Key Asian-Pacific markets recover

US stock index futures were firmer across the board this morning, led once again by the tech sector. NASDAQ futures were up over 2% in early trade as investors reacted to a stellar set of earnings from Micron Technology after last night’s close.

Source: TN Trader

The company is the only US-based manufacturer of high-bandwidth memory chips, which are compatible with NVIDIA’s processors. Its stock soared close to 15% after it announced that revenues and earnings per share had been way better-than-expected in the company’s third quarter.

On top of that, Micron delivered some extremely bullish forward guidance and a jump in profit margins, which restored confidence across a sector which has taken a recent hit. Also helping to lift tech sentiment was Qualcomm, which surged 14% after it announced a very upbeat forecast for revenues from its data centre business.

Many headline semiconductor stocks were boosted this morning, including SMC (+3%), AMD (+3.5%), Marvell Tech (+4.6%), TSMC (+2.5%) and Intel (+5.6%). These gains have gone somewhere to offset the sharp selloff across tech and semiconductors, which began on Tuesday and then ran into early trade on Wednesday.

In addition, it was notable that the pullback across tech didn’t extend across other market sectors. Instead, investors saw it as an opportunity to rotate into less growthy and more value-driven stocks, suggesting that risk appetite hasn’t yet faded significantly.

So, despite increased hawkishness from the Federal Reserve under Kevin Warsh, investors do not appear ready to take profits in large numbers. Instead, US equities look as if they can stretch further to the upside, where the atmosphere is particularly thin, and the risk to investors’ bank balances is significantly higher.

Today sees the release of the Personal Consumption Expenditures (PCE) Price Index. This used to be the Federal Reserve’s preferred inflation measure, although Kevin Warsh is understood to favour a trimmed mean average. Despite this, today’s release is important with the consensus forecast suggesting it could rise to 3.4% year-on-year, which would be its highest reading since October 2023.

European stock indices were firmer across the board this morning, once again taking their lead from US stock index futures and Asian-Pacific markets. While European markets don’t have much exposure to tech, they are exposed to high energy prices. So, it has proved to be a great relief that crude oil has fallen so rapidly so far this week.

Source: TN Trader

This helped to ease concerns over inflation and has thereby reduced expectations of aggressive central bank tightening. Perhaps most encouragingly, the prospect that the Strait of Hormuz may soon be fully reopened, without fees or tariffs, has reduced fears of energy supply shortages.

This may have been something that the UK and Europe have narrowly avoided, but it was evidently a significant issue for several Asian Pacific countries, where measures were put in place to curb consumption.

FX markets have quietened down a touch this morning. This follows a particularly hectic week or so, which saw the cash Dollar Index slice through significant resistance at 100.00, only to soar above 101.00 to hit a thirteen-month high yesterday afternoon. The US dollar strengthened against all the majors.

But its most devastating effect came against the Japanese yen. This pushed the USD/JPY up to within a few cents of 162.00, to trade at levels last seen in early July 2024. This was just before Japan intervened to support its currency.

This move was moderately successful in that the USD/JPY fell steadily over the next two months until it briefly broke below 140.00. It then rebounded, coming close to 159.00 three months later.

But there was another intervention in late April this year, which was an unmitigated failure. It took about a week for the USDJPY to drop from 160.70 to 155.00. Yet less than two months later, the USD/JPY has flown past April’s intervention high, with the yen at its weakest in nearly two years. What now? Well, Japan’s Ministry of Finance has threatened and cajoled to get traders to ‘play nice’.

But so far, no good. It is understood that Japanese Finance Minister Satsuki Katayama and US Treasury Secretary Scott Bessent have agreed to coordinate on currency issues if necessary. That is thought to be behind the odd price wobble in the pair on Monday afternoon. So, for traders, it’s still a game of chicken. For now, they continue to taunt policymakers, just daring them to have a go.

Meanwhile, the US dollar is taking a well-earned rest after its recent rally. It shouldn’t be surprising to see some kind of corrective pullback now. But if the cash Dollar Index finds support at 101.00 or even 100.00, then there could be more upside to come, particularly given the Fed’s newfound hawkishness. In the meantime, traders will keep a close eye on today’s key inflation update.

