South Korea's Kospi outperforms again

US stock index futures were mixed in early trade this morning, albeit with a slight upside bias. Semiconductor stocks were generally firmer this morning, helping to lift both the S&P 500 and NASDAQ. Last night the S&P closed at a fresh all-time high as did the small cap Russell 2000. The NASDAQ 100 ended at its best level since the end of June.

Source: TN Trader

Investors continued to hoover up equities, casting off any lingering concerns over the durability and ultimate return on investment in the AI trade. Instead, traders reacted to yesterday's benign producer prices inflation update, following on from a softer CPI print in Wednesday's session. This latest inflation data saw investors dial back on their expectations over a September rate hike from the Federal Reserve.

The likelihood that the Fed keeps interest rates unchanged next month has risen to 70% according to the CME's FedWatch Tool, up from 50% prior to this week's inflation updates. Meanwhile, the probability of at least one 25-basis point rate hike before year-end has fallen to 64% from 78%.

Despite this, FOMC member Beth Hammack said yesterday that the central bank should raise rates immediately, pointing out that inflation (which has been above the Fed's 2% target for over five years) remained far too high, and the Fed should act now to help restrain business growth and investment which were adding to inflationary pressures.

Meanwhile, SanDisk soared 13.7% yesterday and was up another 4% this morning following an upbeat quarterly report after last night's close. Overall, US equities continue to enjoy a strong tailwind from the second quarter earnings season with year-on-year earnings growth of over 50% for the 90% of S&P 500 constituents which have reported so far.

Attention now turns to today's Retail Sales report for fresh clues on consumer demand, alongside business inventories and the University of Michigan's consumer sentiment data. This is all important stuff, given last week's dismal Non-Farm Payroll report. The danger is that under the surface, and away from stock market records, the US consumer may be struggling. Retail Sales may offer a significant clue as to the health of the US consumer. Oil rebounded this morning.

Yesterday, US Defence Secretary Pete Hegseth said that its existing naval blockade of Iran's ports could be carried on indefinitely, while efforts to restore normal shipping through the Strait of Hormuz have stalled.

After a quiet start and a mixed performance, European stock indices turned higher, following along an uptick in US stock index futures. This kept the Euro Stoxx 50, German DAX and Spanish IBEX at or close to their respective all-time highs. The UK's FTSE 250 also continues to have some upside momentum.

But the French CAC, and particularly the FTSE 100, look as if momentum is picking up to the downside. While the move across the Frech index looks like a touch of profit-taking, it's possible that it develops into something of greater significance.

As far as the FTSE is concerned, the index is currently testing its first significant support level around 10,700. These pullbacks mark a pause in a sustained summer rally that had pushed European indices to record highs. The question now is whether this marks the top for some of these indices or if there are more gains to be had after a decent period of profit-taking. Much may depend on what happens to US indices.

Source: TN Trader

This week's softer US inflation readings, along with last week's disappointing payroll release, has led to a dialling back of Fed rate hike expectations. This has supported equities. But European investors are keeping a close eye on energy prices, especially as the summer edges to its conclusion. With Russia still at war with Ukraine, and the US at war with Iran, there are significant strains being put on energy supplies, even as global demand growth continues to slow.

The US dollar was weaker across the board this morning. The cash Dollar Index dropped back below 99.60, and the area around here has acted as both support and resistance in the past. Some of the CPI and PPI came out in line with expectations, traders were relieved that they didn't rebound, particularly after last month's sharp drop in the CPI.

This, along with last week's poor payroll numbers, has led to a sharp dial back in rate hike expectations from the US Federal Reserve. There's now a 70% probability that the Fed keeps rates unchanged at next month's meeting, up from 50% earlier this week.

At the same time, speculation is growing that the Bank of Japan will raise rates at its next monetary policy meeting in September. Not only that, but there's also a feeling that the notoriously cautious central bank may carry on raising rates, and that it has the political backing to do so.

All this has helped to strengthen the yen, helping to pull the USD/JPY down towards 159.00, widening the gap from 160.00 - a level which many analysts see as the next trigger for further intervention to weaken the yen.

Source: TN Trader

Overall, though, the dollar's downside looks cushioned. There's still a 64% chance of a Fed rate hike by year-end and geopolitical risk from the US-Iran standoff may continue to offer support. Also, energy-driven fiscal concerns could cap the yen. Japanese borrowing costs remain low relative to other major economies, and this continues to fuel carry-trade flows that work against the yen while supporting the US dollar.

Attention now turns to US Retail Sales which come out this afternoon. This, along with Consumer Sentiment and Inflation Expectations, may provide some insight into the health of the US consumer.

