Asia Pacific equities retreat

All the major US stock index futures were down around 0.5% in early trade on Thursday. This followed yesterday’s strong session, which saw the tech-heavy NASDAQ gain 1.6% to post a fresh all-time closing high. There were also impressive gains for the other majors, with the S&P 500 up 1.1%, while the Dow and Russell 2000 tacked on 0.6% apiece.

Source: TN Trader

So far, today’s pullback appears to be little more than a mild bout of profit-taking triggered by some worrying reports of hostile action between the US and Iran. Reports emerged that Iranian forces had seized two container ships in the Strait of Hormuz.

Following this, it appears that the US military intercepted at least three Iranian oil tankers in Asian waters. These acts have taken place straight after President Trump announced an indefinite extension to the current ceasefire. This was on the basis that Tehran’s leadership was ‘fractured’ and so the US was prepared to give them extra time to return to negotiations.

As far as Iran is concerned, officials have branded further talks a ‘waste of time’, particularly as the US Navy continues the blockade of Iranian ports across the region. This action may prove fruitful for the US if it cuts off Iran’s ability to sell and export its crude oil production.

But it is worth noting that this is an existential situation for Iran’s current leadership, and as such, the calculation seems to be that Tehran’s capacity to absorb economic pain is leagues above that of the US.

Meanwhile, the first quarter earnings season continues. This has provided a significant positive boost for US equities, with strong corporate earnings and margins at record highs. There was some disappointment overnight after Tesla’s results.

Earnings were solid, but CEO Elon Musk warned of a substantial increase in capital expenses as the company pivots away from electric vehicles towards autonomous ones and humanoid robotics. Tesla’s stock was down over 2.5% in after-hours trade.

Meanwhile, IBM fell more than 7% despite solid earnings and revenues. Investors expressed disappointment that forward guidance was less bullish than anticipated. Today’s major results come from Honeywell, American Airlines, Lockheed Martin, AmEx and Blackstone. There are also updates on Flash Manufacturing and Services.

European stock indices continue to exhibit signs of fatigue. Unlike their US counterparts, European indices remain significantly below their respective all-time highs hit earlier this year, in some cases just before the US and Israel attacked Iran at the end of February.

The Euro Stoxx 50, German DAX, French CAC, Spanish IBEX, along with the UK’s FTSE 100, appear to be rolling over following a decent rally off the lows hit in the third week of March.

Source: TN Trader

In each case, the last few weeks show evidence of the upside momentum failing, with evidence provided by a flattening and curling down of the daily MACDs of these major indices. This part of the world is starkly exposed to high energy prices as it produces very little itself.

A significant proportion of Europe’s and the UK’s imports must pass through the Strait of Hormuz. And as things stand, the Strait remains closed and controlled by Iran.

A quick scan of the major FX pairs this morning would suggest a relatively quiet session. But two things stand out. Firstly, the cash Dollar Index gapped up as it reopened overnight, coming within sight of 98.50, to hit its highest level in ten days. This could prove significant, as it indicates heightened concerns over the war between the US and Iran, despite President Trump extending the ceasefire indefinitely.

If the Dollar Index can hold above 98.00 on any pullbacks, then this could put downside pressure on a whole range of risk assets, including equities and anything priced in US dollars. The second notable thing about this morning’s trade is further weakness in the Japanese yen – not just against the US dollar, but versus the euro and British pound as well.

Once again, the USD/JPY is closing in on 160.00. Above here, traders start to consider the prospect of intervention from Japanese authorities to strengthen the yen. Expectations that the Bank of Japan will hold rates steady at its April meeting have put additional downside pressure on the currency.

Source: TN Trader

Gold dropped back below $4,700 this morning. The bounce in the US dollar on a ‘flight to safety’ weighed on the non-yielding metal as tensions grew between the US and Iran, despite the extended ceasefire. Earlier this week, President Trump extended the ceasefire indefinitely, and this was viewed as dousing fears of an escalation in hostilities.

Source: TN Trader

Despite this, tensions persist due to the continued US naval blockade of Iranian ports, which Tehran says must come to an end for peace negotiations to resume. The capture of two container ships in the Strait of Hormuz by Iran’s Islamic Revolutionary Guard Corps added to market caution.

This was followed up by reports that the US military had intercepted three Iranian oil tankers in Asian waters. As to where gold goes next, much depends on the strength, or otherwise, of the US dollar, for now.

Silver dropped sharply this morning, coming within a few cents of $75.00 per ounce, to hit a ten-day low. As with gold, the firmer US dollar weighed on demand for silver, which is a non-yielding asset. The greenback was back in demand as Iran and the US continue to skirmish over the Strait of Hormuz and now Asian waters, despite the indefinite extension of the ceasefire.

Silver has now dropped around 10% from its highs hit on Friday. Its daily MACD appears to be rolling over, although it’s far too early to suggest that silver’s recovery off the low of $61 from this time last month is over. But the near-term direction is now far from clear, and, as with gold, much now depends on the fortune, or fate, of the US dollar.

Source: TN Trader

Brent and WTI crude oil were both firmer in early trade this morning, and on course for their third successive day of gains. Yesterday, front-month Brent pushed up towards $101 per barrel before pulling back. This morning, it once again breached the $100 level.

Source: TN Trader

Oil has rallied despite the indefinite extension of the US/Iran ceasefire deadline. And in this, it is perhaps expressing an opposite interpretation of the move from investors in US equities. It’s worth bearing in mind that the deadline extension was made unilaterally by President Trump.

He stated that he was giving Tehran a longer opportunity to come to the negotiating table as US military action had ‘fractured’ Iran’s leadership structure. This would be viewed as quite an insult in Tehran, whose war is effectively existential.

Whatever is left of Iran’s leadership has made it perfectly clear that it will not negotiate while US forces continue to blockade its ports around the Strait of Hormuz. Whether the regime can hold out against this blockade for longer than the world can survive the closure of the Strait of Hormuz is now crucial.

As noted earlier, Iran’s capacity to absorb economic pain is far greater than that of the US, or Europe, for that matter. But it would take significant pressure from countries such as China and India to persuade Tehran to return to negotiations, let alone reopen the Strait of Hormuz.

Early yesterday evening, Bitcoin hit highs last seen at the end of January, and was closing in on $80,000, its key short-term resistance level. Cryptos had a strong session on Wednesday, with Bitcoin posting gains of close to 4% on the day. Understandably, it has given back some of those gains today, although the losses have been relatively modest so far.

Overall, cryptos continue to behave well in the current circumstances and have experienced relatively tame volatility given the ongoing geopolitical upheaval. Bitcoin has made steady gains and is now up over 30%, since hitting a four-month low in early February, just a touch north of $60,000.

Its daily MACD continues to suggest moderate upside momentum, and this may increase should Bitcoin manage to break and hold above $80,000 over the coming days.

Investors are preparing for upcoming Purchasing Managers’ Index readings and weekly jobless claims data, both of which could provide clearer signals on underlying economic momentum. Broader sentiment across trading desks appears more cautious than headline levels might suggest.

Corporate earnings continue to provide a supportive backdrop, with well over 80% of companies that have reported so far delivering upside surprises. That strength is helping maintain bullish positioning, although some divergence across asset classes is beginning to stand out. 

In particular, metals appear fragile while oil and equities are sending mixed signals about the broader macro direction, leaving traders questioning which market is offering the more reliable read on risk conditions.