Asian and European Stocks Firm as Dollar Steadies

Global markets opened the week on a broadly firmer footing, buoyed by strength across US indices last week, while the US dollar steadied after a sharp selloff triggered by weak labour market data and joint intervention to support the yen. Attention now turns to key US inflation readings midweek, alongside the ongoing standoff between the US and Iran over shipping access through the Strait of Hormuz.

Asian-Pacific stock indices were generally firmer overnight as investors responded to strength across US stock indices. Australia's ASX 200 was the only exception, losing a modest 0.3% ahead of tomorrow's Reserve Bank of Australia meeting, where the key interest rate is expected to be left unchanged.

Elsewhere in the region:

• Japan's Nikkei led the pack, adding 2.1% for the session
• Hong Kong's Hang Seng rose 1.1%
• Shanghai Composite and South Korea's Kospi both closed up 0.7%

European Stocks Mostly Higher as ASML Extends Its Recovery

A similar story played out across European stock indices, which were generally firmer on the day, although the UK's FTSE 100 bucked the trend and drifted lower. The index continues to consolidate close to all-time highs, with resistance coming in around 11,000 and support currently holding near 10,800.

ASML, the Dutch supplier of chip manufacturing equipment, rose 2.5%, extending a decent rally so far this month, although it has not yet recovered all of its losses from the end of July. The stock had slumped following reports that an unnamed Chinese company was operating in direct competition with it.

Source: TN Trader 

The US dollar edged higher this morning, steadying after last week's selloff. Hopes had grown that the US and Iran were close to agreeing terms to reopen the Strait of Hormuz, but these were dashed over the weekend after Iran insisted it was not negotiating directly with the US - although it confirmed discussions with Oman over new shipping routes through the Strait. Tehran has said the US must agree to certain conditions before it would consider allowing shipping to pass through safely.

Just under a fortnight ago, the cash Dollar Index was trading comfortably above 101.00 and looked poised for another leg higher. Instead, it slumped more than 2% over the following week, breaking below significant support and putting the broader "long dollar" trade in jeopardy. The selloff was triggered by joint Japan-US intervention to support the yen. The dollar steadied at lower levels and staged a modest recovery before Friday's disappointing Non-Farm Payrolls report triggered a fresh selloff. The weak labour data raised fears of underlying US economic weakness, sharply reducing the likelihood of further Fed rate hikes this year. Whether the dollar can recover further may depend on how the US-Iran standoff develops, or on the further evolution of rate hike expectations.

Source: TN Trader 

US stock index futures were mixed in early trade this morning, with modest gains for both the S&P 500 and Nasdaq, and a slight negative bias for the Dow and small-cap Russell 2000. Semiconductor and other AI-adjacent stocks were generally firmer - Marvell Technologies and Intel rose 2.4% and 1.6% respectively, while Super Micro Computer, which reports tomorrow, gained 3.4%. SpaceX continued its recovery, adding 3.3% after soaring around 20% last week following better-than-expected quarterly results - its first update since its IPO in early June.

Last Wednesday saw the Dow, S&P 500 and Russell 2000 all hit all-time highs before some profit-taking took the gloss off an impressive run. All three majors nonetheless ended the week on a positive note, helped by Friday's surprisingly weak Non-Farm Payrolls report, which showed a loss of 23,000 jobs in July - well below the 85,000 gain expected. Underlining the weakness, the Participation Rate fell to a five-year low. The update triggered a bounce in equities, a sharp selloff in the dollar, and a fall in bond yields, as investor focus shifted away from inflation fears and toward concerns over broader labour market weakness.

Rate Hike Odds Shift as Inflation Data Looms

The probability of aggressive Fed rate hikes before year-end dropped significantly following Friday's data. According to the CME FedWatch Tool, the likelihood of no change in rates before year-end rose to 23%, up from 13% previously. Whether this shift in emphasis holds may become clearer this week, with US CPI due Wednesday and PPI due Thursday.

Earnings Season Delivers Strongest Growth Since 2021

The second-quarter earnings season continues to provide a strong tailwind for US equities. With 88% of S&P 500 constituents having reported so far, FactSet calculates a year-on-year earnings growth rate of 50.4% for the index. If this holds for the remainder of the season, it would mark the highest earnings growth rate since the second quarter of 2021, when the economy was rebounding from the COVID crisis.

Separately, the US-Iran standoff continues to simmer. Last week, US Treasury Secretary Scott Bessent suggested a deal to reopen the Strait of Hormuz was imminent, but Iran said over the weekend that no direct negotiations with the US were taking place.

Source: TN Trader 

Crude oil prices were firmer this morning as traders reacted to news over the weekend that Iran is not negotiating directly with the US over reopening the Strait of Hormuz. This followed raised hopes of an imminent deal after comments last week from US Treasury Secretary Scott Bessent. Tehran said it is close to agreeing a shipping corridor deal with Oman but continues to refuse direct talks with the US, citing breaches of the June agreement, and says the US must meet certain conditions before it will consider reopening the Strait. The US Navy continues to block Iranian ports in the region, and President Trump has said economic pressure will continue to be applied to Iran rather than a resumption of large-scale military attacks. Separately, Iranian-backed, Yemen-based Houthi forces said they carried out further attacks on Saudi Arabian energy infrastructure.

Source: TN Trader 

Gold hit a seven-week high at the end of last week and was a touch firmer in early Monday trade, before spending most of the morning giving back overnight gains to trade slightly lower by lunchtime. Gold has had a decent run since the start of the month, helped by dollar weakness following the joint US-Japan intervention to support the yen at the end of July, and further pressure on the dollar after Friday's weak labour data. Given the scale of last week's rally, gold may need to pull back and consolidate before building enough momentum for another push higher.

It's a similar story for silver, where the dollar again appears central to what happens next. Silver broke above $65 per ounce on Friday for the first time since mid-June and has since pulled back slightly, though - as with gold - its daily MACD is far from overbought, having only just moved back above the neutral line.

Source: TN Trader 

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