Chinese equities lead gains

US stock index futures were mixed in early European trade, despite an all-round positive performance during the Asian-Pacific session. The Dow and Russell 2000 drifted lower, while the tech-heavy NASDAQ and S&P 500 remained in positive territory. This morning's gains for individual equities were concentrated in the tech space. And within this, chip stocks outperformed with Micron Technology up 3.5%.

Source: TN Trader

There were also notable gains for Marvell Technology (+2.8%), Advanced Micro Devices (+1.3%), Intel (+2.4%) and SK Hynix (+4.3%). Last week the S&P 500 and Nasdaq posted a third straight weekly gain with the former hitting a fresh all-time closing high on Thursday.

Investors were cheered by a slight softening in inflation data which eased fears of a Fed rate hike next month. The CME's FedWatch Tool calculates that the probability of a September hike is around 30%, down from 50% ahead of last week's inflation numbers.

Meanwhile, the likelihood of at least one 25 basis point rate hike prior to year-end currently stands at 65%. But all this good news was tempered by Friday's weak Retail Sales numbers, which, when considered alongside two consecutive months of poor Non-Farm Payroll numbers, has some analysts questioning the underlying state of the US economy. This was exacerbated following a drop in Consumer Confidence and an uptick in Inflation Expectations, both numbers released on Friday afternoon.

Yet offsetting this to a significant degree has been the second quarter earnings season. FactSet reports that of the 88% of S&P 500 constituents that have reported so far, 86% have reported better-than-expected earnings per share numbers, and 76% have reported a positive revenue surprise. In addition, year-on-year earnings growth is currently running at 50.4%, which, is in line to be the best earnings growth for five years, just as the world was recovering from the global Covid lockdowns.

There are still some big companies to report, including consumer-facing corporations such as Home Depot, Target, Lowe's and Walmart this week. Next week brings an update from NVIDIA, the last Mag 7 member to update.

Meanwhile, the memorandum of understanding signed back in June by both the US and Iran, is 60 days old today. The US says that it now expires, although Tehran insists that there was no time limit attached to it. Overall, the lack of progress toward a peace deal has kept upside pressure on oil markets, with tanker traffic through the strategic waterway still largely halted.

Last week, Energy was the best performing sector within the S&P 500, adding 7.3% on the back of a 5.4% rally in WTI crude oil. Iran has urged the US to accept defeat, while President Trump has warned US citizens to brace for higher petrol prices as the conflict continues.

European stock indices were firmer on the open but then drifted lower as the morning session progressed. Sentiment got an early lift as European government bond yields eased back from recent multi-week highs. Both the euro and sterling rallied against the dollar as traders reduced their expectations of aggressive Federal Reserve monetary policy tightening for the rest of this year.

Source: TN Trader

As noted above, the ongoing diplomatic gridlock between Washington and Tehran over transit through the Strait of Hormuz has kept crude prices elevated. Yet prices continue to trade significantly below $100 per barrel – a level that has both a cost and psychological significance.

The US dollar was softer across the board this morning, with both the euro and sterling appreciably higher. The cash Dollar Index briefly broke below 99.00 early in the European session to trade at a ten-week low. The dollar has lost much of its upside momentum since the end of July. First off, it fell dramatically as both the US and Japan intervened to support the yen.

Since then, the likelihood of a September rate cut from the Federal Reserve, which was 50:50 early last week, has fallen significantly. Last week's modestly lower US inflation updates have seen the probability that the Fed leaves rates unchanged next month rise to 70%.

Meanwhile, other central banks, including the Bank of Japan and Bank of England, are coming under pressure to raise their own rates due to stubbornly high (the UK) or rising (Japan) inflation. Friday's weak Retail Sales numbers saw the dollar blip higher, but the downside momentum quickly resumed. Traders continue to keep an eye on the US-Iran standoff.

On Friday Iran's Foreign Minister Abbas Araghchi said that no negotiations were currently taking place between Tehran and the US, reiterating that the US must meet Iran's conditions before shipping can resume through the Strait of Hormuz.

