Asian-Pacific markets slide

US stock index futures were mostly weaker this morning, with most of the pain felt across the technology sector. NASDAQ futures were around 1% lower in early trade, with semiconductor stocks taking on most of the damage. Thursday’s trade began in a similar fashion, with tech-led losses affecting the NASDAQ and S&P 500.

All the majors came under early selling pressure but then rallied throughout the afternoon and evening. By the close of play, the NASDAQ ended just 0.1% lower while the S&P gained 0.4%. The Dow closed up 1.7% and at a fresh all-time high, while the small-cap Russell 2000 added 1.5%.

Source: TN Trader

The selloff in Broadcom, which followed disappointing forward guidance in its results released after Wednesday’s close, was responsible for some negative sentiment towards semiconductors. Cybersecurity firm CrowdStrike’s 13% drop on disappointing second-quarter revenue guidance didn’t help either. After last night’s close, gym kit outfitter Lululemon dropped 11% as it too released disappointing forward guidance for the rest of the year.

Meanwhile, Hezbollah has rejected the Israeli/Lebanon ceasefire, so it’s back to square one as far as the resumption of peace negotiations between the US and Iran is concerned. But, as has been the case since the end of March, investors have chosen to look past the current hostilities on the assumption that the war will soon end.

When it began at the end of February, the consensus view was that it would all be over by mid-April. Yet it is now in its fourth month, and the Strait of Hormuz remains blocked and controlled by Tehran.

Investors will keep a close eye on today’s Non-Farm Payroll release. While it’s quite clear that the Federal Reserve is focusing on the inflation side of its dual mandate, rather than the unemployment side, the labour market requires some basic scrutiny at least.

The consensus expectation is for a gain of 85,000 jobs in April, below the prior reading of 115,000. But this data set is volatile and prone to significant revisions. It’s also far from clear that the payroll release carries the weight it used to. Despite this, traders are primed for a jump in volatility should there be a significant miss.

It’s fair to say that all the major US stock indices are looking very overbought currently, particularly tech. Investors have gone ‘all-in’ on the AI trade, and SpaceX’s IPO next week is starting to suck some oxygen out of the market, contributing to an already thin atmosphere. That’s not to say equities can’t rally further, just that it should pay to be very cautious up here.

European stock indices were mostly firmer this morning, shrugging off weakness across US tech, which contributed to the sharp selloff overnight in Asian Pacific semiconductor stocks.

Instead, the European and UK majors were able to benefit from their lack of exposure to tech and AI-related corporations and took heart from last night’s record close for the Dow Jones. Dow futures were up again this morning, suggesting that there has been some rotation out of tech into overlooked ‘value’ stocks. But by mid-morning, they had pulled back from earlier highs, as had the German DAX and UK FTSE 100.

Source: TN Trader

The US Dollar was weaker this morning, giving back much of yesterday afternoon’s gains. The cash Dollar Index dropped back below 99.00 in early trade this morning, but remains significantly above the recent low of 98.48 hit this time last week. Yet it hasn’t managed to break out above 99.50, despite its popularity as a destination when geopolitical uncertainty grows.

Yesterday, Hezbollah rejected the Israeli/Lebanon ceasefire, which would suggest that a resumption of peace talks between the US and Iran is unlikely to happen anytime soon. Meanwhile, today sees the release of the latest US government Non-Farm Payrolls. These are expected to show the addition of 85,000 jobs in May, down from the 115,000 added in April.

The unemployment rate is forecast to remain unchanged at 4.3%. As noted earlier, members of the Federal Reserve's FOMC seem far more concerned about high inflation than labour market weakness.

Despite this, the payroll release does have the potential to lead to volatility across FX. Today’s softer dollar has helped the USD/JPY pull back below 160.00 - but only just.  Japanese Finance Minister Satsuki Katayama warned speculators that the authorities are ready to intervene aggressively to support the yen. So, traders are cautiously testing out levels which may trigger another round of intervention.

