Asian-Pacific stock indices slide

US stock index futures were sharply lower overnight, continuing the general selloff from Friday. But they all recovered from their lows as the European session progressed, and as investors appeared to recover their collective nerve.

Friday brought some heavy losses for all four majors. The Dow lost 1.1%, while the NASDAQ and S&P 500 fell 1.5% and 1.3%, respectively. The small-cap Russell 2000 suffered the brunt of the pullback, ending the session down 2.4%. For the week, only the S&P ended in positive territory as it eked out a gain of 0.1%.

Source: TN Trader

Investors turned cautious as two key US inflation readings came in significantly hotter-than-expected. This contributed to a surge in bond yields in a move which saw the key 10-year Treasury Note plunge as its yield topped 4.63%, its highest level since February last year. This is bad news, particularly considering the high levels of federal, corporate and domestic debt.

There was also disappointment over the Trump administration’s trip to Beijing. The only significant announcement came from Chinese Premier Xi Jinping, when he effectively told the US to butt out of Taiwan or face the consequences. If there was any progress made in discussions about AI, trade, tariffs, the US/Iran war, energy or rare earths, no one was shouting their heads off about it, which is unusual.

Meanwhile, the US and Iran are still at war, although the ceasefire is holding. Over the weekend, an Iranian drone strike hit a perimeter generator at the UAE's Barakah Nuclear Power Plant. President Trump warned Iran, posting on Truth Social that “the Clock is Ticking” and saying there “won’t be anything left” if action was not taken soon, adding that “TIME IS OF THE ESSENCE!”

The comments were taken as confirmation that negotiations between Washington and Tehran remain stalled, increasing concerns over the future of the Strait of Hormuz and the global oil market.

The S&P 500 and Nasdaq both reached fresh record highs last week, while the Dow Jones Industrial Average briefly reclaimed the 50,000 level. However, investors are becoming increasingly concerned that the rally has been/is being driven by a relatively small group of mega-cap technology stocks tied to the artificial intelligence theme.

Tech stocks came under pressure on Friday as rising Treasury yields hit growth sectors. This week is relatively light in terms of economic data, with only Flash Manufacturing and Services PMIs on Thursday to consider. But attention will centre on earnings releases from Nvidia and Walmart.

Nvidia is scheduled to report after Wednesday’s close, while Walmart releases results before the open on Thursday. Investors will closely monitor both companies for insight into consumer demand trends and continued AI spending momentum. Meanwhile, SpaceX is reportedly preparing to release its IPO prospectus after confidentially filing in April.

European indices opened lower on Monday. This followed the weaker start for US stock index futures, which added to losses posted on Friday. Sentiment soured as investors factored in rising geopolitical tensions, higher oil prices, along with further inflation concerns following last week’s hotter-than-expected US CPI and PPI readings. Borrowing costs are also rising across the Eurozone and the UK.

Source: TN Trader

Investors have sold government debt as they react to the surge in energy costs, with oil hovering above $100 per barrel, with no end in sight for the US/Iran war. But as the morning progressed, most European stock indices managed to push back into positive territory as US futures bounced off their lows.

It’s worth noting that US stock market volatility remains subdued. Investors remain extremely bullish and appear to be happy to increase their exposure even as the major indices hover near all-time highs. As things stand, there’s little appetite for hedging to help protect investments should there be a selloff.

Meanwhile in the United Kingdom, pressure continues to build on Prime Minister Keir Starmer following Labour’s poor local election performance and his dismal ‘reset’ speech. Reports suggest internal divisions within the Labour Party are intensifying, while speculation surrounding potential leadership challengers continues to circulate. Fortunately for Sir Kier, all this internal jostling is showing up his challengers as even more inept than him.

Despite this, the UK gilts market remains sensitive to the possibility of a more left-leaning leadership approach that could result in increased borrowing and public spending.

The US dollar was firmer overnight against most major currency pairs, although it gave back some of those gains as the European session progressed. Monday’s trade saw a reaction to some of the big moves seen last week. This translated into a bounce-back in the British pound following last week’s selloff on the back of political instability.

