Asian-Pacific indices bounce on peace hopes

US stock index futures surged this morning after Iran confirmed that progress had been made with the US in agreeing on peace terms. This came within hours of President Trump stating on social media that he was ready to order attacks on Iranian infrastructure, including Iran’s vital energy hub at Kharg Island.

But he quickly backtracked, announcing that the US and Iran were close to agreeing on a memorandum of understanding (MOU). This could have been nothing more than another example of Mr Trump’s flip-flopping to keep everyone unbalanced. But then sentiment turned positive after Iranian state media said that an MOU existed in draft form, which included commitments from the US to remove sanctions on Iran’s oil exports, while ending its naval blockade of Iranian ports.

Once this is confirmed, Tehran would end its closure of the Strait of Hormuz within 30 days. This is the closest that both sides have been since early April, when the first, limited ceasefire was announced. It sounds as if real progress has been made by both the US and Iran. But a lot can go wrong over the next few weeks. Tehran will also expect Israel to halt all military activity in southern Lebanon, and this could be a significant flashpoint.

On top of this, Elon Musk’s SpaceX conglomerate will launch on the NASDAQ later today. The initial public offering (IPO) has seen significant oversubscription for the stock on offer, with a large retail audience. This suggests that the stock, which is being sold at $135 per share, should get a decent early pop higher. The bigger issue is what happens to it over the coming weeks and months. SpaceX is coming to market at an interesting time.

The tech-heavy NASDAQ, along with the S&P 500, hit record highs at the beginning of June. AI-adjacent corporations contributed to this immensely. But the biggest observation was the extraordinary gains seen across some ‘second-tier’ semiconductor stocks since the end of March. This saw gains for Advanced Micro Devices, Micron Technology and Marvell Technology Group of 167%, 240% and 283% respectively in little over two months.

Source: TN Trader

But there has been some significant profit-taking over the past week, linked to disappointing forward guidance from fellow chip stock Broadcom, along with last week’s stronger-than-expected Non-Farm Payroll release. The latter boosted the possibility that the Federal Reserve will be forced to raise rates before the end of this year. It’s also likely that investors rushed in to book profits so that they had sufficient capital to take part in the SpaceX IPO.

European stock indices were firmer across the board this morning, following in the wake of a strong overnight performance in Asian Pacific markets and a rally in US stock index futures. The catalysts were also the same. Sentiment got a lift from news of a potential breakthrough in US/Iranian peace negotiations.

Dip buyers reemerged after a week-long selloff led by US tech, with a particular emphasis on semiconductor stocks. But with the higher-than-ever likelihood of seeing a swift end to the US/Iran war, together with the excitement ahead of today’s SpaceX IPO, investors are hoping for a positive end to the week.

Source: TN Trader

Yesterday, the European Central Bank (ECB) surprised no one when it announced a 25-basis-point interest rate increase. Policymakers around the globe have been forced to reevaluate monetary policy since the end of February, due to inflation pressures fuelled in part by elevated energy prices thanks to the US/Iran war, and the closure of the Strait of Hormuz. 

Yesterday, early evening, the cash Dollar Index managed to break above significant resistance at 100.00. This came after some mixed wholesale inflation data, and after President Trump took to social media, threatening US military attacks on Iranian infrastructure, including the vital Kharg Island oil terminal. But then Mr Trump dialled down the rhetoric, saying progress had been made with Iran over a peace deal.

Sentiment then got a significant boost after this was confirmed by Iranian state media. This led to a fall in oil prices, a rally across equities and a pullback in the US dollar. The greenback has been the ‘go-to’ haven every time there has been an escalation in US/Iranian hostilities. So, it’s only to be expected that it drops on any indication that peace may be about to break out.

Despite this, the cash Dollar Index keeps finding support just below 99.50, for now. Meanwhile, the Japanese yen is still under pressure despite expectations that the Bank of Japan will raise interest rates at its monetary policy meeting on Tuesday. The USD/JPY continues to trade north of 160.00, raising concerns that the Japanese authorities may intervene to support the yen.

Source: TN Trader

In the early hours of Thursday morning, gold fell to $4,024, its lowest level since November last year. This was when gold was well on its way to a fresh all-time high, just below $5,600 at the end of January.

But the situation is quite different now. Back then, investors were still waking up to gold’s potential. Now, that looks as if that potential is all in the rearview mirror. Could that really be the case, or can gold enjoy a renaissance?

Yesterday, the precious metal managed to make some limited upside progress. But it kept running into resistance around $4,100. But then there was a breakthrough. Gold soared as the dollar dropped, as reports came through of significant progress in peace negotiations between the US and Iran.

Source: TN Trader

Most importantly, the news was confirmed by Iranian state media, so investors felt that it was more trustworthy than just relying on President Trump’s bluster. As has been seen since gold topped out and sold off in February, and since the start of this war, precious metals are no longer ‘flight to safety’ assets. That role currently sits with the US dollar, which has also benefited from stronger US inflation readings and rising expectations for higher interest rates this year.

So, should a peace deal be agreed, and should this lead to a significant drop in the US dollar (by no means guaranteed), then gold may pick up as sentiment towards it improves once again. But for now, despite yesterday’s strong rally, it remains in the danger zone.

Oil prices fell sharply yesterday evening, and the selling continued this morning.  Front-month (August) Brent fell below $86 per barrel earlier this morning to hit its lowest level in seven weeks. Traders rushed to cut their exposure to crude following reports out yesterday that the US and Iran were close to agreeing on terms to end their war.

Source: TN Trader

The first indication of this came from President Trump on social media. But it was then confirmed by Iranian state media, which reported the Strait of Hormuz could be reopened within the next 30 days if the US removes sanctions on Iranian oil and ends its blockade of Iranian ports in the region.

The memorandum of understanding will include many other issues, no doubt including the fact that the Israeli military must withdraw from Lebanon, thereby leaving unfinished business with regard to Hezbollah. But traders are focused on reopening the Strait of Hormuz.

While it will take many months, if not years, to restore the Gulf region to its pre-war situation, there will be widespread relief should this vital chokehold for global energy finally be reopened. Despite this, analysts are divided over what this could mean for future oil prices. These have been relatively contained of late.

Alternative shipping routes, cross-country pipelines and a slowdown in Chinese demand have helped offset some of the supply concerns stemming from the conflict. Now traders must wait for further updates heading into the weekend.

Investors head into the final session of the week with several major themes dominating sentiment. The possibility of a peace agreement being signed by the US and Iran increased significantly yesterday evening. Hopes of a deal saw oil and the US dollar fall, while equities and gold have rallied.

The historic SpaceX IPO due to launch this afternoon comes on top of a flurry of improved sentiment. This could influence technology sector performance well beyond its first day of trading.

* 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.