Asia Pacific indices end mixed

US stock index futures were modestly lower in early trade on Monday. This came after a strong week across Wall Street, which saw the S&P 500 and NASDAQ record their sixth successive week of back-to-back gains.

The US tech sector has been particularly strong of late, with semiconductor firms at the forefront of this month's rally. Micron Technology and AMD are both up over 130% since the end of March, while Intel has added 215% over the same period.

For the week overall, the NASDAQ added 4.5%, while the S&P and Russell 2000 gained 2.3% and 1.7%, respectively. The NASDAQ and S&P posted fresh all-time highs at Friday’s close. The Dow dragged its somewhat, eking out a gain of just 0.2%. The bounce-back in US equities since the end of March has been helped along by an exceptionally positive first-quarter earnings season. 89% of S&P 500 constituents have now reported.

Source: TN Trader

Of these, according to FactSet, 84% have beaten the consensus forecasts for earnings per share, while 80% have beaten on revenues. Even more impressive, year-on-year earnings growth is a tad below 28%, and it is on course to be stronger than at any time since the fourth quarter of 2021, when corporations were bouncing after Covid shutdowns. Added to this, Friday brought a better-than-expected US Non-Farm Payroll update for April, while the unemployment rate held steady at 4.3%.

Last week, investors were also factoring in the increased probability of further peace negotiations between the US and Iran. This followed reports that the two sides were close to agreeing on a one-page memorandum which could provide the basis for talks.

It is understood that President Trump would like to get discussions going before he meets up with China’s President Xi Jinping on Thursday. But Iran’s response to the memorandum, which reportedly called for an end to the war on all fronts and the lifting of sanctions on Tehran, came to nothing.

Yesterday, President Trump took to Truth Social to call it: “TOTALLY UNACCEPTABLE!” Tehran had previously called the memorandum a demand for surrender. Concerns over a prolonged Middle East conflict intensified after Israeli Prime Minister Benjamin Netanyahu warned that the war with Iran was “not over”.  

Meanwhile, Tehran and Washington continued to clash over nuclear demands and the future of the Strait of Hormuz. Oil prices jumped on the news but remain significantly below recent highs. Meanwhile, Tehran continues to control the Strait of Hormuz, while the US Navy continues to blockade Iranian ports in the region.

Investors this week will focus on US inflation data, with both CPI and PPI reports due, alongside key earnings reports from the likes of Simon Property, Oklo, Cisco, Tencent, Alibaba and Under Armour.

European stock indices had a mixed start on Monday. Traders monitored the latest news and commentary concerning the likelihood of further US-Iran peace negotiations as tensions in the Middle East remain elevated. Last week, it sounded as if both Washington and Tehran were close to agreeing on a one-page memorandum as a basis for a fresh round of talks.

Source: TN Trader

But Iran has described the memorandum as a demand for surrender. It put forward a reply which saw President Trump respond with: “TOTALLY UNACCEPTABLE!” on Truth Social. So, it looks unlikely that much will happen before Mr Trump flies to China for talks with Xi Jinping.

Meanwhile, Israel’s Prime Minister Netanyahu reiterated that the conflict was far from over. Not only is there no clarity over Iran’s uranium enrichment programme, but over the weekend, Iran continued to lob missiles and drones at its Gulf neighbours. It also controls traffic through the Strait of Hormuz, although the US Navy’s blockade of Iranian ports in the region appears to be hurting.

The US dollar was a touch firmer across the board on Monday, but it continues to trade within a well-established range. The cash Dollar Index has found support around 97.50, and this area gets tested whenever there’s news or speculation suggesting progress between the US and Iran to bring about an end to hostilities.

On the flip side, the Dollar Index has been held in check below 99.00 as sellers emerge in some force every time it tries to break out to the upside. Of course, the most significant area of resistance comes in at 100.00. But the Index must break above 99.00 first, and with some conviction, if it has any chance of pushing up further.

Friday’s better-than-expected Non-Farm Payroll data saw the probability of a rate cut before year-end fade a touch. The likelihood of no-change this year stood at 74% this morning.