The USD/JPY dropped below 159.00 before recovering somewhat, as the yen firmed following Japan's preliminary Q2 GDP data. The economy expanded just 0.3% on the quarter - below the prior quarter's 0.5% and market expectations of the same - with the annualised 1.1% growth rate also undershooting forecasts of 2.0% and easing from 1.8% previously.

The weak print complicates the Bank of Japan's path toward further policy normalisation, given the central bank has been leaning on steady domestic demand to justify additional hikes.

Source: TN Trader

Gold built on Friday's bounce and attracted follow-through buying during this morning's Asian-Pacific session. Gold traded down towards $4,300 early on Friday but then staged a rally which saw it burst above $4,400 before retreating again. Gold had a strong start to the month having repeatedly tested support around $4,000 throughout July. But it has struggled to hold above $4,400 making it a frustrating time for the bulls.

Nevertheless, last Thursday it hit its highest level since early June, coming within a cent or so of $4,450 before pulling back once again. Friday's US Retail Sales dropped 0.6% in July, the first fall in nine months and the largest monthly decline since May last year.

Source: TN Trader

Meanwhile, Consumer Sentiment dipped to 51 in August from 55.2 previously, and Inflation Expectations ticked up. Coming straight after the softer inflation numbers, all the data helped to temper expectations for an imminent Fed hike. This kept pressure to the downside for the dollar which supported both gold and silver.

Silver built on Friday's bounce from the mid-$63 area, tracking the same dollar-selling bias as traders continued to scale back Fed hike bets amid cooling inflation and weak consumer spending. But as with gold, silver continues to run into resistance, and so far, it has been unable to break and hold above $66 per ounce.

Source: TN Trader

Oil prices were little changed in early trade on Monday but with a slight upside bias. This reflected uncertainty over US-Iran relations and the continued closure of the Strait of Hormuz. At the beginning of last week both Brent and WTI crude surged over 5% as hostilities escalated. Iran carried out attacks on tankers while the US maintained its naval blockade of Iranian ports in the region.

Source: TN Trader

Over the weekend, Foreign Minister Araghchi reiterated that Tehran is not engaged in direct talks with Washington. Meanwhile the US threatened additional economic measures against Iran. President Trump also said he would soon declare the Strait of Hormuz as US territory. Fresh Ukrainian strikes on Russian refineries also supported oil prices.

There's now the added complication of a new front in the Red Sea, with Yemen's Iran-backed Houthis continuing to attack ships in the Bab al-Mandab Strait, threatening to further destabilise West Asian supply. Concerns over tightening supply have largely overshadowed last week's demand-side warnings from OPEC and the International Energy Agency, both of which cut their 2026 global demand forecasts.

Bitcoin was a touch firmer this morning but continued to trade in a tight range. Bitcoin has spent the past six weeks stuck between support around $62,000 and resistance at $66,000. This has become rather frustrating for crypto traders, as the lack of volatility, even after bitcoin has effectively halved from its all-time high hit last October, has lessened interest in what was the most exciting game in town.

But all shiny things eventually lose their lustre. And this year it has been AI-adjacent stocks, particularly semiconductors, which have caught the imagination of traders at the expense of cryptos. What hasn't helped is the slow progress of regulation, currently edging through Congress, which may, if passed, boost investors' interest in cryptos once more.

The front-month (August) VIX sitting in the mid-15s says it all: a rather quiet summer bull market. Japan's GDP came in mixed overnight, and this week's calendar includes some minor US releases, UK CPI, Wednesday's Fed minutes and flash PMIs on Friday.

Earnings are now down to a trickle, with Walmart the big one this week and Nvidia the one to watch next Wednesday the 26th. The next Fed meeting on September 15-16 is now priced at only around a one-in-three chance of a hike, as weak data continues to cool the prospects for a move.

Elsewhere, a senior US general has acknowledged mental health strain among crew aboard the USS Lincoln in the Gulf, while America's strategic oil reserve sits at its lowest level since it was first filled in the early 1980s.

As markets head into what's typically the quietest fortnight of the year, global indices remain at or near record highs, seemingly immune to almost anything thrown at them - the VIX tells that story on its own. There's little the bears appear able to do about it. Every soft data point is either shrugged off or spun as a positive, and attention now turns to Nvidia's numbers next week as the big test of market resilience.

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