US markets pull back after strong run

Asian Pacific stock indices were mostly firmer overnight. The Japanese Nikkei was the only exception, closing 0.6% lower on concerns over a jump in Japanese government bond yields. Hong Kong’s Hang Seng, the Shanghai Composite and the Australian ASX 200 rose 0.6%, 0.2% and 0.5% respectively. 

Markets in the region showed resilience despite the pullback on Wall Street, with sentiment bolstered by local drivers and continued optimism around trade policy easing.

European stock indices were mixed in early trade, shrugging off weakness across US futures. The German DAX gave back some ground after a string of record highs. The UK’s FTSE 100 was little changed, demonstrating its indifference to a sharper-than-expected jump in the latest inflation update. 

Headline CPI data came in at +3.5% year-on-year, higher than the 3.3% forecast, and miles above the prior reading of 2.5%. The data have raised questions over the BOE’s rate path.

Earnings from JD Sports, which reported Q1 sales in line with expectations, offered a small offset.

As far as Forex is concerned, the US dollar remained under pressure, with the Dollar Index slipping back below 99.00 overnight, before recovering a touch.

The British pound climbed sharply following the release of hotter-than-expected UK inflation data for April. Sterling jumped 0.5% against the US dollar before pulling back.

The initial move reflected a shift in market expectations around the Bank of England’s policy path as inflation proves stickier than anticipated. This has reduced the likelihood of another rate cut at the Bank’s August meeting.

Source: TN Trader

Sterling made similar gains against the euro, before pulling back. The EUR/USD continues to recover, having pulled back sharply from the multi-year high close to 1.1600 hit this time last month.

Source: TN Trader

The Japanese yen and Swiss franc have both continued to strengthen overnight.  The overall tone towards the US dollar remains cautious, with markets treading lightly ahead of additional macro drivers.

Yesterday saw the gold price surge above $3,250 – a level that had acted as resistance since last Thursday. Gold hit $3,320 this morning, trading at levels last seen earlier this month.

It appears to be regaining its role as a safe-haven, and the pullback in the US dollar has certainly helped. The rebound appears tied to a rise in geopolitical tensions and shifting sentiment around inflation and interest rates. 

As far as the bulls are concerned, they will be hoping that $3,250 holds as support on any pullbacks. If so, that raises the probability that gold could experience another leg up in its multi-year rally.

Source: TN Trader

Oil prices jumped early in the session after reports that Israel may be planning to target Iranian nuclear facilities. The initial reaction saw crude surge higher, but those gains were later pared back as markets digested the headlines. Front-month WTI was trading close to $63 per barrel, still higher on the day.

Source: TN Trader

Geopolitical developments, alongside ongoing concerns over supply and demand dynamics, continue to drive price action in the energy complex.

Natural gas prices surged 10% yesterday on supply-related news, but they traded lower overnight as some of that momentum eased. The pullback wasn’t severe, but the commodity now appears to be testing support levels again, with 360 BTU acting as a key near-term pivot.

Crypto markets firmed overnight, continuing their steady performance this week. Ether once again led the way, extending its outperformance versus Bitcoin. BTC edged closer to the 100k level but remains just shy of a breakout.

Overall, sentiment across digital assets remains constructive, though pockets of caution persist given recent volatility.

The VIX climbed modestly, up about 1% and is now sitting just above 18. This slight rebound followed a sharp drop the previous day and may reflect some wariness returning to markets.

While volatility remains relatively low, the move higher serves as a reminder that sentiment can shift quickly in the current environment, especially with event risk still present.

Attention turns to a packed macro agenda, with the G7 meeting ongoing and more Fed speakers scheduled. Despite a recent barrage of Fed commentary, markets remain on high alert for any shifts in tone, particularly regarding tariffs and inflation risks.

Investors will also be watching for remarks on global coordination and economic policy as central banks remain in focus.

On the data front, the weekly US oil inventory numbers are due, with expectations pointing to a draw of around 1 million barrels. Corporate earnings continue, with Target, Lowe’s and Snowflake among those reporting after the bell.

These updates will be watched closely for signs of any changes in consumer strength and margin pressures amid the current inflationary backdrop.

On the other hand, Home Depot posted mixed fiscal Q1 2025 results on Tuesday, with strong top-line growth offset by weaker earnings and soft comparable sales, as tariff concerns continue to weigh on consumer sentiment and margins.

The home improvement giant reported revenue of $39.9 billion, up 9.4% year-on-year and ahead of the $39.29 billion consensus estimate. However, net earnings slipped to $3.4 billion, or $3.45 per share, down from $3.6 billion, or $3.63 per share, a year earlier, missing the expected $3.59. Adjusted EPS came in at $3.56 versus $3.67 last year.

Comparable sales declined 0.3% overall, though US store performance was slightly better with a 0.2% increase, suggesting domestic demand is holding up modestly despite broader pressures.

Risk markets paused on Tuesday after an impressive run, with modest profit-taking and renewed geopolitical tension contributing to the decline. Inflation data from the UK shook up rate expectations there, while safe havens like gold found support again. Crypto continued to show resilience, led by Ether.

As sentiment remains cautiously optimistic, traders will be eyeing upcoming Fed commentary, G7 headlines, and key data points to guide the next leg. For now, the bulls are still in control, but the environment remains fluid.