Japan’s Nikkei down 5.2%

US stock index futures fell sharply overnight. All the majors gapped lower from Friday’s close, adding to losses suffered last week. In early trade, the S&P 500 fell below 6,600 to hit its lowest level since late November. There were similar losses across the other US majors, although the small cap Russell 2000 was hit hardest. The selloff follows on from last week’s poor performance.

Overall, the Dow dropped 3.0%, while the S&P 500 and NASDAQ lost 2.0% and 1.2%, respectively. The Russell posted a decline of 4.1%. Today’s slump was triggered by soaring energy prices.

Source: TN Trader

Crude oil skyrocketed overnight, with front-month WTI up 29% from Friday’s close. WTI approached $116 per barrel to trade at its highest level since June 2022, soon after Russia’s second invasion of Ukraine. Oil pulled back below $100 per barrel as the European session progressed, but remained extremely volatile.

Higher oil prices are playing into fears that inflation could take off to the upside once again. While the US is unlikely to suffer supply shortages, unlike the UK, Europe and Asian Pacific regions, it will be hit by higher prices, which are already showing up at the pumps. Inflation was picking up well before last week’s initial attack on Iran.

Core PCE, the Fed’s preferred inflation measure, came in at 3.0% a month ago, well above the Fed’s 2% target, while trending in the wrong direction. This, along with recent hawkish comments from several Fed governors, has seen the probability of a rate cut in June fall dramatically, with the odds now favouring a cut in September.

The CME’s FedWatch Tool is now forecasting just one 25 basis point cut this year, rather than the two predicted just over a week ago. Nevertheless, the market is still pricing in looser monetary policy, even as the data suggest that the next move should be a hike.

All this is contributing to a wave of negative sentiment as investors look to trim their exposure to risk assets. They will get a chance to reconsider the inflation outlook later this week, with an update on CPI on Wednesday and Core PCE on Friday. This follows on from last week’s truly dismal Non-Farm Payroll report, which indicates some worrying issues across the labour market.

Yet again, the Fed is in a dilemma: try to choke off inflation by raising rates or boost employment by cutting them. In the meantime, investors focus on hostilities across the Middle East. The Strait of Hormuz remains closed to shipping, and this will support energy prices until it can be reopened.

Understandably, President Trump downplayed the surge in the cost of energy, stating on social media that higher oil prices were “a very small price to pay” for neutralising Iran’s nuclear threat.

European stock indices fell sharply this morning, moving in line with weakness across US stock index futures. As mentioned above, Europe and the UK have even more to worry about than the US when it comes to energy. Not only does Europe have to worry about surging prices feeding through to higher inflation, but it must also worry about supply shortages.

Source: TN Trader

The US produces plenty of oil and gas, while the UK and Europe import most of their energy supplies. While there may be some spare capacity through overland pipelines, the Strait of Hormuz remains a key chokepoint. Until this is fully reopened, supply issues will weigh on markets.

Oil prices surged overnight, with front-month WTI up 29% from Friday’s close at one stage. This saw WTI hit highs last seen in 2022, soon after Russia invaded Ukraine for a second time.

Meanwhile, analysts are now predicting that the European Central Bank (ECB) may raise rates by as much as 650 basis points this year, having previously expected to stay on hold. Once again, inflation fears are stoking concerns.

The US dollar was firmer across the board overnight, as investors once again sought it out as a safety play. The cash Dollar Index climbed up towards 99.50 to trade at a three-month high and looked as if it was about to retest significant resistance at 100.00. But it pulled back a touch to retest 99.00 as support, which has held so far.

The Dollar Index has rallied a long way in a short time, so it may need to consolidate now before it can head much higher. It tested 100.00 as resistance on several occasions last year, with the most concentrated attack taking place throughout November. It was rebuffed on every occasion.

Source: TN Trader

So, the Dollar Index must build up a large store of upside momentum to have a decent chance of breaking above here this time. While it looks as if the US dollar may have finally bottomed, if the Dolar Index can’t break through 100.00, then a retest of the January lows around 95.25 can’t be ruled out.

