Japan’s Nikkei surges on election speculation

US stock indices began the week on the back foot following news that the US Department of Justice was gunning for Fed Chair Jerome Powell. But they reversed course as Monday’s session progressed to close with modest gains across the board. This was enough to take the Dow, S&P 500 and Russell 2000 to fresh all-time highs.

Source: TN Trader

The NASDAQ is back within 1.5% of its own record high from the end of October. It took a knock at the end of last year as investors cut their exposure to growthy tech names, while reinvesting the proceeds in overlooked value plays. This has broadened out equity exposure and is a healthy development for the market.

While the ‘Magnificent Seven’ and other tech plays continue to dominate, the fact that a selloff across these majors didn’t trigger a generalised pullback was undoubtedly a positive outcome for the market. Investors still see equities as the best vehicle for their funds, even as the major indices trade at record levels, and despite widespread geopolitical issues, along with the mercurial nature of the Trump administration.

US stock index futures were a touch softer overnight as investors turned cautious ahead of some potential market catalysts. Focus shifted towards today’s CPI print and the start of the earnings season. The Consumer Price Index is expected to show annual inflation holding at 2.7%, consistent with November’s cooler reading and reinforcing expectations that the Federal Reserve can remain patient when it comes to easing monetary policy further.

But it’s worth remembering that the November print came after the government shutdown in October and may have given an incomplete picture. It did come in well below expectations, suggesting that something was missing from the data.

Could that ‘something’ reappear in today’s release? And if so, could it influence the market’s expectations for interest rates this year? The current forecast is for two quarter-point rate cuts, starting in June. Although the Fed’s FOMC suggested just one cut in 2026 when it updated its Summary of Economic Projections in early December.  

Attention also turns to JPMorgan’s fourth-quarter results before today's open. This will mark the unofficial kick-off to earnings season. Delta Air Lines also reports today, with Wells Fargo, Bank of America and Citigroup tomorrow. Bank earnings are expected to be solid, but there’s scope for disappointment.

Despite this, the real focus for investors will be tech earnings, particularly updates on the expected return on investment in Artificial Intelligence (AI), along with overall hiring plans, given labour market weakness in the latter half of last year.

Investors brushed off the latest attack on Fed Chair Jerome Powell, which included a Justice Department investigation and political calls for lower rates. President Trump’s proposal to cap credit card rates at 10% hit the banking sector, but only temporarily.

Yet banking analysts have warned that this could mean that millions of households and small businesses could lose access to credit. It was also a policy backed by Bernie Sanders.  Renewed tariff threats against countries doing business with Iran (that’s you, China) added to geopolitical concerns.

European stock indices were little changed in early trade on Tuesday. All the majors, along with the UK’s FTSE 100, were hovering at, or near, their all-time highs. Investors continued to digest Trump’s escalating rhetoric around Iran, including the imposition of a fresh 25% tariff on US imports from any country doing business with Tehran.

Source: TN Trader

At the same time, investors were keeping a close eye on developments surrounding the investigation into Fed Chair Jerome Powell. Many former Fed officials have come out to criticise this apparent attack on the Fed’s independence. But as far as investors are concerned, the prevailing view is that this is hardly a major concern.

Firstly, Mr Powell stands down in May, and secondly, many believe that the Fed is not as independent and apolitical as it repeatedly states. Thirdly, while there are concerns over this blatant political interference, the attitude seems to be that if it leads to a lower Fed Funds rate, then that can only be a good thing. Be careful what you wish for.

The Japanese yen came under near-relentless selling pressure overnight. This saw it fall to its lowest level against the US dollar since mid-2024, and an all-time low versus the Swiss franc and euro. This means that it is back in intervention territory.

Analysts believe that Japan’s policymakers are preparing to act to support the yen should the USD/JPY move up towards 160.00. The last intervention came after the USD/JPY hit a 38-year high around 162.00 in July 2024. The yen’s weakness came even as Japanese Government Bond yields jumped on speculation that Prime Minister Takaichi may call a snap election next month.

Source: TN Trader

Uncertainty around the timing of the Bank of Japan’s next rate hike, combined with a positive global risk tone and ongoing Japan–China tensions, continued to undermine the yen’s safe-haven appeal. Investors also remain alert to the risk of verbal intervention from Japanese officials, which could slow or temporarily reverse the move.

