Global equities firm as rate-cut hopes offset FX calm

US stock indices ended yesterday’s session with very modest gains. The Dow, S&P 500 and NASDAQ all edged up 0.1% while the Russell 2000 was unchanged. But the ‘scores on the doors’ concealed an interesting dynamic as US investors returned after Monday’s holiday. All the majors were significantly lower in early trade.

The S&P 500 broke below 6,800 early in the afternoon, taking the index down to lows last seen close to a fortnight ago. Yet again, tech stocks led the selloff as investors continue to question the huge sums pledged in the development of AI.

Concerns continue to hover around how long it will take to see a return on investment, or if a return is possible in all cases. There are also worries over what the introduction of AI could mean for tech companies, with the current focus on software. The social implications are also starting to come to the fore, particularly the outlook for the labour market. Discussions around the provision of a Universal Basic Income are becoming more prevalent and therefore more mainstream.

Yesterday’s lows came soon after the US exchanges reopened for the first time since Friday. Once again, traders rushed in to ‘buy the dip’, repeating a strategy, such as it is, that has proved to be profitable ever since the lows hit in October 2022. This upside momentum continued into this morning with US stock index futures stronger across the board.

In early trade, the S&P was closing in on 6,900, having fallen to 6,775 less than 24 hours ago. Amazon rebounded yesterday, having earlier traded at a 9-month low, marking a 20% loss since the beginning of this month. Investors were spooked when the company revealed the size of its planned investment in AI.

Yesterday, Chicago Fed President Austan Goolsbee said there could be "several more" rate cuts this year, although much would depend on inflation’s trajectory. There’s an update on Core PCE, the Fed’s preferred inflation measure, this Friday, while the minutes of the Fed’s last FOMC meeting in January will be released later this evening.

On the earnings front, today sees updates from Carvana, DoorDash and Booking Holdings. Yesterday, Palo Alto Networks fell 6% after it announced a weak earnings forecast for the current quarter.

US stock indices have regained their upside momentum. But will this prove strong enough to keep buyers engaged, and protracted enough to drive the S&P 500 above key resistance at 7,000?

Crude oil was sharply higher in early this morning and, at the time of writing, had recouped all of Tuesday’s losses. Front-month WTI spent most of yesterday’s session trading between $62 and $64 per barrel. Today’s range has been tighter, with the bulk of price action confined between $62.50 and $63.50. Traders have been focusing on talks in Geneva.

Russia and Ukraine met yesterday in an attempt to end the war, which began with Russia’s invasion of Ukraine four years ago this month. But these broke up after just a couple of hours with no apparent progress.

Meanwhile, there was some progress made from talks between the US and Iran, with both sides agreeing on ‘guiding principles’ as they sought to bring an end to their dispute over Iran’s nuclear ambitions. But Iran was also playing games by temporarily shutting down the Straits of Hormuz for military drills.

It’s no secret that President Trump favours lower oil prices, and blocking the Straits for a prolonged period could lead to a sharp spike higher. It could also provoke the US into taking military action against Iran.

In the early part of yesterday afternoon, gold briefly dropped below $4,850 to hit its lowest level in just under a fortnight. It managed to steady around there, suggesting that $4,850 marks a modest area of support.

Prices soon picked up, and gold was trading back above $4,900 this morning. But it feels as if it will struggle to get back up to $5,000 per ounce in the absence of a significant catalyst.

Safe haven demand has dropped off, and this hasn’t been helped by the recent recovery in the US dollar. It’s worth noting that there’s still a stack of negative sentiment towards the greenback, with many traders positioned for further weakness.

There’s the ‘de-dollarisation’ argument, which sounds a bit overblown, particularly as there’s no sensible alternative to replace the dollar as the world’s reserve currency.

There’s also the argument that President Trump favours a weaker dollar, as that would help boost US exports. But when everyone is on the same side of the ship, that can only increase the risk of capsizing.

Silver broke below $72 per ounce yesterday, but not for long. It trundled along just north of here for the rest of the session, but was unable to break back over $74. Then it spiked higher early this morning, but has run into resistance around $76. Like gold, silver looks as if it needs a fresh catalyst for prices to head significantly higher.

The daily MACD has gone from extremely overbought levels to mildly oversold. This could suggest that a rally is on the cards. But it could also presage a longer period of sideways consolidation, with prices confined to a relatively narrow $10 range of $80 as resistance and support around $70.

The danger for the bulls would be a protracted drop below $70, while a sharp breakout of this range is likely to come with a large dollop of fresh volatility.