The British pound was a touch firmer this morning but remains under pressure from political uncertainty and shifting interest rate expectations. The GBP/USD is flirting with support around 1.3200. Investors continue to assess the fallout from the resignation of Prime Minister Keir Starmer earlier this week. Attention has now shifted to potential successor Andy Burnham and the possible economic implications of his policy agenda.

Source: TN Trader

Gold has had a dismal run for most of this year, having started with so much promise. At the end of January, it completed a parabolic rally, ultimately coming within a couple of dollars of $5,600, hitting an all-time high in the process.

The precious metal then slumped, crashing to $4,400 over the next few days. It attempted a fresh run at new all-time highs but ran out of puff after hitting a creditable level of $5,400. But gold has been in correction mode ever since.

Yesterday it broke below $4,000, going on to hit lows last seen in early November. This must have been very painful for gold bulls, many of whom have convinced themselves that gold should be nearer $10,000 per ounce than $3,000. And maybe they will be right one day.

The break below $4,000 has increased the probability of further losses, with the next big support level coming in around $3,800-$3,900. Gold hasn’t been helped by the rally in the US dollar, as the two have been negatively correlated for some months now. But this correction has been going on for five months now, so there’s always a possibility of a rebound.

Source: TN Trader

It’s a very similar situation in silver. Yesterday it fell to its lowest level in seven months. Like gold, silver has struggled with the rally in the US dollar as investors price in the prospect of at least one 25-basis point rate cut before year-end.

It’s possible that investors have become too hawkish, and that the Federal Reserve under Kevin Warsh has deliberately talked up the likelihood of rate hikes given the current inflation situation. That could reverse quickly if falling oil prices lead to lower inflation and the Fed becomes more dovish as a result.

Silver is looking quite oversold according to its daily MACD. That’s not to say it can’t fall further. But given the length of this correction (five months), the chances of a rebound have improved, given the depth and speed of this selloff.

Source: TN Trader

Crude oil prices fell further this morning, with some contracts pulling back to levels last seen before the US/Israeli attacks on Iran at the end of February. Traders were responding to easing supply concerns as shipping activity through the Strait of Hormuz resumed.

It was reported that US Energy Secretary Chris Wright said that flows through the Strait of Hormuz were now close to those before the start of the war, stating that at least 20 million barrels had exited the Strait in just one day. Previously stranded tankers were now exiting the Strait.

Agencies reported that more than 20 tankers carrying approximately 35 million barrels of oil had successfully passed through the Strait of Hormuz since the reopening agreement was reached.

Oil prices have nosedived over the past month, with the selloff particularly acute over the past fortnight. This has affected the daily MACD, which now shows that crude oil is more oversold than at any time since April 2020. That was when Covid-induced demand destruction led to some crude oil prices trading in negative territory.

So, there’s always the possibility of a bounce. But the structure of that bounce, should it come, could indicate if prices have further to fall this year, or not.

Source: TN Trader

Bitcoin showed signs of stabilisation after suffering significant losses earlier in the week. Market participants remain focused on the Federal Reserve’s policy outlook. While lower oil prices have improved the inflation outlook and reduced upward pressure on Treasury yields, expectations for future rate hikes remain elevated.

This environment has generally been unfavourable for risk-sensitive assets such as cryptocurrencies. Bitcoin has also been impacted by the broader weakness in technology stocks and persistent geopolitical uncertainty. Investors are now looking to the PCE inflation report for clues about future monetary policy and the potential direction of risk assets.

Markets enter a crucial session with investors focused firmly on US inflation data. The May PCE report will likely determine whether expectations for future Federal Reserve rate hikes continue to build or begin to ease.

 Semiconductor stocks have regained leadership following Micron’s blockbuster earnings, reinforcing the market’s belief that AI-related demand remains robust and that supply constraints may persist well beyond 2027.

Meanwhile, oil’s collapse back to pre-war levels is easing inflation concerns across global markets, though policymakers remain cautious. Precious metals continue to struggle, cryptocurrencies remain vulnerable, and currency markets are balancing intervention risks against diverging central bank policies.

For now, the strong rebound in chip stocks and improving risk sentiment have given equity bulls renewed momentum. However, with inflation, GDP, durable goods orders and jobless claims all due for release, markets may face another significant test before the week concludes.

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