Asian-Pacific indices steady

US stock indices were mostly lower by yesterday’s close. The only exception was the Dow, which managed to squeak into positive territory, adding 0.1% on the day. The S&P 500 and NASDAQ lost 0.2% and 0.7%, respectively, while the small-cap Russell 2000 had the worst of it, ending down 1%. Despite this, all four majors bounced off their session lows, which were hit as European markets closed.

Source: TN Trader

There’s been some upside follow-through via US stock index futures in early trade this morning, although the Dow has lost ground. It looks as if there’s some market rotation going on, with Old Wall Street taking a small hit, while tech, led by semiconductors, is in demand as traders take advantage of yesterday’s pullback to load up once again. Micron Technology, NVIDIA, Intel, AMD and SMC have all been beneficiaries of this morning’s dip-buying.

Traders are preparing for another key inflation release, with PPI, which measures wholesale inflation, released at 13:30 BST. This follows yesterday’s hotter-than-expected Consumer Price Index (CPI) report, which saw Headline CPI, which includes food and energy, hit 3.8%, its highest reading in nearly three years, and close to double the Federal Reserve’s 2% inflation target.

This is bad news for Kevin Warsh, who is expected to replace Jerome Powell as Chair of the US central bank this week. President Trump has agitated for rate cuts, but Mr Warsh will struggle to make the case for them with inflation so high, and with little apparent stress in the labour market.

Meanwhile, relations between Washington and Tehran appear to be more strained than at any time since the original ceasefire was announced just over a month ago. President Trump stated that the ceasefire was “on life support”, suggesting that hostilities could resume at any time.

Oil prices rallied on the news, although they were a tad softer in early trade this morning. High oil prices have become the norm as the war between the US and Iran shows no sign of ending soon. This is driving concerns that inflationary pressures could remain elevated for longer than the previous forecast.

European stock indices were mostly firmer on Wednesday morning. Investors played catch-up with Wall Street after all the US majors staged a rebound yesterday afternoon, just as most European indices were closing.

Source: TN Trader

As things stand, Kier Starmer is still the UK’s Prime Minister (PM), and this has helped to calm moves across the Gilt market, which saw yields soar yesterday as investors priced in uncertainty over what, or whom, may come next. But these political shenanigans may not yet be over.

Health Secretary Wes Streeting, one of the current favourites to replace Mr Starmer as PM, had the briefest of meetings with him this morning. Mr Streeting was tight-lipped as he left Downing Street just seventeen minutes after he arrived, but there is speculation that more news may be forthcoming after today’s King’s Speech. Otherwise, investors are looking ahead to tomorrow in Beijing when Presidents Trump and Xi Jinping meet.

The US dollar was stronger across the board in early trade this morning, building on gains made on Monday and Tuesday. The cash Dollar Index hit a one-week high of 98.31 mid-morning in Europe as investors once again looked to mitigate risk.

Tensions between the US and Iran remain high, and the month-long ceasefire between the two sides looks closer than ever to being broken. Could it be that it is only President Trump’s visit to Beijing and tomorrow’s meeting with Xi Jinping that is keeping the fragile peace going for a few more days?

The talks should prove to be a pivotal moment in relations between the two economic giants. Topics are expected to include the war with Iran, energy security, AI, trade, tariffs and Taiwan, so plenty on which to focus.

Yesterday’s hotter–than-expected US CPI release reinforced expectations that the Federal Reserve could maintain restrictive monetary policy for longer. The CME’s FedWatch Tool has the probability of no change in rates this year at 65%, while the likelihood of a rate hike is now 28%, with a cut at just 3%. Today brings the latest update on wholesale inflation, PPI.

The GBP/USD dropped below 1.3500, its lowest level in a fortnight, as political uncertainty surrounding UK Prime Minister Starmer weighed on Sterling. Investors will be keeping an eye on developments, particularly once today’s King’s Speech is out of the way.

Source: TN Trader

Gold looked on the brink of breaking out to the upside yesterday morning. This followed its recovery from the month-long low hit just over a week ago as it managed to hold and bounce off $4,500. Yesterday, the precious metal hit a three-week high of around $4,774. But it was unable to progress further, and soon it was pulling back and struggling to find support.

Source: TN Trader

This is hardly surprising given recent US dollar strength. The dollar was back in demand as the US/Iran ceasefire looked to be breaking, and as US inflation, as measured by CPI, came in hotter-than-expected.

US Treasury yields have pushed up as investors factor in the elevated oil price, along with fears that crude may stay higher for longer than previously anticipated. The corresponding rise in the US dollar then reduces demand for non-yielding assets. Today sees the release of US wholesale inflation data.

Silver prices remained relatively resilient when compared to gold. Overnight, it hit $87.83 - its highest level in over two months. This meant it had gained over 22% since the end of April. Some traders must be speculating that silver may be poised to break out, with the possibility that it takes out its all-time high from the end of January.

The probability would increase if it can break and hold above $90 per ounce, but that may be a high hurdle under current circumstances. If the US dollar continues to strengthen, that could provide a significant barrier to further gains.

But on the flip side, the daily MACD has turned up sharply, suggesting an increase in upside momentum. Still, much depends on President Trump’s talks with Xi Jinping in China tomorrow, and if this sees a way to resolve the US war with Iran, amongst other things. 

Source: TN Trader

Crude oil prices climbed again this morning. Prices have risen steadily this week on fears that the month-long ceasefire between the US and Iran is close to breaking down. This morning, front-month (July) Brent crude was up around 13% from the lows hit last Thursday. It’s a similar story for front-month (June) WTI. This time last week, it hit a low of $88.70. Since then, it has rallied 15%.

Source: TN Trader

Developments around the Strait of Hormuz remain a significant issue. This crucial shipping route continues to be controlled by Iran’s Islamic Revolutionary Guard Corps, and it appears that Tehran is in no mood to cede control now, even as the US Navy blockade on Iranian ports across the region takes its toll on the regime.

But Iran’s disruption to shipping, which used to pass through the Strait, together with the US blockade, continues to put a strain on energy markets. In its latest update, the International Energy Agency said global oil supply would be unable to meet demand this year. OPEC is expected to provide an update to its own forecasts soon.

Early yesterday evening, Bitcoin briefly dipped below $80,000 to hit its lowest level since Friday. But it quickly recovered from here in a move which once again demonstrated Bitcoin’s resilience. This has been evident since the US war with Iran began at the end of February.

Not only that, but it is becoming increasingly apparent that $80,000 is developing into a key area, previously resistance but now support. Bitcoin’s solid performance since early February, when it hit a four-month low just above $60,000, has boosted investor sentiment towards it and other cryptocurrencies.

There are some analysts now arguing that geopolitical tensions and rising government spending could ultimately support the crypto market. It is worth pointing out that Bitcoin’s daily MACD is quite elevated, and a period of consolidation could help set the stage for further upside. Meanwhile, a significant break below $80,000 could trigger a bigger bout of profit-taking from recent buyers.

Today, investor attention shifts to the latest US Producer Price Index data, which will provide further insight into whether inflation pressures are continuing to intensify or not, following Tuesday’s strong CPI report.

The upcoming meeting between President Trump and Xi Jinping remains the key risk event for global markets this week, with investors watching closely for developments on trade, artificial intelligence cooperation and the Iran conflict, amongst other things. Technology stocks are also back in focus after recent weakness, while investors continue monitoring movements in oil prices and Treasury yields for clues on inflation and future Federal Reserve policy.