Asian-Pacific indices mostly lower

US stock index futures were weaker across the board in early trade on Thursday. This followed an unremarkable session yesterday, which saw little change across the majors.

Sentiment had been positive ahead of the long holiday weekend on hopes for a breakthrough in peace negotiations between the US and Iran. But this got dented yesterday morning following news that the US had attacked Iranian missile launch sites and mine-laying vessels around the Strait of Hormuz.

Source: TN Trader

Overnight, US forces targeted another Iranian military site in the region while Iran’s Islamic Revolutionary Guard Corps (IRGC) said that it had attacked a US air base. Kuwait also said that it had come under attack. Oil prices rallied overnight, although overall the response was relatively muted. Crude continues to trade near the bottom of a trading range which has established itself over the last two months.

Yet again, US equity investors seem perfectly happy to look past the current hostilities, convinced that the war will end eventually, to no detriment to US corporations, particularly those AI-adjacent tech giants. Perhaps they are right.

But then again, the longer this rally lasts, the bigger the risk. As things stand, investors have enough confidence in the markets and themselves to feel secure thinking that whatever and whenever they buy, there will always be someone there to whom they can offload their holdings at a profit.

That seems perfectly reasonable given that this has worked since October 2022. But that also assumes an orderly market in which they have the time to act rationally and sell in their own good time at a profit. Yet when things unravel, they tend to unravel fast. That's not to say that the stock market is on the cusp of breaking down; it’s just an acknowledgement that nothing goes up in a straight line forever.

Meanwhile, investors are eyeing up a string of exceptional IPOs, with SpaceX (including xAI) likely to go public in the first half of June, followed by OpenAI and Anthropic in the autumn.

Today’s key earnings updates include Costco, Dell, Autodesk, Dollar Tree, Best buy and Li Auto. But arguably the most significant release is the latest inflation update, Core PEC. This has been trending higher since November last year and is expected to come in at 3.3% year-on-year, up from 3.2% in March. This used to be known as ‘the Fed’s preferred inflation measure’. But new Chair Kevin Warsh is understood to focus on a ‘trimmed mean’ version of CPI.

Either way, investors have been pricing in the probability of rate hikes before year-end. So, today’s update could influence those expectations one way or another.

European stock indices were lower across the board on Thursday. Investors kept a close eye on US stock index futures as they pulled back from record highs hit at the beginning of this week.

Source: TN Trader

Investors also had to balance earlier optimism based on the likelihood of a breakthrough in US/Iranian peace negotiations with reality on the ground. The latter suggested that the situation was far from being resolved following reports that the US had launched several attacks on Iranian military assets in response to provocation from Iran’s IRGC.

Earlier yesterday, US Secretary of State Marco Rubio stated that talks with Iran had made some progress and that Washington was still committed to a diplomatic solution. But there is still a lack of clarity over the Strait of Hormuz.

Iranian state media said that Tehran had committed to restoring commercial shipping through the strait within one month of a deal. President Trump has said that the US would not permit Iran to control the Strait of Hormuz under any agreement.

The US dollar rallied sharply yesterday. It added to those gains overnight, before pulling back from highs hit during the Asian Pacific session. The cash Dollar Index has spent most of the past fortnight trading within a range between 99.20 and 98.80. It came close to breaking out to the upside overnight, but suddenly ran into some selling pressure, which kept prices in check.

The continued uncertainty over the US/Iran war has helped to keep a bid under the dollar. Investors have increased their exposure to the greenback as a ‘flight to safety’. But hopes that informal negotiations between the two sides were about to bear fruit have kept a lid on the dollar’s upside for now.

This means that there has been no retest of significant resistance on the cash Dollar Index since March this year. It broke above 100.00 on several occasions but was unable to capitalise on these gains.

Traders will keep a close eye on today’s US Core PCE release to see if inflationary pressures are still to the upside. The surge in the oil price in March has boosted inflation globally. This has led to a reassessment of interest rates, with the Bank of Japan, European Central Bank, Bank of England and US Federal Reserve all expected to tighten monetary policy this year.

