Asian-Pacific stock indices in retreat

US stock index futures found some support overnight and rebounded a touch after a shaky start to the Asian-Pacific session. The majors tacked on between 0.2-0.5% this morning, but still had a long way to go to recover yesterday's steep losses.

Chip giant Intel reported a strong set of numbers and upbeat forward guidance last night. The stock was up 5% this morning, helping to calm nerves shredded by yesterday's selloff. Adding to the better tone was a sharp pullback in crude prices after Thursday's surge.

Source: TN Trader

Alphabet and Tesla reported after Wednesday's close. Alphabet reported blow-out results, particularly with its Cloud revenue growth, which rose 82% from this time last year. The first AI hyperscaler to report this quarter raised its guidance for capex spending, but this came at a cost of negative free cash flow for the quarter. The stock fell 6.9%, although it has steadied in overnight trade.

Tesla posted record sales, but earnings per share and gross margins disappointed. It also announced a surge in capex, but, as with Alphabet, this translated into negative cash flow for the quarter. Tesla slumped 14.5% yesterday but was up 1% this morning. Investors are concerned that this could be the story of the quarter, which puts considerable pressure on Amazon, Meta and Microsoft when they report next week.

Investors are once again expressing concern over current AI valuations, given the uncertain return on capital expenditure, and how that money will be raised, as it cannot be covered by free cash flow anymore. Investors are also worried about the escalation of hostilities between the US and Iran and the effect these are having on the oil price.

Bond yields have jumped in response to inflation fears, with the yield on the 10-year Treasury Note at an eighteen-month high. The market assigns a 30% chance of a rate increase from the Fed after next week's FOMC meeting, up from 13% last week. Perhaps more seriously, the CME's FedWatch Tool shows a 90% probability of at least one 25-basis point rate hike before year-end.

Yesterday, the Trump administration introduced fresh tariffs on imports from 60 trading partners, citing failures to prevent forced labour. Countries allegedly guilty of allowing forced labour include the UK, Norway and Canada. The tariffs seem to be a punishment for allowing close ties with China. These measures come only days after 50% tariffs were imposed on some Canadian goods and represent another escalation in US trade policy.

European stock indices were firmer across the board on Friday. This came as oil prices pulled back significantly after yesterday's surge, and as US stock index futures rallied a touch after chip giant Intel's positive earnings report after Thursday's US close.

European tech, such as it is, outperformed after heavy selling yesterday. But it is also the case that European equities are seen as attractive alternatives to those in the US, due to their lower valuations.

There's also considerably less exposure to tech and AI-adjacent corporations in the European indices, and that's probably a positive in the current investment environment. But will that still be the case after Microsoft, Meta, Amazon and Apple report next week? Nevertheless, investors are forced to consider the impact of the latest US tariffs, which now apply to imports from 60 trading partners.

Source: TN Trader

The US dollar was a tad softer across the board this morning. But it appeared well supported with no indication that it was doing anything else than consolidating at higher levels. Yesterday, it shot higher as investors sought out safety in a flight to quality as oil surged along with US bond yields.

Yesterday afternoon, the cash Dollar Index topped 101.20 to hit its highest level since the 1st of July. Meanwhile, September Brent Crude broke back above $100 per barrel, while the yield on the 10-year Treasury Note topped 4.70% - its highest level in eighteen months.

Higher oil prices have revived inflation concerns and prompted markets to significantly increase expectations that the Federal Reserve will raise interest rates. According to the CME's FedWatch Tool, there's a 90% chance of at least one 25 basis point Fed hike before year-end, while the probability of a rate hike at next week's policy meeting is 30%, up from 13% last week.

Meanwhile, continued hostilities between the US, Iran and Yemen’s Houthi forces have disrupted shipping through both the Strait of Hormuz and the Bab el-Mandeb Strait, affecting around 27% of global energy supply and reinforcing the US Dollar's safe-haven appeal.

Yesterday, the Japanese yen hit multi-decade lows against the US dollar, with USD/JPY trading within a few ticks of 164.00 late afternoon. The yen is a tad stronger this morning. Japan’s latest inflation data showed headline CPI rose to 1.7% year-on-year in June from 1.5% previously, while core inflation increased to 1.6%, matching expectations.

