Asian-Pacific indices head higher

US stock index futures were modestly firmer in early trade this morning as investors prepared for the Federal Reserve’s interest rate decision later in the day. On Tuesday, there was a weaker tone, despite the Dow briefly breaking above 52,000 for the first time and closing at an all-time high. All the other majors posted losses for the session, led by some sharp declines across semiconductor stocks, and tech more generally.

The NASDAQ 100 lost close to 2%, while the Russell and S&P 500 fell 0.9% and 0.6%, respectively. The Dow continues to get a lift through some market rotation, whereby funds that come out of the growthy tech sector tend to be redirected into stocks perceived as offering better value.

Source: TN Trader

In fact, a look at Caterpillar’s stock price proves that investors don’t have to load up on tech to get results. Considering yesterday’s all-time high, Caterpillar has gained over 270% since April last year.

But investors aren’t yet ready to abandon Friday’s IPO debutante, SpaceX. The stock soared on Monday, coming within a few cents of $230. It has since pulled back, but has rallied again this morning, and, at around $210, has gained 55% from its $135 offer price.

Investors are now preparing for the Federal Reserve’s monetary policy announcement later tonight. This will be Kevin Warsh’s first major meeting as Chair, following eight years of Jerome Powell. It will be very interesting to see how his approach differs from that of his predecessor.

This is also a quarterly meeting, which means the FOMC will publish its Summary of Economic Projections. This is where members produce their forecasts for unemployment, economic growth, inflation and the Fed Funds rate for the rest of this year and beyond. There’s no likelihood of any change in interest rates today, but CME’s FedWatch Tool suggests that there’s a 60% chance of at least one rate increase before year-end, while the chance of ‘no change’ currently stands at 40%.

Should tonight’s meeting suggest that rate cuts could still be on the cards this year, then that could weigh on the US dollar, but give equities a bit of a boost. Despite gapping higher this week following some positive noise concerning the war between the US and Iran, markets look as if they’re approaching the summer doldrums, albeit close to, or at, record highs. 

European stock indices were mixed in early trade this morning. Investors seemed reluctant to take much of a view following weakness for most of Wall Street last night, and ahead of tonight’s Federal Reserve monetary policy meeting, the first with new Chair, Kevin Wash.

Source: TN Trader

There’s some speculation, following recent comments from Mr Warsh, that he prefers less transparency from the US central bank. He doesn’t like the running commentary from Fed members, and it’s thought that he may ditch the ‘Dot Plot’, the quarterly chart which shows FOMC members’ forecasts for the Fed Funds rate for the rest of this year and beyond. So, it’s possible that tonight is the last time that we’ll see a ‘Dot Plot’, so be prepared to make the most of it.

Meanwhile, UK inflation remained unchanged at 2.8% year-on-year in May. This inflation number will be an important consideration for members of the Bank of England’s MPC, as it prepares for its monetary policy meeting tomorrow. Today’s reading has reinforced the view that the MPC is likely to leave rates unchanged.

Yet again, there was relatively little movement across FX this morning. Traders preferred to sit on their hands ahead of tonight’s Federal Reserve rate announcement. This is a quarterly meeting which sees the release of the FOMC’s Summary of Economic Projections (SEP). This is where individual FOMC members give their forecasts for GDP, Unemployment, inflation and the Fed Funds rate for the rest of this year, and beyond.

This is also Kevin Warsh’s first monetary policy meeting as Chair, and there’s some speculation that he may want to get rid of the ‘Dot Plot’, arguably the most exciting element in the SEP, as it relates directly to interest rate forecasts. The CME’s FedWatch Tool suggests that rate cuts are completely off the table for this year. Instead, there’s just a 40% probability of ‘no change’ and a 60% likelihood of at least one rate cut before the year-end.

Meanwhile, it still looks as if a formal agreement between the US and Iran to end the war could be signed in Switzerland on Friday. President Trump has insisted that the Strait of Hormuz will soon reopen, tariff-free. But Tehran may have other ideas.