Meanwhile, the USD/JPY hit its highest level since the last day of April, just after Japan’s authorities intervened to support the yen. Overnight, the USD/JPY pushed above 159.60 before pulling back a touch. Analysts believe that there could be another round of intervention should the USD/JPY push back above 160.00.

Source: TN Trader

Gold fell sharply overnight to break below support at $4,400. It went on to hit a two-month low of around $4,367. Yesterday, gold briefly tested this support level and then staged an impressive recovery, rallying back up to $4,468. But it then went into freefall, before finally some buyers appeared.

As lunchtime approached in the UK, it was attempting to push back above $4,400. But the overnight strength of the US dollar was making life difficult, and the ease with which gold broke support at $4,400 must be a bit of a worry for the bulls.

While gold could find some fresh buying around current levels, especially if the US dollar pulls back from overnight highs, there’s a concern that gold may have further to fall before it can find some solid support. That would be unpleasant for the bulls. But at least it would help take the daily MACD to oversold levels, which could support a significant rally.

Source: TN Trader

Overnight, silver extended its recent decline to hit its lowest level since the end of April. This week’s escalation in hostilities between the US and Iran could have ended the ceasefire which has been in place since early April. Yet negotiations have carried on, even if these appear to be a long way from reaching a conclusion agreeable to both sides.

Source: TN Trader

Either way, the situation appears unclear, although that hasn’t been enough to persuade investors to dial down their risk exposure. Meanwhile, investors seem unwilling to load up on silver. No doubt US dollar strength is weighing on prices, as is the prospect of rate hikes from developed world central banks to offset higher inflation.

Investors are also mindful of the painful selloff following the parabolic spike in precious metals prices at the end of January.

Oil prices firmed up on Thursday after fresh US strikes on Iranian assets around the Strait of Hormuz. This reignited concerns that the conflict, now into its fourth month, could continue into the summer. But despite oil’s overnight blip, prices remain near the bottom of a trading range, and well below recent highs.

In the case of July WTI, yesterday it hit a three-week low before bouncing. August Brent traded at a five-week low. Iran’s Revolutionary Guards confirmed that they had targeted a US airbase following American military operations near the Strait of Hormuz.

Source: TN Trader

Reports also indicated that US forces intercepted and destroyed several Iranian drones. Yet it appears that talks between the US and Iran are ongoing. How or when this resolves is anyone’s guess. But the first hurdle must be reopening the Strait of Hormuz.

President Trump has insisted that the Strait be reopened on the same terms that existed before the attack on Iran. But Tehran would prefer a system which allows it to charge a tariff on vessels to ensure their safe passage through the chokehold.

Bitcoin sliced through support at $75,000 yesterday afternoon and then dropped below $73,000 earlier this morning to hit its lowest level in over six weeks. That represented a fall of 12% from the three-month high above $82,800 hit three weeks ago.

Despite its size, the pullback has been fairly orderly to date. And while a break below $75,000 is a mildly significant one, it could easily be offset should buyers now step in and take it back up again.

Some commentators have blamed recent crypto weakness on uncertainty regarding the possibility of a breakthrough in peace negotiations between the US and Iran. That may be the case. But given Bitcoin’s resilience throughout the past two months, there may be other reasons behind its recent decline.

Technically, the daily MACD has pulled back from mildly overbought conditions, suggesting scope for some upside momentum. But the main concern for bullish investors would be a continuation of the current selling, which takes Bitcoin down for a retest of $70,000.

Markets are expected to remain highly sensitive to any additional military escalation involving the US and Iran. Investors will closely monitor Thursday’s US Core PCE Inflation report, which could significantly influence expectations for future monetary policy.

Any upside inflation surprise could further strengthen expectations for tighter Federal Reserve policy, while continued volatility in oil markets is likely to remain a major driver across currencies, equities, commodities and cryptocurrency markets. Additional focus will remain on US personal income and spending data, weekly jobless claims, crude oil inventories and corporate earnings, including results from Costco.

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