Source: TN Trader

Bear in mind that the last attempt to boost the yen lasted little over a month and has proved to be an expensive exercise. Even expectations for a Bank of Japan rate hike next week have failed to offset broader US dollar strength. The greenback is getting support from geopolitical uncertainty and expectations that the Federal Reserve could still raise rates later this year if inflation remains elevated.

Gold sold off sharply overnight, coming close to retesting Wednesday's low just north of $4,420. But it managed to recover a significant proportion of its losses in European trade as it got a boost from a pullback in the US dollar. Iran’s Foreign Minister Abbas Araghchi stated that there had been little progress in negotiations to end the US/Iran conflict.

He also warned that should Israel attack Beirut, this could trigger a full-scale resumption of the war, which is now in its fourth month. Gold continues to be stuck near the bottom end of a range between $4,400 to $4,600, which has been building since mid-May. The daily MACD is tracking sideways with a slight negative bias. But if $4,400 can hold as support, there’s still hope for the bulls.

Source: TN Trader

Silver is even more out of favour with the bulls. Overnight, it pulled back towards $71 per ounce to hit its lowest level since the end of April. Its daily MACD is below the neutral line and trending downwards, albeit in a very shallow move. It too is in thrall to the US dollar.

So, any strength across the greenback is, as things stand, negative for silver. But silver has bounced off overnight lows thanks to this morning’s pullback in the dollar. But the bulls should watch out for a prolonged break below $71, as this could encourage further selling.

Source: TN Trader

Crude oil prices were a tad softer this morning as both WTI and Brent continued to pull back from recent highs hit on Wednesday morning. Front-month Brent (August) came within a couple of cents of $99 per barrel this week to hit its highest level in close to three weeks. This morning, it came within easy reach of $90 before bouncing.

Source: TN Trader

Despite all the uncertainty over the situation in the Middle East, oil prices have steadied and remain significantly below the highs hit after the US/Israeli attack on Iran at the end of February. Yet they remain elevated.

The Strait of Hormuz is closed and still controlled by Iran. Hopes of a resumption of full-blown US/Iran peace talks have once again faded after Hezbollah said it did not recognise the Israeli/Lebanese ceasefire. So, once again, traders face an uncertain time going into the weekend, where anything could happen.

Yet, going on recent history, it seems unlikely that the situation will suddenly improve. Tehran feels that it is in a strong position, and no doubt believes they can sit back and wait, seeing that history suggests that Trump Always Chickens Out. As far as the president is concerned, all the signs suggest he is bored with the whole issue and just wants it over. But at what cost?

Watching Bitcoin’s recent progress suggests the old Millwall chant: ‘Everybody hates us, and we don’t care’. It really is out of favour with investors and close to being despised. Bitcoin, and the blockchain ledger on which it is based, is no longer the bright, new shiny thing it once was. And, despite the resilience it demonstrated throughout the first ten weeks of the US/Iran war, the selloff over the past three weeks has truly soured sentiment toward it.

Speculators would much rather jump on board the semiconductor bandwagon as these companies produce real things, which are easy to understand, valuations be damned. Excitement over the SpaceX IPO isn’t helping either. Bitcoin’s attraction is far harder to understand and explain. It now looks on course to retest the February lows around $60,000. A protracted break below here would put $40,000 in the headlights.

The daily MACD has accelerated to the downside, and things look pretty bleak. But as someone said: ‘It’s always darkest before the dawn’, and should the chip sector fall out of favour, then cryptos may once again have their day in the sun.

Technology stocks remain under pressure following the Broadcom-led sell-off, while investors continue rotating away from semiconductor names. Crypto markets remain in focus following Bitcoin’s sharp decline. Elsewhere, India’s central bank has lowered its growth outlook while keeping interest rates unchanged. Reports also suggest that China is attracting AI talent from the United States.

Investors continue to watch developments surrounding the SpaceX IPO, currently valued at around $2 trillion, as well as ongoing tensions involving Iran and growing scrutiny of the Japanese yen ahead of potential Bank of Japan action next week. There’s also focus on today’s US Nonfarm Payrolls report, with expectations for 85,000 jobs to have been added in May and the unemployment rate holding steady at 4.3%.

* 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.