Source: TN Trader

Despite this, markets expect the Bank of Japan to leave interest rates unchanged at next week's policy meeting. Investors remain focused on the possibility of foreign exchange intervention after Finance Minister Satsuki Katayama reiterated that authorities remain prepared to take decisive action if currency movements become excessive.

Two weeks ago, she said she would push the Government Pension Investment Fund (the world’s largest) to invest more in domestic financial assets. That may help. But that doesn't look as if it will be sufficient to strengthen the yen on its own. In the meantime, widening interest rate differentials between Japan and the US continue to underpin the dollar and undermine the Yen.

Gold was a touch firmer this morning as buyers came in to support prices following weakness during the overnight session. It's just possible that gold manages to eke out its first weekly gain since June if it can hold above $4,030 or so.

The precious metal began a fight-back rally this time last week after falling to an eight-month low below $3,960. By Wednesday afternoon, it had topped $4,160 for an overall move of $200 per ounce, or 5%. But it was unable to build on these gains, particularly as the US dollar roared back to life after dropping significantly on soft US inflation data.

The escalation in hostilities between the US and Iran, the stronger oil price and the jump in US Treasury yields saw the dollar bounce and gold slump. Despite this, and while lower cycle lows remain a danger for the bulls, support has been building just south of $4,000.

This will need to hold, and gold will need to break above $4,200 with real conviction to spark the market into life again following the dismal downward correction since the end of January.

Source: TN Trader

As usual, much of the same argument can be made about silver. Of course, the committed bulls will also talk about how silver's fundamentals are even more compelling than those for gold, given its wide range of uses in medicine and industrials, for instance.

That has come into particular focus as AI infrastructure, such as data centres, springs up, requiring significant amounts of silver and copper. In addition, silver gets used up in a way that gold doesn't. Gold is recycled, whereas silver often isn't, as it is relatively cheap.

Nevertheless, price is what matters, and, as things stand, silver has been unable to break and hold above $60 per ounce for any significant time. Yet support continues to hold, despite dollar strength. So, it's worth keeping an eye on.

Source: TN Trader

Crude prices fell back on Friday morning, but not enough to erase yesterday's gains. On Thursday, front-month (September) Brent topped $100 per barrel and approached $102 during the evening session before some selling emerged to take the edge off.

Source: TN Trader

Yesterday's surge took Brent back to a two-month high from mid-May. This was just before prices began to pull back as the US and Iran put together their memorandum of understanding as the basis for a ceasefire, which is most definitely over.

President Trump has said he is considering a 'massive attack' on Iran, having previously said that Iranian infrastructure, such as energy plants and bridges, could be targeted by US forces. This shows the administration's frustration that Tehran won't bend to its will while Iran's Islamic Revolutionary Guard Corps still controls traffic through the Strait of Hormuz.

Reports suggest that nothing is getting through, while Iran continues to fire ordnance at US military bases throughout the Gulf, and Jordan as well. Compounding this rather grim situation are Iran-backed Houthis in Yemen. They are in the perfect position to fire on vessels attempting to pass through the Bab al-Mandeb strait which links the Red Sea and the Gulf of Aden. This effectively hems in Saudi Arabia while also threatening its East-West pipeline.

Could some resolution be agreed upon over the weekend? Of course, anything is possible. But for now, it looks as if the war is going to escalate, which may begin to weigh on risk assets in a way that it hasn't previously.

Bitcoin traded slightly lower on Friday as investors continued to reduce their exposure to risk assets in general, amid rising geopolitical tensions and renewed trade uncertainty.

Bitcoin dipped back below $65,000 as traders responded to another sharp selloff in technology stocks, while rising oil prices increased concerns that central banks may need to maintain higher interest rates for longer. Broader market volatility and reduced investor appetite for speculative assets continue to weigh on digital assets.

Attention remains focused on next week's Federal Reserve meeting, where markets now assign roughly a 30% probability of an interest rate increase following exceptionally strong US employment data and renewed inflation concerns driven by higher energy prices.

Corporate earnings season picks up next week with 'Mag &' constituents Microsoft, Amazon, Apple and Meta all due to report.

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