Asian-Pacific indices mixed

US stock index futures were mixed in early trade this morning. But the S&P alone showed a high-low range of 40 points overnight, suggesting that there had been some jostling during the Asian Pacific session, which had worked its way out by the time Europe opened.

Last week saw the Dow gain 2% and the S&P 500 add 1.8%. The tech-heavy NASDAQ tacked on a healthy 2.1% while the small cap Russell 2000 lost a modest 0.1%. Interestingly, the gains came despite weakness across the chip sector. The iShares PHLX Semiconductor ETF lost 4% over the holiday-shortened week.

Source: TN Trader

Investors continued to take some risk off the table after an incredibly strong performance throughout April, May and June. But rather than cashing out of equities altogether, traders still seem keen to stay fully invested, as they put their profits to work buying up overlooked ‘value’, at the expense of growth.

This has helped to broaden out the ongoing rally, as there’s now less concentration in AI-related tech, as funds are more widely dispersed, to an extent. This is viewed as a positive development, especially as the second quarter earnings season approaches.

In this, there will be plenty of focus on tech and the ‘Magnificent Seven’. The latter struggled throughout June, so any good news once the group starts reporting their numbers could help them recover lost ground.

Attention now turns to Wednesday’s release of the Federal Reserve’s June meeting minutes, the first meeting chaired by Kevin Warsh. It’s far from clear how helpful these may prove to be, given Mr Warsh’s stated aim of wanting less commentary, and therefore less transparency, from the central bank. But it was obvious at last month’s meeting that the new Fed Chair sees inflation as the prime focus, with the labour market taking a back seat.

Yet Thursday’s Non-Farm Payroll release came in much weaker than expected, with sharp downward revisions to the prior two months’ data. This took some of the heat off rate hike expectations, which hurt the dollar. But according to the CME’s FedWatch Tool, there’s still a high probability (76%) that the Fed hikes rates by at least 25-basis points before year-end.

European stock indices had a mixed start to the new week but then picked up soon after the open. But the upside momentum began to fade mid-morning, and all the major indices pulled back from earlier highs.

Source: TN Trader

In the UK, corporate news attracted attention as ITV agreed to sell its media and entertainment division to Sky (owned by US media giant Comcast) in a deal valued at £1.6 billion. At the same time, EasyJet agreed to a £5.5 billion takeover by US investment firm Castlelake. There’s been renewed interest in UK/European financial assets as many are viewed as attractively priced, particularly when compared to US corporations.

There must have been some palpable relief over at Japan’s Ministry of Finance last week after the US dollar dropped sharply across the board. The selloff followed the release of weaker-than-expected US Non-Farm Payrolls data on Thursday. This helped to temper some of the more aggressive tightening expectations which had been priced in.

Last month’s Federal Reserve monetary policy meeting, Kevin Warsh’s first as Chair, was far more hawkish than expected. This saw the probability of at least one 25-basis point rate hike before year-end rise to 85%. After Thursday’s payroll report, it dropped back to 76%, and the dollar fell accordingly. Yet the USD/JPY had fallen sharply ahead of the data release.

Some traders wondered if Japan had begun to intervene to support its currency. But it was little more than position-closing ahead of Friday’s US holiday, when many analysts had speculated that the thin FX market could provide the Japanese authorities with the perfect situation in which to intervene. They didn’t, and the dollar has bounced back this morning, once again pressuring the yen.

The cash Dollar Index has found its footing once again and looks to be heading back up towards 101.00. Investors weighed the softer labour market data against expectations that the Federal Reserve could still tighten policy further before year-end.

The USD/JPY pushed up above 162.00 once again, closing in on the 40-year high of 162.84 hit on Wednesday. Japanese officials have repeatedly warned that they stand ready to intervene if currency moves become excessive. Yet the underlying fundamentals remain challenging for the yen.

Source: TN Trader

The Bank of Japan’s policy rate stands at 1%, its highest level since 1995, but remains well below US rates. This means the carry-trade is back in fashion, whereby investors borrow cheaply in yen, leverage up, and buy higher-yielding assets.

Intervention back in 2024 led to an unruly unwind of the carry-trade, with the effects felt outside of FX. For instance, the S&P 500 dropped 10%. Investors should be aware, in case it were to happen again.

Gold made a couple of attempts to break and hold above $4,200 in this morning’s Asian Pacific session. Although it failed and then dropped back, the attempts meant that gold traded at its best levels in two weeks.

Gold prices have been falling for four months now, breaking below $4,000 on several occasions over the past fortnight. The selloff came after gold ended on a tremendous bull run, which saw it make a fresh all-time high of $5,598 at the end of January. It then lost close to 30% from the highs and appeared last week to have made a significant break of support at $4,000.

This came as the precious metal faced a headwind of the stronger US dollar as investors priced in the possibility of at least one 25-basis point rate hike before year-end. But buyers came back in below $4,000, and then Thursday’s poor Non-Farm Payrolls triggered a sharp drop in the dollar. The greenback has bounced back this morning, knocking gold lower. Time will tell if this drop proves to be short-lived or more significant.

Source: TN Trader

Silver hit a two-week high overnight before it reversed direction and fell back on the bounce in the US dollar. Silver now faces some light resistance around $62.50, but a break back above here could set the scene for run up and retest of $70 per ounce.

The daily MACD is curling up from very oversold levels. That suggests that momentum could build to the upside. But traders will be mindful that any additional dollar strength could act as a headwind to silver’s advance.

Source: TN Trader

Oil prices edged lower overnight after OPEC+ agreed to increase production targets by 188,000 barrels per day (bpd) in August. This was the fifth successive monthly production increase and comes against the background of the US/Iran war, currently enjoying a ceasefire, with some evidence of an increase in shipping through the Strait of Hormuz. This should help OPEC+ achieve their production targets, as previous increases have not been able to feed through due to the blockage of the Strait.

Some crude oil contracts are trading at levels last seen before the war broke out at the end of February. It seems that the dynamic back then of slowing global demand growth against plentiful supply is once again coming into play, keeping the downside pressure on oil prices.

But it’s worth noting that crude is very oversold according to its daily MACD. This means that there is a danger of a sharp bounce should short sellers and new buyers decide to get involved.

Source: TN Trader

Bitcoin pushed up towards $64,000 overnight to trade at its best level in just under a fortnight. It has managed to tack on over 10% from the 21-month low under $58,000 hit last Wednesday.

Investors have reemerged on the bull side, encouraged by a pullback in the US dollar, as some of the heat came out of the Fed rate hike expectations. This followed Thursday’s Non-farm Payroll update, which indicated that there was some potential softness across the US labour market.

Investors also responded positively to comments from Fed Chair Kevin Warsh, who acknowledged moderating inflation while maintaining a data-dependent policy approach.

Markets enter the week with volatility subdued and investor attention focused on economic data and central bank signals.

Wednesday’s release of the Federal Reserve’s June meeting minutes will be the key event of the week, while Monday’s ISM Services PMI will provide an important update on the health of the US economy. September rate hike expectations have fallen to around 55% following last week’s weak payrolls report.

Sector rotation remains a dominant theme. Investors continue shifting capital away from technology and semiconductor stocks toward Financials, Industrials and Healthcare. With second-quarter earnings season set to begin next week, attention is gradually turning toward corporate results and forward guidance, which will likely shape market direction through the remainder of the summer.

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