European markets steadier

All the major US stock indices ended lower on Thursday, marking the third consecutive negative session. Once again, the decline was most notable across smaller companies, as the small-cap, domestically focused Russell 2000 ended down 1%.

It was just a week ago that the Russell finally managed to eke out a fresh all-time high, having lagged when compared to this year’s succession of all-time highs for the other majors. But there was also some significant weakness across the technology sector, where the artificial intelligence (AI) trade continued to experience some unwinding.

Tesla lost 4% yesterday, while Oracle, which soared over 50% at the beginning of this month, dropped 5%. Oracle’s rally came after the company announced surging demand for its cloud services, particularly from firms involved in AI. Understandably, as concerns build over the amount of capital being spent on AI, and the possibility of diminishing returns, Oracle was in the direct firing line when it comes to investors cutting back their exposure.

Yesterday also saw a clutch of better-than-expected data releases. Second quarter GDP growth was revised up to 3.8% annualised, from 3.3%. Durable Goods came in at +2.9%, versus the –0.3% forecast. Existing Home Sales were also positive, while weekly Unemployment Claims dropped back sharply to 218,000 from 232,000 previously. This helps to reverse the shocking 263,000 gain from earlier this month.

It also takes the four-week average back within the 220-240,000 range, which has been the norm for the past four post-COVID years. Taken all together, investors concluded that yesterday’s good data made it less likely that the Fed would look to cut rates aggressively going forward. Hence, the weakness across the US majors and an uptick in Treasury yields.

All eyes will now focus on today’s Core PCE inflation release. The August number is expected to come in at +2.9% year-on-year, unchanged from July.

US stock index futures were mixed in early trade this morning. It was noticeable that semiconductor companies were struggling. NVIDIA was down a relatively modest 0.8%. But AMD, SMC and TSMC were harder hit, trading down 1.3%, 2.0% and 1.6% respectively. Bucking this trend was Intel. The much-troubled US chipmaker is currently enjoying a bit of a renaissance, having added around 40% since the middle of last week.  This morning it tacked on around 4%.

Source: TN Trader

In addition to this afternoon’s inflation release, there’s another handful of Fed members due to speak today. This includes Trump’s pick for governor, Stephen Miran. Mr Miran joined the Fed just ahead of its FOMC monetary policy meeting earlier this month. He immediately made his position clear by being the only member to vote for an immediate 50 basis point rate cut, a move which would have further endeared himself to the US President. And there’s more political uncertainty to consider as we head into the weekend, as well as the end of the third quarter.

President Trump has warned that a government shutdown remains a possibility if policymakers in Congress fail to agree on a budget ahead of next Tuesday’s month-end. Treasury Secretary Bessent tried to steady sentiment, saying, “I think we can get the stock market up.” Meanwhile, Starbucks confirmed it will close stores and cut jobs as part of a $1 billion restructuring plan, a move that weighed further on corporate sentiment.

Australia’s ASX 200 managed to buck negative sentiment across the Asian Pacific region by ending up 0.2% on Friday. But the Japanese Nikkei lost 0.9% even as Tokyo’s CPI came in at +2.5% year-on-year. This was unchanged from the prior month, but well below the +2.8% expected. Investors were taking their cue from weakness across Wall Street, which fell for its third successive day.

Hong Kong’s Hang Seng index fell 1.4%, while the Shanghai Composite lost 0.7%.  Pharma stocks came under pressure after US President Trump announced fresh tariffs. These included fresh duties of 100% on branded or patented pharmaceuticals unless companies relocate manufacturing to the US. In addition, Mr Trump announced a 25% tariff on heavy trucks, 50% on cabinetry, and 30% on upholstered furniture.

FX markets were relatively quiet this morning. Traders were sitting on their hands ahead of the latest US inflation update, along with speeches from a clutch of Fed members and the usual concern over the possibility of a US government shutdown as Democrats and Republicans bicker ahead of Tuesday’s budget deadline.

The US dollar has been on a tear this week, catching many investors offside. The dollar has been weak this year, as investors priced in further monetary easing from the US Federal Reserve, while other central banks look to keep rates unchanged. It is also no secret that a major part of the Trump administration’s mission to ‘Make America Great Again’ rests on a weaker dollar, thereby helping to boost US exports.

