Chip stocks weigh on Asian-Pacific indices

US stock index futures were a touch weaker across the board this morning. The tech-heavy NASDAQ led the others down, with chip stocks responsible for most of the early losses. This follows yet another set of blow-out quarterly results from a major chip maker.

As noted above, TSMC beat consensus estimates right across the board and followed up with positive forward guidance. Yet the stock sold off, dropping over 3%, and bringing its losses so far this month to 15%. Yesterday, another non-US AI-related corporation announced a strong set of results.

Dutch semiconductor equipment manufacturer ASML also beat market expectations. Despite this, the stock has drifted lower, losing around 2% since it released its numbers. This all makes one wonder what US tech corporations will have to come up with to get investors genuinely excited again.

This is important, as the earnings season picks up several gears over the next fortnight. Next week's big names include Alphabet, Intel, IBM, Texas Instruments and Tesla, with Microsoft, Meta, Amazon, Arm, QUALCOMM and Apple the following week. Today sees Netflix report after the close.

Before that, UnitedHealth jumped over 6%, sending the Dow into positive territory, after it released a stellar set of results. It updated its forward guidance and said that it was using AI to cut costs.

Earlier this week saw results from the 'Big Five' US banks. While JP Morgan and Goldman Sachs jumped on strong numbers, the rest were a disappointment. But this seems to be as much about investor expectations as poor corporate performance. Could this be the story for tech, chips and AI-adjacent 'Mag Seven' as well?

Yesterday, the Semiconductor ETF (SOXX) dropped 2.2%. Despite this, the NASDAQ Composite gained 0.6%. But interestingly, the NASDAQ 100 fell 0.3%, which shows how the different composition of the two closely related indices can lead to different outcomes.

Source: TN Trader

Otherwise, there were modest gains across the board as investors responded with modest positivity to a significant softening in wholesale inflation. This followed on from Tuesday's CPI readings. Again, these came in below expectations and helped to reduce the probability of aggressive Fed rate hikes for the rest of this year.

In the immediate future, the betting suggests that the Fed will leave rates on hold at their next monetary policy meeting at the end of this month. However, investors remain cautious as geopolitical risks continue to cloud the outlook. The US and Iran exchanged further strikes on Wednesday, while tensions surrounding shipping routes through the Strait of Hormuz remain elevated.

European stock indices were lower across the board in early trading. Investors continue to monitor developments across the Middle East after Tehran warned of a potential “existential war” with the US. Ongoing military action by both sides and threats to major shipping routes have kept energy prices elevated. This is currently leading to increased uncertainty across financial markets.

Source: TN Trader

Yet there has been some good news as US inflation data softened in June, and this has improved the outlook for global monetary policy. Fed Chair Kevin Warsh has insisted that one data point doesn't make a trend. Yet investors have toned down their concerns over the possibility of aggressive rate hikes from the Federal Reserve this year, and this has been broadly supportive for risk assets. Market attention has now turned towards corporate earnings.

The US dollar steadied this morning, having tumbled over the last two sessions. Tuesday's pullback followed the release of the latest US CPI data. This came in well below expectations and triggered a sharp selloff in the US dollar.

The situation was repeated yesterday following a softer-than-expected update on wholesale (PPI) inflation. The data prompted traders to scale back expectations for Federal Reserve tightening, and this, in turn, undermined the US dollar.

Yesterday, the cash Dollar Index came within a few cents of 100.00, previously a significant area of resistance (now support) and the lowest level seen in close to a month. The dollar has steadied since then, and the cash Dollar Index is now holding at the lower end of a band of mild support around 100.30.

Despite the weaker inflation backdrop, escalating tensions between the US and Iran, disruptions to energy supply routes and this week's surge in oil prices have rebooted worries that inflation may show up once again. This could support the dollar. Although the question the Fed will then ask itself is whether any spike in energy-related inflation is transitory or not.

Meanwhile, the Japanese yen strengthened modestly after Japanese authorities renewed warnings about potential intervention in currency markets. Finance Minister Satsuki Katayama reiterated that officials remain prepared to act if necessary to address excessive currency movements.

