Chip rout weighs on Asian-Pacific indices

US stock index futures were mixed but little changed in early trade this morning. Yesterday Wall Street closed lower for a third straight session with tech (particularly chip stocks) leading the decline. Both the NASDAQ Composite and Russell 2000 lost 1.3%, while the Dow and S&P 500 dropped 0.2% and 0.7% respectively. The iShares Semiconductor ETF (SOXX) fell around 5%, although it was effectively unchanged this morning.

Source: TN Trader

Amongst individual chip stocks, Micron and Marvell Technologies lost 7.0% and 7.8% respectively, while the world's most valuable corporation by market capitalisation, chip designer NVIDIA, fell 2.3%. NVIDIA will release its quarterly results next Wednesday.

Oil and the bond market remain major concerns for investors. Front-month (October) Brent crude pushed above $92 per barrel this morning to trade at a four-week high. The US-Iran ceasefire officially ended on Monday, with both sides insisting that there is no appetite for further negotiations. In fact, Tehran has said that it's switching to an offensive from defensive position.

Meanwhile, President Trump insists that the US has control over the Strait of Hormuz, although there's no evidence of any shipping passing through it. Iran has said that it controls the Strait and that it is closed.

Yields on key US Treasury bonds have hit multi-year highs. This means that away from the overnight rate which the Fed controls, investors have been pushing up borrowing costs. Some of this is due to concerns over upside inflation pressures as energy prices rebound. But it is also the case that US Treasuries must compete with AI hyperscalers as the latter increasingly look to raise money from bond offerings to fund the build-out of AI data centres and other infrastructure.

This was something that used to come from free cash flow. But the amounts involved are so huge that AI-adjacent corporations are increasingly tapping bond markets and even selling their own shares.

Lastly, but certainly not least, there are also worries about the size of fiscal deficits in the US and elsewhere, and what policymakers may do to address these. If history is any guide, then the answer is 'not much' as politicians would have to agree to cut back on spending. Instead, investors worry that bonds will continue to sell off, meaning that yields rise further, until governments are forced into action or risk the failure of a Treasury auction.

Today's main event is the release of minutes from the Federal Reserve's last FOMC meeting. Traders will be hoping to glean some clues over the central bank's monetary policy outlook after three regional Fed presidents dissented from the decision to leave rates unchanged.

On the earnings front, Home Depot beat quarterly profit and revenue estimates and posted its strongest comparable-sales growth since the third quarter of 2022. Other major retailers, including Lowe's, TJX and Target report today with Walmart tomorrow.

European stock indices were a bit of a mixed bag this morning. The German DAX, along with the UK's two major indices, the FTSE 100 and 250, all came under selling pressure as traders struggle to price in soaring bond yields in the US, Japan, as well as the UK and across Europe.

Rising energy prices, and their inflationary effects, due to the apparent escalation in hostilities between the US and Iran, have, along with rising fiscal deficits and AI-infrastructure demands, have seen borrowing costs increase to multi-year highs. At the beginning of this week Germany's 10-year Bund yield jumped to its highest since May 2011, as the US 30-year Treasury yield pushed above 5.30% to a nineteen-year high.

Meanwhile, this week's UK economic data releases can only complicate matters for the Bank of England. Yesterday saw the release of some disappointing labour market data which was seen as reducing the likelihood of an imminent rate hike. But this morning's inflation data, while in line with expectations, saw Headline CPI, which includes food and energy, spike to +2.9% year-on-year, significantly above last month's reading of +2.6%.

Annoyingly, as it meant that this uptick in inflation couldn't all be blamed on energy prices, Core CPI came in at +2.6%, which was higher than expected, although unchanged from last month. The FTSE 100 continues to test support at 10,700.

Source: TN Trader

The US dollar continues to face selling pressure, while this morning saw decent gains for the euro, sterling and Japanese yen. The cash Dollar Index slipped back towards 99.00 after it repeatedly failed to break above 99.40, a level which has now turned into significant resistance. It will be interesting to see if 99.00 holds as support.

Certainly, we've seen buyers come in to lift the dollar every time there has been an escalation in US-Iran hostilities. And that certainly appears to be the situation now as the two-month ceasefire ended on Monday.

Yet the US dollar must contend with a new headwind as expectations for Fed rate hikes this year have been dialled down sharply. Recent payroll numbers, together with a modest softening in inflation and weak Retail Sales have seen the probability of a Fed rate hike at next month's monetary policy meeting fall to 33% from 50% this time last week.

Meanwhile, the CME's FedWatch Tool calculates that the likelihood of at least one 25-basis point rate hike before year-end is 65%, so that's still a possibility should inflation now reverse direction.  

