launched military strikes against Iran, thereby raising concerns about the future of the fragile ceasefire, which has just about held since early April. This escalation threatens to upend peace negotiations between Washington and Tehran. That means that the Strait of Hormuz will remain closed to most shipping and controlled by Iran.

This morning’s US selloff has once again been driven by tech. And within the tech sector, it is semiconductor stocks which were particularly badly hit. Super Micro Computer was down over 8%, while NVIDIA, Marvell, Micron, AMD, TSMC, Broadcom, Intel and IBM were all down between 2-3%.

The recent selloff in semiconductors has certainly taken some heat out of the sector. But all the major players are still up substantially from the end of March. Technically, the selloff so far looks like no more than a bit of ‘back and fill’, with no significant damage done chart-wise.

Having said that, the damage done to the major US indices could be of more significance. All the majors suddenly lurched lower yesterday afternoon, in a move that took both the NASDAQ and S&P 500 down to one-month lows. The indices subsequently recovered. But the sudden drop was enough to remind traders that air pockets exist in these markets, indicating some vulnerability.

Source: TN Trader

Investors are looking ahead to today’s release of the Consumer Price Index for May. The consensus expectation is for Headline CPI to hit 4.2% year-on-year. If so, that would be its highest reading in two years. Of course, the other most highly anticipated event this week is the SpaceX IPO on Friday.

The company plans to offer shares at a fixed price of $135, valuing the business at around $1.8 trillion. SpaceX is selling stock worth $75 billion, making it easily the largest IPO in history, eclipsing the Aramco IPO in 2019, which raised $29 billion and is the current record holder. This is arguably the most closely watched IPO ever.

The company includes internet communications through Starlink, reusable rockets with Starship, its Launch business, as well as X (formerly Twitter) and xAI, the developers behind Grok. The issue looks like it will be oversubscribed by at least two times, which should help to boost the stock when it opens for trading. But, as we've seen so often with big IPOs, it’s what happens next which can be of most interest.

European stock indices were lower across the board on Wednesday. Market sentiment remained cautious following fresh US military action against Iran. This followed the downing of a US Apache helicopter near the Strait of Hormuz, although Iran has not claimed responsibility. This sudden and unwelcome escalation in US/Iranian hostilities comes just after it appeared that tensions were being dialled down to some extent, after Iran and Israel agreed to terms over Lebanon.

Source: TN Trader

Traders across Europe were also keeping a close eye on US tech, which has come under heavy selling pressure this morning. Investors are also looking ahead to tomorrow’s European Central Bank meeting, where policymakers may adopt a more hawkish tone if elevated energy costs continue to threaten inflation expectations.

The US dollar was weaker across the board this morning, despite growing tensions across the Middle East. The US launched retaliatory strikes against Iran following the downing of one of its Apache helicopters. Iran’s Islamic Revolutionary Guard Corps responded by claiming it had attacked US military assets in Bahrain, Kuwait and Jordan.

Yet the dollar drifted lower, which was unusual, seeing how it has typically rallied whenever Middle Eastern tensions have risen. Interestingly, crude oil was also lower this morning, suggesting that investors aren’t that bothered about the resumption of hostilities between the US and Iran. One hypothesis is that the military tit-for-tat may even hasten an end to the conflict, which is now into its fourth month.

FX traders are also keeping a close eye on today’s US inflation update. The consensus expectation is for Headline CPI to hit 4.2% year-on-year, which would make it its highest reading in two years. A stronger-than-expected inflation reading would likely reinforce expectations that the Fed will be forced to raise interest rates this year, perhaps by as much as 50 basis points.

This would present an unwelcome challenge for the new Fed Chair, Kevin Warsh, whom President Trump is hoping will cut rates to goose the US economy as mid-terms approach.

The Japanese yen remains under pressure. Overnight, the USD/JPY hit its highest level since the end of April, just as Japan’s Ministry of Finance intervened to support the yen.  Japan’s Producer Price Index rose 6.3% year-on-year, marking the fastest pace of wholesale inflation in three years. The Bank of Japan is expected to raise interest rates at its meeting next week, and additional rate increases could follow later this year.

Source: TN Trader

Even this morning’s weaker US dollar has been unable to prevent another tumble for gold. Having briefly poked its nose above resistance at $4,350 yesterday afternoon, gold then reversed direction to break below $4,200 in Asian Pacific trade. It attempted a rebound but then sold off again to hit its lowest level since 23rd March, as it approached $4,150.

The precious metal has had a miserable time of late. It has repeatedly struggled to attract sustained buying despite heightened geopolitical tensions. In fact, it is the US dollar which has benefited from the US/Iran war as investors sought out the greenback for its relative safety.

There may be some ‘bargain hunters' out there, keen to take advantage of gold’s decline over the past month. But some may want to stand back for now, just in case gold tests support at $4,000.

Source: TN Trader

Silver resumed yesterday’s selloff, falling below $63.50 to also hit its lowest level since 23rd March. It too has had a torrid month, having come close to retesting resistance around $90 earlier in March. But since then, it has been all downhill.

Silver is now trading under the low hit during the meltdown in early February, which followed its parabolic rise, which came to an end in late January. It continues to face pressure from rising interest rate expectations and escalating geopolitical tensions. If it can’t see a turnaround soon, then a test of support at $60 is a distinct possibility.

Source: TN Trader

Oil prices bounced yesterday afternoon, and the rally continued into the early hours of this morning. Front-month (August) Brent had just broken below $90 per barrel to hit its lowest level in three weeks. But then reports came through that a US Apache helicopter had been shot down near the Strait of Hormuz.

The news then triggered tit-for-tat strikes between the US and Iran, and Brent traded above $93 early in this morning’s Asian Pacific session. But prices then drifted lower. Traders calculated that the military action taken by both the US and Iran was measured and proportionate. There have been fears that President Trump is so keen to end this war that he may call an all-out attack on Iran’s oil facilities and other major infrastructure.

Source: TN Trader

So, the limited nature of recent ‘skirmishes’ was taken as a positive step, which should keep the communications channels open, paving the way for further peace negotiations. But these need to happen soon, as the longer the Strait of Hormuz remains closed, the more significant the damage to the global economy.

Bitcoin remained under pressure as geopolitical tensions and broader market uncertainty continued to drive investors away from risk assets. Despite this, it has managed to hold above support in the $60,000 region ever since dipping below there on Friday evening.

Bitcoin and other cryptos got wrapped up in the big-risk-off move last week. This was initiated by some weak forward guidance from Broadcom on Wednesday night. But the selloff accelerated following a strong set of Non-Farm Payroll data, which boosted the probability of 50-basis points worth of rate hikes from the Fed before year-end.

Bitcoin’s daily MACD is approaching oversold levels. But while it’s encouraging to see it hang on above $60,000, it isn’t out of the woods yet. The danger is that there could be more liquidation to come should equities take another leg down. While some speculative excess has been removed from the market, investors remain cautious amid uncertainty surrounding the Middle East conflict and its potential impact on global markets.

Volatility has picked up this week as investors continue to digest renewed Middle East tensions and continued weakness in technology stocks.

The market's focus is now on the US inflation report, which is expected to be one of the most important economic releases in recent months. A stronger-than-expected reading could reinforce expectations for higher interest rates and trigger increased volatility across asset classes.

The technology sector remains under pressure as investors reassess AI-related valuations and potentially reposition ahead of the upcoming SpaceX IPO. Market participants are also watching developments at the Bank of Japan, where rising inflation has strengthened expectations for a rate hike at next week's policy meeting.

* 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.