Sterling remained relatively stable after UK data this morning showed the economy expanded 0.1% in May, matching expectations following a contraction in April. The pound also benefited from reports that incoming Prime Minister Andy Burnham is expected to appoint Shabana Mahmood as finance minister, rather than Ed Milliband, a move viewed positively by financial markets.

Source: TN Trader

Gold bulls have been wondering what was going wrong over the past couple of days. Yesterday, the US Dollar Index fell to its lowest level in close to a month, yet gold, having rallied over $100 on Tuesday, was unable to hold on to its gains and then started going backwards.

It was trading above $4,000 per ounce this morning, but it looked vulnerable should another burst of selling take place. This week's softer US inflation data reduced the probability of aggressive rate hikes from the Federal Reserve's FOMC this year. That triggered the selloff in the US dollar and helped to lift gold.

But oil prices remain elevated due to the resumption of hostilities between the US and Iran as they battle for control of the Strait of Hormuz. This supports expectations that the Federal Reserve could still raise rates later this year. For now, gold has found support just below $4,000. But a significant break below here would open the risk of a bigger tumble.

Source: TN Trader

Silver was struggling to find any support this morning, and a retest of last month's cycle low around $55.50 can't be ruled out - a level last seen in late November. Silver is facing the same issues as gold. Rate hike expectations from the Fed have come down a touch, following this week's data showing a drop in inflation last month.

Source: TN Trader

That hit the dollar hard. But not hard enough to trigger a significant rebound in silver. This is a worry for the bulls. If silver can't rally on such a sharp drop in the dollar, having suffered a downward correction for over five months, then that raises questions. It also suggests that silver's correction may have further to run.

Crude oil prices were modestly lower this morning but were still hovering near one-month highs hit on Tuesday. It looks as if there's some consolidation going on. Bullish traders may be catching their breath following the sharp rally that began at the beginning of this month, but which took a significant leg up at the start of this week.

Source: TN Trader

Hostilities between the US and Iran have escalated this month, and it looks as if the two sides could go full throttle at each other at the drop of a hat, or a drop by a drone.

Investors remain focused on the Strait of Hormuz, a critical shipping route through which roughly one-fifth of global oil, liquefied natural gas and other key chemicals, used to pass, prior to the US/Israeli attack on Iran at the end of February. The Strait then became a logjam.

But it started to loosen up after the US and Iran signed a memorandum of understanding this time last month. That appears to have fallen apart completely, although it's always possible that someone somewhere is getting communication channels reopened. But the key here is supply channels. And traffic through the Strait has, by all accounts, dried up since Iran started to attack vessels trying to traverse the waterway.

On top of this, recent reports suggest that Tehran and the Houthis in Yemen are discussing attacks on shipping in the Bab al-Mandeb Strait, which connects the Gulf of Aden to the Red Sea. That really would put a cherry on the cake.

Bitcoin pulled back from the three-and-a-half-week high hit yesterday, dropping below $65,000, a level which appears to be building into resistance. Bitcoin’s recent recovery has been supported by a softening in expectations for aggressive Federal Reserve rate hikes following this week's US inflation data.

Lower interest rate expectations tend to support risk-sensitive assets, including cryptocurrencies. But this month's surge in oil prices due to the escalation in hostilities between the US and Iran has increased concerns over the potential resurgence in inflation. This has weighed on the broader market and helped to anchor crypto prices to some extent.

Investors now face a critical combination of earnings releases, economic data and geopolitical developments. US retail sales and jobless claims data are scheduled for release later today, while Netflix reports after the close.

Markets will also continue monitoring developments in the Middle East, where ongoing US-Iran hostilities and disruptions to energy shipping routes remain a key source of uncertainty.

For now, softer inflation data has provided some relief and reduced expectations of immediate Federal Reserve action. However, elevated oil prices, geopolitical risks and questions surrounding AI-related valuations suggest volatility is likely to remain a dominant feature of global markets in the days ahead.

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