Asian-Pacific stock indices mixed

US stock indices closed lower across the board on Thursday, but well off their lows, in a rollercoaster of a session. The price action suggested that traders were beginning to find the atmosphere somewhat thin, given the relentless rally since the end of March.

This has seen the S&P 500 gain 13% in a little over three weeks, while posting a succession of record highs. The NASDAQ 100 added 18% over the same period, an indication of the strength of the recovery across the tech sector.

Source: TN Trader

Despite this, not all tech stocks have fared the same. Yesterday saw semiconductors soar, while software took another knock, on concerns that AI will make them all obsolete, which is somewhat over the top.

US stock index futures were mixed in early trade. Tech took centre stage yet again, with stocks within the semiconductor sector leading the pack. SMC, AMD and TSMC were up 2.6%, 7.3% and 3.2% respectively, while Intel soared close to 30% following a strong set of quarterly results and upbeat forward guidance.

So far, the first quarter earnings season has helped to juice up the rally from the lows hit at the end of last month. And it has been an exceptional start to the season so far, with significant beats to consensus expectations with margins at record levels.

Today’s major updates come from Procter & Gamble, Norfolk Southern and Charter Communications. But investors haven’t completely blocked out geopolitical developments in the Middle East, particularly the naval standoff in the Strait of Hormuz, where Iran has seized commercial shipping, while US marines boarded Iranian-flagged tankers in Asian waters. President Trump has ordered the US Navy to “shoot and kill any boat” laying mines in the Strait.

European stock indices have once again ignored the relative bullishness across US markets. All of Europe’s majors, along with the UK’s FTSE 100, were weaker in early trade this morning, as they continue to exhibit signs of rolling over.

Source: TN Trader

As things stand, all are on course to post a negative week while their US counterparts manage to hold near their all-time highs, for now. Of course, the war in the Gulf is hitting Europe and the UK harder than the US. The former are reliant on imported energy in a way the US isn’t.

While the US still must deal with higher crude oil prices, it has few worries over supplies drying up. This is becoming ever more of an issue as long as the Strait of Hormuz is closed to ‘allied’ shipping.

As things stand, Iran is only allowing through tankers headed for countries such as India, China, Russia, Iraq and Pakistan. While this has been helpful in keeping some supply on tap, the US blockade of Iranian ports could soon end this traffic.

On top of this, the Bank of England’s Deputy Governor Sarah Breeden has warned that stock markets are too high given the risks to the global economy, which include AI valuations and troubles within private credit.

It was a featureless overnight session for FX with most major pairs stuck in narrow ranges. So, the standout takeaway is that the US dollar has managed to hold on to most of its gains made since this time last week.

Last Friday afternoon, the cash Dollar Index hit a seven-week low of around 97.35. Yet in the early hours of this morning, it was back above 98.60 for a weekly gain of over 1%. Elevated oil prices supported the dollar as investors have been forced to price in the prospect of a prolonged closure of the Strait of Hormuz.

Peace negotiations between the US and Iran remain stalled, with Tehran refusing to resume talks in Pakistan while the US Navy continues to blockade Iranian ports. Higher oil prices have lifted inflation expectations, prompting traders to scale back expectations for near-term Federal Reserve rate cuts.

According to the CME’s FedWatch Tool, the probability of a 25-basis point rate cut before year-end now stands at 16%, down from 38% last Friday.

The USD/JPY was up again this morning and trading around 159.80. The Japanese yen remains under pressure amid geopolitical tensions in the Middle East and concerns over disruptions to energy supplies flowing through the Strait of Hormuz. Speculation that Japanese authorities could intervene to support the currency helped limit further losses and capped gains in the pair.

Source: TN Trader

Earlier this morning, gold dropped back to lows last seen close to a fortnight ago. Investors reacted to worries that the war between the US and Iran would prove more protracted than most considered likely even a week ago.

Despite President Trump announcing an indefinite extension to the fragile ceasefire, both sides continue to needle each other. Iran has called the US naval blockade of its ports around the Persian Gulf and Strait of Hormuz an act of war. Meanwhile, this week saw Iranian forces seize two container ships in the Strait of Hormuz, while the US military intercepted at least three Iranian oil tankers in Asian waters.

Yesterday, President Donald Trump ordered the US Navy to target boats laying mines in the Strait of Hormuz, reinforcing risk concerns across markets. Gold is no longer acting as a ‘safe haven’ as that honour now rests with the US dollar. Gold looks likely to struggle to make upside progress while the dollar remains in demand.

Source: TN Trader

Last Friday afternoon, silver hit a five-week high when it briefly broke above $83 per ounce. Earlier this morning, it fell below $74 for a weekly decline of over 10%. Like gold, silver has lost its allure as a ‘safe haven’ asset and has found it difficult to find a foothold amid higher oil prices and a stronger US dollar.

Source: TN Trader

The prolonged closure of the Strait of Hormuz has boosted crude oil prices, and this in turn has led to an increase in global inflation expectations. As noted previously, the CME’s FedWatch Tool currently shows the probability of a 25-basis point rate cut before year-end now stands at 16%, down from 38% last Friday. And tighter monetary policy conditions tend to weigh on non-yielding assets such as silver.

Next week sees monetary policy announcements from the Bank of Japan, the Federal Reserve and the European Central Bank. Key amongst these is the expectation that the Federal Reserve will keep rates unchanged within the 3.50% to 3.75% range.

This time last week, front-month WTI dropped to within a few cents of $79 per barrel. Yesterday evening, it was approaching $98 for an overall weekly percentage gain of 24%. Front-month Brent experienced a similar price rise, coming close to $102.50 yesterday evening, its highest level in over two weeks.

Source: TN Trader

These gains come despite President Trump’s announcement that he was extending the fragile US/Iran ceasefire indefinitely, so that Iran could build decision-making representatives from its ‘fractured’ leadership. Fractured or not, it appears that Iran’s Islamic Republican Guard Corps are pulling the strings now, and they’re not renowned for their diplomacy.

So, with both sides blockading shipping across the Strait of Hormuz, and, in the US case, beyond, the probability that this war will drag on without a conclusion, possibly for many more months, must be a consideration.

Bitcoin continued to consolidate for a second day on Friday, having hit its highest level since the end of January on Wednesday. Technically, the chart looks constructive from a bullish point of view, and the daily MACD suggests some moderate upside momentum. But it has come a long way in a relatively short period of time, as it’s up around 30% since early February.

It could be that some profit-taking begins to creep in, particularly as Bitcoin has yet to break above $80,000. But it could also reset after recent gains through a short period of consolidation around current levels.

Semiconductor stocks continue to show exceptional momentum, with the semiconductor index extending its winning streak to 17 consecutive sessions. Yet US stock index futures remain mixed overall.

President Donald Trump extended the Israel-Lebanon ceasefire by a further three weeks while also ordering the US Navy to target boats laying mines in the Strait of Hormuz and warning that gasoline prices may remain elevated for some time.

Markets appear quiet into the weekend. A major week lies ahead with several key data releases and central bank meetings expected to provide greater clarity on inflation dynamics as the impact of the conflict becomes clearer.