Gold continued to sell off overnight, before it found some decent support just north of $4,300 earlier this morning. But traders remain a bit cautious, bearing in mind that gold hit a seven-week high of $4,450 in the early hours of Thursday. Yet the bulls recovered some of their confidence this morning, helped along by a pullback in the US dollar.

Source: TN Trader

The greenback has come under downside pressure as the market prices out the likelihood of a Fed rate hike next month, as well as more than one hike before year-end. This followed confirmation that both CPI and PPI had softened slightly in July, as expected. The dollar came under further pressure this morning as speculation grew that the Bank of Japan was ready to raise rates next month and had the political support to hike rates further before year-end.

This will please US Treasury Secretary Scott Bessent as a stronger yen means less pressure on Japanese investors to repatriate funds to invest domestically which could mean significant sales of US Treasuries, thereby pushing yields up further.

On the flip side for the US dollar, it remains popular as a flight to quality. This means that the ongoing war between the US and Iran should offer some support for the greenback and thereby put downside pressure on gold. Yesterday Mr Bessent said Washington intends to impose unprecedented economic measures on Iran, while a senior IRGC adviser said Tehran's strategy is to make any conflict costly enough that future US administrations think twice before acting militarily.

Silver extended its losses for a second straight day and fell to $63.50 in the early hours of this morning. Investors booked profits while weighing the Fed's policy path against ongoing Middle East tensions.

Silver then bounced, coming within 10 cents of $65 per ounce before sellers came in to take profits. Technically, silver is trading in 'no-man's land', smack bang in the middle of support and resistance. As with gold, which one it tests first will probably depend on how the dollar behaves.

Source: TN Trader

Crude oil prices steadied in early trade as uncertainty over the US-Iran conflict and West Asian supply kept a risk premium in play. Despite this, crude oil trimmed some of its weekly advance after both the International Energy Agency (IEA) and OPEC cut demand forecasts while an unexpected and outsized build in US inventories spooked markets.

Source: TN Trader

The US and Iran continue to offer conflicting claims over who has control of the Strait of Hormuz and the state of shipping through the waterway. The Trump administration insists that it controls the Strait, while Tehran claims it is shut to commercial vessels. The bottom line is that data show vessels continue to steer clear of the Strait.

Yesterday, US Defence Secretary Pete Hegseth said that its existing naval blockade of Iran's ports could be carried on indefinitely, while efforts to restore normal shipping through the Strait of Hormuz have stalled. Meanwhile, Treasury Secretary Bessent said that the US is preparing to trigger an unprecedented level of economic isolation against Iran.

Adding to the risk for tankers and other ships, Yemen's Iran-backed Houthi movement continue to attack commercial vessels in the Red Sea and the Bab al-Mandab Strait, another key crude corridor.

Bitcoin fell on Friday as a delay to a major planned government measure for tokenised securities largely offset optimism over the prospect of no imminent rate hike following soft US inflation prints.

Broader crypto markets lagged this week's rebound in risk assets, particularly equities, even as cooling rate-hike bets and upbeat tech earnings underpinned AI-linked stocks. The US Securities and Exchange Commission is set to further delay its planned innovation exemption for tokenised securities after the White House and Wall Street raised concerns over the proposal's legal footing and market impact, with the regulator cancelling a meeting that had been expected to unveil part of the plan.

One source suggested the White House was wary the move could complicate ongoing congressional negotiations over the Digital Asset Market Clarity Act, with the exemption effort potentially needing to wait on that legislation's outcome. SEC staff are also said to be increasingly focused on whether the agency has the legal authority and economic justification for such relief.

The Clarity Act itself, a key piece of crypto legislation, has faced repeated delays over the past year amid opposition from banking groups and consumer advocates - delays that have weighed on crypto prices more broadly.

The front-month (August) VIX sits sub-16, underlining just how relaxed markets remain. There are no earnings of note today, with Walmart the highlight to look out for next week, while retail sales and Michigan sentiment data are on tap later. On the geopolitical front, Washington is said to be preparing economic measures against Iran unlike anything applied before, alongside plans to rotate additional aircraft carriers into the Gulf.

Elsewhere, OpenAI has lost another senior executive, and Reddit is set to join the S&P 500 on August 18th. The steady grind higher in equities continues to highlight the underlying bullish strength in this market, and with tame inflation data this week reducing the probability of further rate hikes, it's another shot in the arm for those positioned to the long side. Overall conditions remain very quiet and are likely to stay that way into month-end with many desks thinly staffed for the summer holidays.

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