Asian-Pacific tech slides

US stock index futures were sharply lower overnight as investors reacted to a broadly tech-led selloff across the major Asian-Pacific indices. But buyers soon came in to take advantage of the dip, and the index performance became more nuanced as the European session progressed.

Source: TN Trader

However, there was still some notable weakness across the tech sector. Micron and Marvell Technologies were both down over 3% mid-morning, while Advanced Micro Devices and Arm were down 1.7% and 2.2%, respectively. All these chip stocks tend to follow NVIDIA (unchanged) which will deliver its quarterly earnings after the close on Wednesday.

These could be a major test for the AI trade, particularly as investors question whether the pace of AI-related growth can justify increasingly expensive valuations and whether demand from major tech customers remains strong enough to support the current scale of infrastructure spending.

Meanwhile, investors are also having to consider government bond yields amongst developed countries, many of which are trading at, or near, multi-year highs. This reflects concerns over sticky inflation and tepid growth, along with ever-increasing government debt.

Last week US federal debt rose above $40 trillion for the first time, and investors are concerned about interest costs on this. Just to add another wrinkle, rising government debt comes against a background where investors are being offered the opportunity to buy bonds issued by the hyperscalers, and other AI-adjacent corporations, to fund the rollout of AI infrastructure products.  

Meanwhile, escalating US-Iran tensions are adding to the uncertainty. The Strait of Hormuz remains closed, and, no matter what the Trump administration claims, it would appear that Iran has ultimate control over it.

Later today, US Treasury Secretary Scott Bessent is expected to announce a set of sanctions on Tehran designed to lead to the 'collapse' of the Islamic regime. Separately, last week Mr Bessent announced a shift in Treasury purchases of government bonds in an effort to reduce yields at the long end of the curve.

While initially successful, yields subsequently bounced back in a move which must be somewhat humiliating for Mr Bessent, raising speculation that he may have another go. Bear in mind, that he joined Japan's Ministry of Finance in an intervention to strengthen the yen/weaken the dollar at the end of last month. That too has unwound to some extent.

The backdrop was further complicated by trade tension after President Trump imposed 50% tariffs on $20 billion of Canadian goods following the collapse of trade talks, with Canada announcing reciprocal measures. This week also sees the Fed's annual Jackson Hole Economic Symposium. This starts on Thursday with Fed Chair Kevin Warsh due to deliver the keynote speech on Friday afternoon.

European stock indices were little changed this morning, albeit with a slight positive bias. Investors are keeping a close eye on events across the Middle East. The US raised the stakes over the weekend, as it plans to unleash the greatest financial offensive it has ever assembled against the Iranian regime.

Source: TN Trader

It's also threatening sweeping sanctions on any foreign nations or trade partners providing Iran a lifeline. US Treasury Secretary Scott Bessent is expected to set out details of this plan later today. Tehran responded by threatening to shut down all Gulf energy exports entirely should the economic pressure continue.

The US dollar steadied overnight and made modest gains versus the other majors. Last week, the cash Dollar Index fell below 98.28 to hit its lowest level in over three months. Investors were unsettled by the US Treasury's pledge to double its purchases of long-dated bonds in a move designed to suppress yields at the longer end of the Treasury yield curve.

This is out of the Federal Reserve's direct control. And yet, it is the yields on longer-term Treasuries, in particular the 10-year and 30-year, which are the basis of major financial interactions, such as pricing mortgages, car financing, business loans and student loans. Treasury yields dropped sharply on the news, and the dollar slumped. But it didn't take long for yields to rally back as investors pushed back against the strategy.

Recent US inflation data showed some signs of easing. This helped to reduce the likelihood of aggressive rate hikes from the Fed this year. The CME's FedWatch Tool suggests that there's a 64% probability that the Fed's FOMC leaves rates unchanged at its monetary policy meeting next month. Yet there's a 70% likelihood of at least one 25-basis point rate hike before year-end. The latest Core PCE update, once the Fed's preferred inflation measure, comes out on Wednesday.

The USD/JPY has continued to creep higher after its dramatic selloff on Wednesday following Mr Bessent's Treasury purchasing shift. It looks as if the Bank of Japan (BoJ) could raise rates as soon as next month, given BoJ Governor Kazuo Ueda's recent hawkish comments and hotter-than-expected inflation data.