Meanwhile, the US dollar struggled to build much in the way of upside momentum amid lingering concerns over the Federal Reserve’s independence and expectations for rate cuts later this year.

The US Dollar Index was stuck below 99.00 as traders awaited the latest CPI release. Fed funds futures continue to price two cuts in 2026. But many Fed officials, including New York Fed President John Williams, have emphasised that policy is already well-positioned and that there is no urgency to resume easing.

Yesterday, gold broke above $4,600 for the first time and went on to hit an all-time intra-day high of $4,630 before pulling back. Yet the downside move looked limited, with prices finding some mild support around $4,570.

Source: TN Trader

Fundamentally, gold continues to find support from expectations for future Fed rate cuts and growing geopolitical uncertainty. Concerns surrounding the Fed’s independence, combined with the terrible violence being meted out to protesters in Iran (and Trump’s recent threats to the regime) and broader global instability, continue to underpin safe-haven demand.

However, traders appear to have moved to the sidelines ahead of today’s CPI release, as they look for greater clarity on the inflation outlook before committing to fresh positions. The broader backdrop suggests that any corrective dips are still being viewed as consolidation and buying opportunities rather than a trend reversal. But traders should be cautious now that gold is, literally, in uncharted territory.

Silver surged to a new record high of $86.25 yesterday before pulling back to close below $84.50. It has recovered some of this last ground this morning, with the bulls trying to push prices back above $86 again.

Silver continues to be extremely volatile, and we can expect big intra-day swings to both the upside and downside for as long as prices remain so elevated, and in the absence of a significant period of consolidation.

The daily MACD remains significantly overbought, although that hasn’t prevented silver from hitting a succession of new highs. But it is reason to be cautious up here. While it’s certainly possible that silver’s rally can continue, the risks of a very large drawdown have also grown. In the immediate term, traders appear to be waiting for today’s CPI update before taking their next big move.

Source: TN Trader

Crude oil appears to be breaking out of the downtrend which has been building since August’s highs. Front-month WTI broke above $60 per barrel this morning, extending its gains for a fourth consecutive session. Supply concerns remained front and centre after President Trump announced new tariffs on US imports from any countries trading with Iran, raising fears of further disruptions from one of OPEC’s largest producers.

Source: TN Trader

Iran’s domestic unrest, alongside escalating rhetoric around potential military action, added to the geopolitical premium. Additional supply risks emerged from Kazakhstan due to adverse weather and infrastructure issues linked to the Russian–Ukraine conflict.

All this acted to offset downside pressure on oil due to the possibility of additional supply from Venezuela, at some time in the future. It’s worth noting that there has been some reluctance from some oil majors (Exxon Mobil) to invest further in Venezuela’s energy infrastructure. That has weighed on markets and displeased President Trump.

Natural gas prices were a touch firmer this morning following a strong advance in the previous session. The market looks as if it is attempting to bottom, and appears to be consolidating, with traders reassessing positioning ahead of fresh macro data and broader energy market developments.

Bitcoin was trading around $92,000 this morning, having spent the last few days consolidating around $90,000. It’s a similar story for Ether, and both cryptos are benefitting from an improvement in broader risk sentiment. 

Equity strength and expectations of looser monetary policy continued to underpin digital assets, though price action remained choppy and reactive to shifts in macro tone.

Having briefly spiked higher due to yesterday’s early equity selloff, the VIX pulled back, with the January contract steadying around 16.00. The moves highlighted the market’s continued ability to absorb geopolitical and political headlines without a sustained rise in fear. Despite raised tariffs and rising global tensions, volatility remained anchored, reinforcing the dominance of the bullish trend.

Attention now turns firmly to today’s CPI release and the start of earnings season, with JPMorgan setting the tone before the bell. Markets continue to price in two 25-basis-point Fed cuts this year, beginning in June, though inflation data will be critical in validating that path. Geopolitical risks remain elevated with Iran, Venezuela and central bank independence all in focus.

Despite this, equities continue to grind higher, with weakness repeatedly bought. Gold and silver remain near record levels, the yen continues to slide amid intervention chatter, and oil stays sensitive to political developments. With earnings and inflation data converging, the coming sessions may finally test the market’s resilience. For now, the bulls remain firmly in control.