The Dollar Index has rallied sharply over the last ten days. Having broken below 96.00 to hit a multi-year low just after the Fed’s FOMC meeting and rate cut, it pushed above 98.00 yesterday to hit its highest level in a month. It was unchanged and holding above here in early trade this morning.

Meanwhile, the Japanese yen has taken the brunt of the selling. Overnight, the USD/JPY hit its highest level, coming within a few cents of 150.00. This yen weakness comes even as the Bank of Japan signalled that it was likely to raise rates again at the end of October.

Source: TN Trader

Gold was little changed this morning, with prices holding steady around $3,750 level. Gold hit a fresh record high on Tuesday, coming within $10 of $3,800. But it has eased back a touch since then, with recent strength in the US dollar acting as a catalyst for some profit-taking.

The daily MACD continues to look overbought, but there’s already some evidence to show that it is flattening out as gold appears to be consolidating near all-time highs. Today’s PCE inflation update could provide a trigger for the next big move, as could investor positioning ahead of the end of the third quarter.

Source: TN Trader

Should Core PCE push up to 3.0% or higher, that could further undermine the Fed’s efforts to loosen monetary policy further, despite market expectations for two more 25 basis point rate cuts before year-end. If inflation were to come in hot, that could lead to further dollar strengthening, and this in turn may weigh on gold prices, at least in the short-term.

Meanwhile, silver has grabbed the baton from gold and is now in the vanguard of the rally in precious metals. Yesterday it surged above $45 per ounce, a fourteen-year high, and it has managed to modestly build on those gains this morning.

As with gold, silver is looking overbought according to its daily MACD. Traders will be paying close attention to today’s Core PCE inflation update and what it might mean for monetary policy, and the short-term outlook for silver.

Source: TN Trader

Front-month WTI dipped back below $65 per barrel this morning, having rallied sharply since Tuesday. WTI closed in on highs seen at the beginning of this month, probing an area of resistance around $65.20-$65.50. Oil prices got a boost from fears of supply cuts as Ukraine continues to pound Russia’s energy infrastructure. Those fears have now materialised, as Russia has been forced to extend a ban on gasoline exports, while adding a partial ban on diesel exports until the year-end.

Source: TN Trader

Aside from possible short-term issues, which look likely to affect Europe more than anywhere else, the market remains well supplied. This week, Iraq and Kurdistan agreed to reopen a joint pipeline for the first time since March 2023, enabling an estimated 230,000 barrels per day for export.

In the meantime, demand growth continues to slow, as countries switch to alternatives and increasingly move to electrify their power grids.

Bitcoin broke below $110,000 yesterday and continues to come under selling pressure. It is now approaching an area of mild support, marked by the low at the beginning of this month, just above $107,000. Investors continue to unwind leveraged long positions, albeit at a slower rate.

At some stage, this unwind will end, possibly setting the stage for another rally. But it’s far from clear how far through the market is through this long unwinding.

Having broken below the significant $4,000 level, Ether is now testing an area of support between $3,800 and $3,900. If it can hold above here and consolidate, that too may encourage fresh buying. But overall, risk sentiment has taken a knock, and this hasn’t been improved by this week’s US stock market sell-off.

Yesterday, the VIX hit its highest level since the beginning of September, before pulling back. The index has been picking up steadily over the past week. And while it remains a long way from levels which would indicate market distress, it has risen over 9% in little over a week.

Despite this week’s pullback across US stock indices, the move in the VIX so far highlights that investors are not rushing to hedge any downside risk aggressively at this point. Instead, the index remains steady, reflecting a market that is waiting for a catalyst - with today’s inflation data a possible trigger candidate.

Investors are firmly focused on today’s PCE inflation data, with markets hoping for relief after three straight days of losses. Silver has stolen the spotlight from gold with its surge to multi-year highs, while the US dollar’s strength faces a test from the upcoming numbers. Tariffs remain a headline risk, and broader sentiment continues to be guided by expectations for two more Fed cuts this year.