Gold reopened on the front foot overnight, pushing up to test resistance around $5,200. But it was quickly and firmly rebuffed from here, and just a few hours later, it was testing support around $5,000 per ounce. Gold’s role as a ‘flight to safety’ may not be working as well as some would wish.

Source: TN Trader

Many bullish players have expressed surprise that prices haven’t jumped higher as hostilities continue to spread throughout the Middle East. But it appears to be supported by persistent safe-haven demand, even if the upside seems to be capped for now, with no help coming from the US dollar as it continues to rally.

Rising oil prices have also fuelled inflation fears, reducing expectations for near-term interest rate cuts from the Federal Reserve.

It’s a similar story for silver. Following the extraordinary volatility which accompanied silver’s parabolic blow-off top earlier this year, prices show signs of stabilising.

Silver has been rangebound for the best part of a week now, with prices rarely pushing above $85, nor slipping much below $81. This may be a precursor to a bigger move, but in which direction is anyone’s guess. Otherwise, silver may need to consolidate for a bit longer before its intentions become clearer.

Source: TN Trader

Oil markets experienced one of their most dramatic moves in years as front-month WTI surged past the $100 mark, as Iran continues to block access to the Strait of Hormuz.

Early this morning, WTI jumped 29% from Friday’s close to hit its highest level since June 2022, just a few months after Russia invaded Ukraine for the second time. Front-month WTI traded towards $116 per barrel, while Brent topped $116. Brent’s premium over WTI has fallen to $2.50, having pushed out to around $7 this time last week.

Source: TN Trader

The rally comes amid widespread production cuts from regional producers and fears of prolonged disruption to global energy flows. The Strait of Hormuz remains one of the world’s most critical energy chokepoints, carrying roughly one-fifth of global oil supply.

Despite the surge, US Energy Secretary Chris Wright suggested the disruption may prove temporary, stating that the closure could last only “a few weeks” rather than months if shipping lanes are secured.

Meanwhile, reports that Saudi Arabia offered roughly 4.6 million barrels through a pipeline to Yanbu on the Red Sea helped ease some immediate supply concerns and pulled oil slightly off its highs.

The jump in oil prices may have been exacerbated by short sellers being forced to cover. Prices pulled back as the European session progressed, with WTI trading at a $98 handle.

Bitcoin has displayed surprising resilience despite the extreme volatility exhibited across traditional assets. It hit a four-week high last Wednesday when it briefly topped $74,000. From there, Bitcoin sold off, dropping back below $70,000 on Friday and seemingly trading back in concert with US stock indices. But it has held above $65,000 so far, and it rallied steadily throughout the first Asian Pacific session of the week.

The bulls will be encouraged if it can quickly push back above $70,000 and then hold this level on any subsequent pullback.  If not, then there’s still a risk that it retests support around $60,000.

With traditional financial markets under pressure and supply chains threatened by disruptions in the Middle East, digital assets appear to be attracting defensive capital from investors seeking alternatives to oil-sensitive assets.

Volatility spiked sharply as the oil shock rippled through global financial markets. The CBOE Volatility Index jumped around 5% overnight, with the March contract briefly touching the 30 level before easing slightly as S&P 500 futures recovered off their lows. The elevated volatility reflects heightened uncertainty as investors struggle to assess the economic impact of surging energy prices and escalating geopolitical tensions.

Financial markets begin the week facing an environment dominated by geopolitical risk and energy market volatility. President Trump has declared that the war is “already won,” yet the appointment of Mojtaba Khamenei as Iran’s new supreme leader suggests the conflict could continue for some time. Oil remains the central narrative after prices surged above $100, triggering fears of a broader economic slowdown.

The economic calendar is relatively quiet early in the week following Friday’s disappointing US jobs report. This showed a sharp contraction in employment. Attention now turns to Wednesday’s update on the US Consumer Price Index. This is followed on Friday by the release of Core PCE, the Fed’s preferred inflation gauge.

Key corporate earnings this week come from Hewlett-Packard, Oracle, Lennar and Dollar General. Investors should also note that the shift to US daylight saving time means market opens, closes, and economic data releases will occur one hour earlier. With oil dominating headlines and futures markets under pressure, the coming days may represent a crucial test for equity markets that have enjoyed a prolonged bullish run.