Source: TN Trader

Gold rallied overnight, coming within a whisker of $4,660 to hit a fresh thirteen-week high. This means that it has tacked on an impressive 16% so far this month after trading below $4,000 per ounce at the end of July. The precious metal appeared to be stuck, and unable to build on sharp gains from early August, around $4,400.

But it broke out to the upside last Wednesday after US Treasury Secretary Scott Bessent announced a doubling of government bond repurchases at the long end of the curve. This led to a sharp drop in 10 and 30-year Treasury yields and a corresponding slump in the US dollar.

This helped to boost both gold and silver as these two precious metals have shown a close inverse correlation to the dollar since they pulled back from their respective all-time highs at the end of January.

Gold's daily MACD suggests that momentum still points upwards. Yet it has rallied a long way in a short period of time so it shouldn't be a surprise to see a pullback, or at least some consolidation, for the market to adjust to recent gains.

Source: TN Trader

There are a few events this week which could trigger some sharp moves. These include US Treasury Secretary Scott Bessent's Iranian sanctions package later today, along with Wednesday's Core PCE inflation release and Fed Chair Kevin Warsh's Jackson Hole speech on Friday.

As usual, it's a similar story for silver. It was a touch weaker overnight, having briefly crossed above $70 per ounce on Friday marking a two-month high. But it pushed into positive territory by early afternoon in London.

Like gold, silver has rallied a long way over a short period of time, so a pullback or consolidation could be on the cards. But so much depends on what happens to the US dollar this week. In this regard, traders will be keeping a close eye on US Treasury yields.

The 10-year yield is a touch softer this morning, having rallied sharply at the end of last week, making back most of Wednesday's losses. As with gold, this week's US inflation update, together with Fed Chair Warsh's speech on Friday look likely to be the biggest potential catalysts for a significant silver move.

Source: TN Trader

Crude oil was a touch lower overnight, although it looked as if prices were consolidating at current levels, rather than subject to heavy profit taking. Oil prices have rallied sharply over the last three weeks, shrugging off a sharp fall at the beginning of this month. Traders are now preparing to hear what US Treasury Secretary Scott Bessent will announce concerning additional sanctions on Iran.

Source: TN Trader

The Trump administration has threatened the toughest sanctions in history, with President Trump also warning of penalties for Iran's trading partners should they do business with the Islamic state. Tehran has condemned the threat.

Iran's Supreme National Security Council secretary Mohsen Rezaei saying that it would halt all oil exports through the Strait of Hormuz and the wider Gulf if the US economic pressure continues. He added that joining the sanctions effort would be treated as an act of war against Iran.

Meanwhile, global demand growth may be slowing, according to both OPEC and the International Energy Agency, but so are strategic reserves, which have been drawn on heavily to help offset the sharp drop in tankers transiting the Strait of Hormuz.

Bitcoin was down around 1% as Europe reopened after the weekend, giving back all of Sunday’s gains, and a bit more. Despite this, bitcoin appears to be consolidating after its extraordinary rally last week which saw it add over 25% at one stage as it approached $80,000, hitting its highest level in over three months. Sentiment turned suddenly.

Bitcoin had been stuck in a trading range of $62-66,000 since early July. But the breakout was spectacular, as investors saw resistance break as global bond yields hit multi-year highs on concerns over excessive government debt levels and inflation fears.

There was also some dismay as US Treasury Secretary Scott Bessent’s attempts to dampen longer-term Treasury yields unwound in little more than a day. Investors are now hoping that the US Clarity Act will pass through Congress once policymakers get back to work next month.

The front-month VIX is flat in the mid-17s. It's a quiet data day, though the week ahead brings consumer confidence, inflation and GDP releases, plus Fed Chair Kevin Warsh's keynote speech at Jackson Hole on Friday. Earnings are down to a trickle, with Nvidia and Marvell Technology the two names everyone's watching.

US Treasury Secretary Scott Bessent holds a press conference today to announce fresh Iranian sanctions. Yesterday Tehran described the move as an admission of a humiliating US defeat. Elsewhere, President Trump reportedly reshuffled his portfolio in June, with Meta among the names he trimmed, while Norway has pledged $9 billion to Ukraine for 2027.

Friday was a better day for the bulls, though tech is on the back foot again in early trading. Mr Trump and Canada remain at loggerheads over tariffs. Gold is on the front foot, oil on the back. Bessent's announcement is the key event today, with Nvidia's numbers on Wednesday the one everyone's circling next.

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