US-China trade uncertainty lingers

European stock indices flat

European stock indices were mostly unchanged in early trade. The German DAX and Euro Stoxx 50 eked out modest gains, while Spain’s IBEX and the UK’s FTSE 100 were both a touch weaker.

Source: TN Trader

German Retail Sales rose 1% in June, ahead of forecasts for a 0.5% gain and a rebound from May’s decline of 0.6%. But any positive sentiment was tempered after banking giant HSBC reported disappointing second-quarter results.

Europe’s largest lender missed profit expectations, citing impairment charges as the key drag. That said, the bank announced a $3 billion share buyback, which may provide some offsetting support.

Wall Street indices are modestly higher

US markets ended Tuesday in the red after a string of weak earnings releases and stalled trade talks with China took the wind out of recent record-breaking rallies. Both the S&P 500 and the NASDAQ lost 0.3% and 0.4% respectively. Meanwhile, the Dow fell 0.5% and the small-cap Russell 2000 ended 0.6% lower.

Source: TN Trader

Earnings disappointments came from several high-profile names. Boeing dropped 4% after its update. UPS fell 10% after missing estimates while declining to offer any forward guidance. Whirlpool also missed market expectations and slashed its dividend, sending shares tumbling 13%.

Spotify endured its worst session in two years, falling 11% after issuing weak guidance and missing on revenue. Starbucks reported its sixth straight quarter of declining same-store sales but managed to beat Wall Street’s quarterly revenue estimates in China.

So, there’s evidence that some important corporate names are having a difficult time of things. Yet investors remain fixated on the ‘Magnificent Seven’, with two constituents, Microsoft and Meta Platforms, set to update the market after tonight’s close.

US stock index futures were modestly higher early Wednesday following Tuesday’s pullback. Investors remain focused on today’s Federal Reserve interest rate decision, with markets widely expecting rates to remain unchanged at 4.25%–4.5%. But it’s possible that there could be a few FOMC dissenters, as Christopher Waller and Michelle Bowman have both indicated that they favour a 25-basis point cut now, rather than waiting until September.

Market participants are also considering the uncertainty following the US-China trade talks, which concluded yesterday. Negotiations ended without a clear extension of the current tariff truce, which is set to expire on August 12th. Any delay will ultimately require President Trump’s sign-off.

Oil prices drift lower after breakout

Crude oil drifted lower in early trade this morning, pulling back from the five-week highs hit on Tuesday. Oil prices rallied sharply at the beginning of this week, boosted by growing optimism that recent trade agreements, particularly President Trump’s deal with the EU announced on Sunday, would support future demand.

This saw crude oil break out of a trading range which had been building ever since oil rallied, then collapsed, following the US/Israeli airstrikes on Iran and the subsequent ceasefire last month. Then, traders were forced to cover short positions after President Trump said yesterday that he was cutting his deadline for Russia to wind down its war with Ukraine from 50 days to 10-12 days.

Front-month WTI hit $69.50 overnight but has since pulled back a touch. Investors are anxious to get confirmation that the deadline for a US-China trade deal will be extended beyond 12th August.

Source: TN Trader

Gold and silver trade sideways

Gold and silver prices remain rangebound as traders await key catalysts, with both precious metals struggling to extend their recent upside momentum. Gold continues to consolidate, while holding above $3,300 per ounce.

Source: TN Trader

Silver lost ground overnight but has managed to hold above $33 per ounce so far today. The lack of clear direction is largely due to the US dollar’s influence and the cautious tone in broader markets ahead of the Federal Reserve’s interest rate decision later this evening.

The Dollar Index has rallied sharply this week, putting further distance between current levels and the multi-year lows hit at the beginning of this month. With the Fed expected to hold rates steady, precious metals are likely to remain sensitive to any shift in policy tone or commentary around inflation and economic outlook.

US dollar steadies at higher levels

The US dollar held on to recent gains overnight. This week’s rally came after details of the US-EU trade deal were announced. It was widely felt that the US came away with far more than the European Union, and this has helped to spark a rally. This comes after a difficult first half of the year, which saw the Dollar Index fall by over 12%. It has now rallied 2.5% so far this month. 

Source: TN Trader

Meanwhile, the Japanese yen rallied sharply overnight on safe-haven demand. This followed reports of a huge tsunami heading across the Pacific, driven by a powerful earthquake on Russia’s eastern coast.

Source: TN Trader

Forex traders are now preparing themselves for central bank rate decisions from the Federal Reserve, the Bank of Canada and the Bank of Japan. None is expected to announce any changes, but they could give clues as to their outlook for the rest of this year.

Bitcoin is rangebound below resistance

Cryptocurrencies were modestly firmer in early trade this morning. This saw Bitcoin continue to oscillate within a relatively tight range, with $120,000 acting as resistance, and support around $117,500. Ether also remains rangebound, with the bulls looking at $4,000 as the next big psychologically important mark.

VIX steady in subdued trade

The VIX remained steady in early trade this morning. Yesterday’s rare, but modest, sell-off across US stock indices hardly moved the needle as far as stock market volatility was concerned. Investor sentiment appears relatively resilient. But with the Federal Reserve decision, Advance GDP data and key earnings still all to come, volatility could rise if surprises materialise. If not, then the VIX looks like it could continue to drift in listless summer trade.

Market outlook

Wednesday is shaping up to be one of the busiest days of the week for global markets. HSBC missed its Q2 earnings estimates, while UBS reported profits at the upper end of guidance. A host of US and European companies are set to report, including Etsy before the bell and Meta Platforms, Microsoft, Ford and Robinhood after market close.

All eyes are on the Federal Reserve’s rate announcement at 7 p.m., with the Bank of Canada set to deliver its decision earlier at 2:45 p.m. US GDP data is also due later in the day, providing another important read on the state of the economy. With earnings, central bank actions and macroeconomic releases all converging, traders will stay on their toes, particularly as the August 1 tariff deadline looms.