But it was also noticeable that the Japanese yen displayed further weakness, with the USD/JPY pushing up above 159.00. This meant that the Japanese yen was getting close to unwinding all the gains made since the end of April, when Japan intervened to support the yen.

Source: TN Trader

This is bad news for the Ministry of Finance and the Bank of Japan, and came even as the 10-year Japanese government bond yield touched levels last seen in October 1996. Reuters reported that the government is likely to issue fresh debt for an extra budget to help offset the economic troubles stemming from the war between the US and Iran. This will only add to the country’s extraordinarily high levels of debt.

Overnight, gold dropped below $4,500 to hit its lowest level since the end of March. This represents quite a turnaround, considering that less than a week ago, gold was trading above $4,770 and looked poised to break higher. But the two hotter-than-expected US inflation releases damaged gold’s immediate upside prospects. The news led to another display of strength in the US dollar, while rising Treasury yields also weighed on the gold price.

Source: TN Trader

The weekend also saw a return of concerns over the ongoing war between the US and Iran. These fell out of focus while the Trump administration was in Beijing. But they bounced back into sight as it became painfully apparent that the Chinese trip was a non-event, while Iran appears in no mood to accede to the US peace plan. They demonstrated this by launching a drone strike, which caused a fire at the Barakah Nuclear Power Plant in the United Arab Emirates.

Silver also extended its decline from last week as rising bond yields and stronger inflation expectations exerted downside pressure on the metal. Silver dropped below $74 per ounce this morning, representing a fall of over 17% from the high hit last Wednesday.

Source: TN Trader

Traders have priced out the possibility of Fed rate cuts this year. In fact, the CME’s FedWatch Tool now puts the probability of a 25-basis point rate hike at 40%, while the likelihood of no change is down to 48%.

Crude oil prices were firmer this morning, but off their highs, after President Trump warned Iran that it needed to act quickly to accept terms to end the war. In the second half of last week, investors were distracted by President Trump’s trip to China and ignored the ongoing war between the US and Iran. But these concerns resurfaced over the weekend.

Source: TN Trader

Reports came through that Iran had launched a drone strike, which caused a fire at the Barakah Nuclear Power Plant in the United Arab Emirates. This only adds to fears that the war is ongoing, despite a ceasefire, and that Iran is not prepared to resume negotiations given the US's starting position.

Meanwhile, Tehran continues to control the shipping in and out of the Strait of Hormuz, even if the US Navy continues to blockade its ports in the region. It now appears that the world is getting close to experiencing physical shortages of energy products.

Investors are increasingly concerned that prolonged supply disruptions and higher fuel prices could slow global growth while simultaneously worsening inflation pressures across major economies.

Bitcoin was sharply lower overnight. There had been some mild support around $80,000, but this proved far from robust. It found some support around $78,000 during the Asian Pacific session, but prices broke below here early this morning and went on to hit their lowest levels since 1st May. Any further weakness looks likely to see a retest of $75,000.

Just under a fortnight ago, Bitcoin hit its best level since the end of January as it approached $83,000. It then spent some time consolidating, which helped the daily MACD to flatten out after a six-week period of slow, but steady, upside momentum. Bitcoin has performed very well since early February, as it managed to make gains despite the uncertainty over the US/Iran war.

But it looks as if investors are lightening up on risk now as speculation grows over the ability of US equities to continue to push to fresh all-time highs. The question now is whether this profit-taking remains constrained or if it turns into something more significant. 

Investors enter the new week facing a difficult mix of geopolitical tensions, rising oil prices, elevated bond yields, and fading hopes for near-term Federal Reserve rate cuts.

Attention will focus heavily on Nvidia’s earnings report on Wednesday and Walmart’s results on Thursday, with both companies expected to provide key insight into AI spending trends and consumer resilience.

Geopolitical developments remain a major driver. Renewed threats involving Iran, drone attacks in the UAE and Saudi Arabia, and continued uncertainty around the Strait of Hormuz are all contributing to growing market anxiety.

Meanwhile, bond markets remain highly sensitive to inflation risks as higher oil prices contribute to rising global bond yields. Investors are also closely monitoring the G7 meeting and developments surrounding US-China relations following last week’s Trump-Xi summit.