The USD/JPY climbed back above 157.00 as an increase in geopolitical risk boosted demand for the US dollar. President Trump described Iran’s response to last week’s one-page memorandum as: “TOTALLY UNACCEPTABLE!”  However, speculation concerning further intervention from Japanese policymakers to support the yen, along with expectations for another Bank of Japan rate hike, limited gains.

Source: TN Trader

On Friday, gold looked as if it were quite comfortable trading above $4,700 following a couple of recent tests of support around $4,500. But it gapped down as it reopened for business overnight and appears to be struggling a bit. The US dollar was a touch firmer across the board this morning as traders responded to the lack of progress in restarting peace negotiations between the US and Iran.

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The two sides seem just as far apart as ever, raising the prospect of an uncomfortable stalemate which could stretch out beyond the summer. That is not a particularly pleasant prospect given that the Strait of Hormuz is effectively controlled by Tehran, even if the US blockades Iranian ports across the region.

Rising oil prices and some decent economic data releases have revived inflation concerns and strengthened the case for a more hawkish Federal Reserve. Friday’s better-than-expected payrolls report added to that narrative, with traders now pricing in only a limited likelihood of a Fed rate cut, with an increased probability of a rate hike later this year.

During the last Wednesday of April, silver hit a three-week low of $70.85. But since then, it has made steady upside progress and broke back above $82 late last week. It has pulled back a touch since then. But its daily MACD looks encouraging from a bullish perspective. It has started to curl up once again as it pushes up from the neutral line.

Source: TN Trader

But, as with gold, so much depends on the US dollar. Higher energy costs and sticky inflation are contributing to a stronger US dollar, and this could create a difficult backdrop for non-yielding assets, particularly if central banks maintain restrictive monetary policy settings for longer.

Crude oil prices gapped higher overnight after Israeli Prime Minister Netanyahu warned that the conflict with Iran was “not over”. Meanwhile, President Trump rejected Tehran’s latest peace proposal, which came in response to last week’s one-page memorandum, which Tehran described as a demand for surrender.

As noted above, the two sides seem as far apart as ever, raising the prospect of an uncomfortable stalemate which could stretch out beyond the summer. The Strait of Hormuz remains effectively controlled by Tehran, while the US Navy continues to blockade Iranian ports across the region.

The war is now in its 11th week, which means that the world must adjust to oil prices which will be higher for longer. While there’s still a steep backwardation in oil prices, suggesting that crude should pull back significantly later this year, the war has now lasted longer than many analysts were predicting a month ago.

Source: TN Trader

Bitcoin exhibited some volatility during Asian-Pacific trade overnight in moves which coincided with President Trump’s rejection of Iran’s response to the US peace proposal.

After a relatively steady weekend session, which saw it nudge upwards while establishing itself above $80,000, it suddenly dropped to $80,250 before jumping above $82,000. It subsequently gave back most of these gains but was holding above $80,500 as the European session progressed.

Last Wednesday afternoon, Bitcoin hit its best level since the end of January when it briefly topped $82,850 for an overall gain of 27% since the end of March. Some profit-taking emerged, which pushed it back below $80,000. But it didn’t stay down there for long, and it seems to be holding $80,000 as support.

Tuesday’s US CPI report is arguably the main macroeconomic event of the week, followed by PPI data and additional Federal Reserve commentary. Investors are also focused on Trump’s upcoming visit to China, where he is expected to meet Chinese President Xi Jinping in Beijing on Thursday.

Meanwhile, tensions in the Middle East continue to dominate sentiment. Iran warned it would never bow to US pressure, while France and the UK reportedly sent additional warships to the region.

Indian Prime Minister Narendra Modi warned that the Iran conflict poses a severe threat to the Indian economy, while Israeli Prime Minister Benjamin Netanyahu reiterated that the war remains unfinished.

Technology stocks continue to rally aggressively, with some investors warning that current market conditions resemble the late stages of the 1999-2000 dot-com bubble. Michael Burry, famous for predicting the US housing crash, reportedly said the current market environment feels like the final months before the tech bubble burst.

For now, strong momentum across the tech sector continues to support equity markets. But investors remain increasingly focused on inflation risks, oil prices and the possibility of a further escalation in geopolitical tensions.