Sterling firmed against both the dollar and the euro after UK headline CPI climbed to 2.9% year-on-year in July from 2.6%. This was in line with expectations and driven largely by a jump in gas prices tied to the household energy price cap. Core CPI held at 2.6% year-on-year, hotter than the 2.5% forecast, while the monthly reading rose 0.3%, also as expected.

Money markets are pricing one BoE hike by year-end, which would lift the Bank rate to 4.0% from 3.75%. Over at the European Central Bank, markets now price a 90-94% probability of a 25-basis-point hike to 2.50% in September.

Meanwhile, the USD/JPY pulled back towards159.00 as the yen strengthened on growing expectations for further rate hikes from the Bank of Japan this year. Inflation is on the rise, and this isn't being helped by the government's 'tax and spend' plans to boost the economy. As mentioned elsewhere, Japanese government Bond yields are also pushing up to multi-decade highs.

Source: TN Trader

Both gold and silver have managed to steady themselves this morning following yesterday's sharp pullback. Both metals appeared to be consolidating around significant levels, with gold trading either side of $4,400 and silver attempting to hold around $65 per ounce. But both metals spent the whole of yesterday getting repeatedly hit by a succession of sell orders, which only dried up earlier this morning.

Source: TN Trader

Looking at the Dollar Index for any clues, while it's true that the dollar was firmer for most of yesterday's session, there was some surprise that the cash Dollar Index repeatedly ran into resistance around 99.40. It then gave up the fight in the early hours of this morning, pulling back sharply, and finally leaving the two precious metals with breathing space to forge a rally.

Yesterday's steep selloff in both precious metals should act as a warning for the bulls. While both metals have staged impressive rallies off their respective July lows, there's still the possibility that neither gold nor silver is quite ready to continue heading higher. Both could. But it's also the case that prices may have to pull back or consolidate further to set the stage for a more substantial and prolonged rally.

Source: TN Trader

Oil prices rose for a fourth consecutive session as the US-Iran standoff over the Strait of Hormuz continues. Front-month (October) Brent crude pushed above $92 per barrel this morning to trade at a four-week high. The US-Iran ceasefire officially ended on Monday, with both sides refusing to take part in further peace negotiations.

Source: TN Trader

Tehran has said that it's switching to an offensive from defensive position. Both sides are claiming that they have control over the Strait of Hormuz, with the Trump administration insisting that it is open, while Tehran says it remains closed. There's currently no evidence of any shipping passing through it, so that rather settles the issue for now.

Iran's parliament speaker, Mohammad Bagher Ghalibaf, said the waterway would stay closed until the US meets the conditions of June's memorandum of understanding. Meanwhile, the US navy continues its blockade of Iranian ports across the region, something that Iran says must end as a condition of the memorandum.

Crude oil got some additional support after data from the American Petroleum Institute (API) showed a small contraction in US inventories last week. This comes on top of news that the US Strategic Petroleum Reserve has shrunk to its lowest level in more than 40 years due to drawdowns because of the US-Iran conflict.

Bitcoin was a tad lower in overnight trade on what looks like some mild profit-taking following a positive start to the week. This renewed strength since the weekend came even as other risk assets have struggled to make gains, with chip stocks leading declines as hostilities between the US and Iran escalate.

Yesterday, the US Securities and Exchange Commission (SEC) proposed new rules designed to create a tailored framework for certain crypto investment contracts. The plan, called Regulation Crypto Assets, would establish two exemptions from securities registration requirements. One would allow eligible issuers to raise up to $5 million over four years, while the other would permit offerings of up to $75 million in any 12-month period. The aim is to give crypto entrepreneurs clearer pathways to raise capital under federal securities law.

Meanwhile, President Trump is expected to join a White House session of his administration's newly formed innovation committee today. Their discussions come ahead of a CFTC (Commodity Futures Trading Commission) meeting tomorrow with the aim of advancing crypto regulation. Meanwhile, bitcoin remains rangebound with support around $63,000 and rough resistance at $66,000.

Earlier today, UK CPI came in exactly as expected at 2.9%, while Eurozone CPI, weekly oil inventory data and the FOMC's July minutes are all on the docket, alongside more Trump headlines expected later.

On the geopolitical front, Iran has warned Gulf states against facilitating any US military action given the lack of scheduled talks, while the UAE has cut all ties with Tehran and Iran is reportedly weighing attacks on European military targets. Elsewhere, Mr Trump is said to be pausing a threatened 50% tariff on Canada for three days.

SK Hynix and Samsung slumped 9.8% and 7.8% respectively overnight. Earnings are due today from Target, Analog Devices, TJX and Lowe's among others. The Nasdaq remains rocky, now on a three-day losing streak, though nothing too dramatic yet.

Chip stocks remain volatile, and buying the dip still looks like the prevailing playbook - though it clearly means taking some near-term pain for the possibility of longer-term gain. This evening's Fed minutes should draw interest, with fed funds pricing still pointing to rates on hold in September.

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