Asian-Pacific indices end mixed

US stock index futures were firmer across the board this morning, bouncing back after yesterday’s weakness. Once again, the tech sector, and chip stocks in particular, fell sharply, taking the wider market down with them.

On Wednesday, the NASDAQ and Dow dropped 2.0% and 1.9%, respectively. The S&P 500 lost 1.6% while the small cap Russell 2000 declined 1.1%. After the close, US stock index futures continued to come under selling pressure.

Source: TN Trader

Early in the Asian Pacific trade, the S&P 500 fell to a five-week low, just north of 7,200. But it has rallied steadily ever since and was trading quite comfortably above 7,300 early in the European session. The rebound comes even as hostilities continue across the Middle East, with the US military launching new strikes against Iranian targets. Tehran responded by stating it would block all shipping through the Strait of Hormuz. The situation continues to evolve.

Meanwhile, Oracle released a strong set of quarterly results after the close, along with some upbeat forward guidance. But the stock dropped 11% after the company announced plans to raise $40 billion in equity and debt for its AI buildout. The stock subsequently rallied but was still down 6% at the time of writing. But it was Super Micro Computer which had a real shocker.

The company also said it was raising cash ($7 billion) to pay for hardware related to AI orders. But the news came as chip stocks were already on the back foot, and SMC plunged 28%. These money-raising operations follow hot on the heels of last week’s announcement from Alphabet that it was raising $80 billion through equity sales to fund its AI infrastructure programme.

Investors are wondering which corporation will be next to take advantage of the tech rally since the end of March to unload stock. This has helped to sour sentiment towards AI-related corporations.

Meanwhile, investors are preparing for the largest IPO in market history when SpaceX debuts on the NASDAQ tomorrow. The offering is expected to raise around $75 billion and value the company at $1.8 trillion. There’s certainly a whiff of Elon mania around the launch, and the size and structure of the deal have captured investor attention. This could prove to be a test of investor sentiment.

It seems likely that this month’s sell-off across semiconductor stocks could be the result of investors raising funds to buy stock in SpaceX. Later today, there’s an update on US wholesale inflation along with weekly Unemployment Claims.

European stock indices were stronger across the board this morning. Investors took heart from a rebound across US stock index futures and a modest dip in oil prices, even as the US and Iran engage in military tit-for-tat. There were some decent gains for US chip stocks as well, which helped to boost sentiment given the sharp pullback across the sector since the beginning of this month.

Source: TN Trader

Investors are now turning their eyes towards today’s European Central Bank (ECB) monetary policy meeting. The ECB is expected to raise interest rates by 25 basis points as it is forced to respond to rising energy costs linked to the Middle East conflict. This has reignited inflation concerns across the Eurozone. But investors will be listening out for any guidance regarding additional rate hikes later this year.

The markets expect further rate hikes from the ECB, although it is understood that the central bank is unlikely to want to show its hand given the ongoing geopolitical uncertainty.

At the beginning of this week, the cash Dollar Index was once again testing resistance around the key 100.00 level. It failed to break through and subsequently pulled back, before buyers reemerged yesterday afternoon.

They were encouraged by the latest CPI release, which, while a tad softer than expected on a month-on-month basis, saw Headline CPI rise to 4.2% in May, from 3.8% in previously, its highest level in three years. Year-on-year core CPI, which excludes food and energy, was more subdued. But at 2.9% it was still up from April, while also its highest reading since October last year.

There’s now a 66% probability of at least one rate hike before the end of this year. The US dollar is also getting support from safe-haven demand as there is still no end in sight for the war between the US and Iran.

Meanwhile, the Japanese yen remains under pressure. The USD/JPY continues to trade around 160.50, just below the 160.73 level where Japan’s Ministry of Finance triggered intervention to support the yen back at the end of April. The Bank of Japan (BOJ) is expected to raise interest rates early next week.

Source: TN Trader

Japanese wholesale prices surged 6.3% year-on-year in May, its fastest rate of growth in three years. Japan imports most of its energy, and these costs have jumped since the US and Israel attacked Iran at the end of February. 

Like semiconductor stocks, gold has had a terrible start to June. Having begun the month above $4,500, overnight it fell to within a fistful of dollars of $4,000. But unlike chip stocks. Gold hadn’t been rallying crazily since the end of March. Instead, gold had a parabolic melt-up at the beginning of the year, only for it all to come crashing down in the first few days of February.

That move traumatised those investors who may look to buy gold as a haven during times of geopolitical stress. Instead, that honour now sits with the US dollar, and the two have been inversely correlated ever since. That relationship will end at some time.

So, the big question now is whether the precious metal can bounce off major support at $4,000 or if it will break down to $3,800 or lower? Gold is overdue for a bounce. But it could be that it needs to drop further first.

Source: TN Trader

Silver was also weaker overnight. At the start of the Asian Pacific session, it dropped to its lowest level since 23rd March when it hit $61 per ounce. It has managed to rebound this morning but has found it difficult to hold above $64.

Like gold, silver finds itself negatively correlated to the US dollar. As long as this relationship holds, silver will find it difficult to make upside progress if the dollar continues to exhibit strength. Investors will closely monitor upcoming inflation data and Federal Reserve expectations for further direction.

Source: TN Trader

Oil prices rallied yesterday as tensions between the US and Iran ratcheted up once again. Investors responded to reports of US military strikes against Iranian targets and then Iranian retaliation against US military facilities in the region, including Kuwait and Bahrain.

Crude prices peaked overnight with front-month (August) Brent hitting $95.50, its highest level since Monday afternoon. But prices have subsequently pulled back and were below $92 per barrel as midday approached in the UK. Investors continue to react to the ceasefire still holding despite numerous US/Iranian tit-for-tat attacks on each other.

Source: TN Trader

Prices have settled into a relatively narrow range over the past fortnight, as every break of the ceasefire has, to date, not resulted in a serious escalation in hostilities. Meanwhile, the Strait of Hormuz remains closed to most shipping and still controlled by Tehran, even as the US Navy continues to blockade Iranian ports in the region.

Bitcoin has had a bit of a reprieve this week. Having briefly broken below support at $60,000 on Friday evening, buyers came back in to push prices higher. So far this week, it has managed to dig its heels in but appears to be stuck in a narrow range between $61,000 and $64,000.

This week’s sideways move has helped the daily MACD to flatten out somewhat after a steep decline, which took it into mildly oversold territory. This is not to say that there’s no risk of further downside, as there certainly is. But sentiment appears to have improved a touch this week, despite the ongoing selloff in US tech.

Investors face another potentially volatile session as several major catalysts converge. The European Central Bank policy decision and press conference will be closely watched for any guidance on future interest rate moves. In the US, attention turns to the Producer Price Index and weekly jobless claims figures, both of which could influence expectations for Federal Reserve policy.

At the same time, developments in the Middle East remain a dominant market driver. Escalating tensions involving the US, Iran, Israel and key Gulf states continue to influence energy prices, inflation expectations, and broader risk sentiment.

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