The cash Dollar Index continues to hold support around 99.30, despite the potential US-Iran peace agreement reducing demand for the US dollar as a ‘flight to safety.’ Sterling came under pressure after UK inflation data undershot expectations. The GBP/USD slipped a touch but remained rangebound as the likelihood of any interest rate change from the Bank of England tomorrow looks increasingly unlikely.

Source: TN Trader

Gold was a touch weaker this morning, but still comfortably above $4,300. Last Wednesday, gold fell sharply, dropping towards $4,000 in the early hours of Thursday morning. From here, it bounced sharply and then gapped above resistance at $4,250 at the beginning of this week.

This saw the daily MACD turn off relatively oversold levels, suggesting that upside momentum was picking up. That may have been the case on Monday, but gold now appears to be losing that momentum and struggling to break above $4,350. That suggests that it will struggle to take out significant resistance at $4,400 without a longer period of consolidation.

Source: TN Trader

Overall, it looks as if investors are unwilling to add to their exposure at least until after tonight’s Federal Reserve announcement.

Silver also bounced back on Thursday after briefly breaking below $61.50, its lowest level in six weeks. Silver also gapped higher after the weekend, helped by a weaker US dollar as the US and Iran prepare to physically sign a memorandum of understanding on Friday. This framework deal includes a ceasefire, together with the reopening of the Strait of Hormuz.

Source: TN Trader

The US has also agreed to lift its blockade of Iranian ports in the region, and there are already reports that some shipping is making its way through the Strait. There are still major questions to answer regarding nuclear negotiations, reparations and Tehran’s future involvement in terrorist organisations.

But for now, investors want to know if shipping can pass through the Strait of Hormuz tariff-free, as promised by the US, or is liable to a ‘fee’ charged by Iran for escorting vessels through the Strait safely.

Crude oil prices were little moved in early trade this morning. Prices managed to stabilise a touch during a steep selloff over the past fortnight. WTI contracts are now trading significantly below their 6th March levels, which is when prices skyrocketed to cycle highs one week after the US/Israeli attacks on Iran. Front-month (July) WTI is now less than $9 above its pre-war price, although Brent crude prices are proving somewhat stickier at higher levels.

Source: TN Trader

Nevertheless, front-month (August) Brent has dropped over 20% from the highs hit a fortnight ago, as traders price in the possibility of an end to the war and the reopening of the Strait of Hormuz. The next big test is for the official signing of the memorandum of understanding by the US and Iran in Switzerland on Friday.

And investors also want clarity concerning the Strait of Hormuz, and if shipping will be forced to pay a ‘fee’ to Tehran, ostensibly for an escort to ensure a safe transit. Once the Strait is reopened fully, then there’s a fair chance, once inventories are refilled, infrastructure repaired, and production resumed, that the world faces a glut of supply.

OPEC+ have already increased production, and it’s likely that Iranian supply will officially come back online. While the situation regarding Russian sanctions is unclear, the ongoing slowdown in global demand could lead to some additional downside pressure on oil prices in the longer run.

Bitcoin was a touch lower this morning, once again pulling back from the high hit on Monday afternoon – its best level since early June. The cryptocurrency has recovered significantly from the low hit twelve days ago. This was when it briefly broke below $60,000 to register its worst print since October 2024.

Buying interest has slowly picked up since the low was hit earlier this month. But it’s far too early to know if Bitcoin can build on these gains. Bitcoin is now testing a deep band of resistance, which begins around $65,000 and runs up to $70,000. But there’s some hope for the bulls as the daily MACD indicates that upside momentum has accelerated recently.

Attention turns squarely to the Federal Reserve and Chair Kevin Warsh’s first monetary policy meeting at the helm of the US central bank. While no rate change is expected, investors will scrutinise every aspect of the statement, economic forecasts and press conference for clues on future policy direction.

Other notable developments include the ongoing rise of SpaceX, which is now trading roughly 55% above its IPO price, and reports that Intel is moving closer to an agreement with Apple regarding advanced chip production.

* 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.