Asian-Pacific stocks stabilise

US stock index futures were quiet and little changed overnight. Traders responded to a dull Asian-Pacific session while looking ahead to NVIDIA's key earnings report after tomorrow's close. Yet the downside appeared limited, despite Monday's mostly negative session.

Yesterday the NASDAQ dropped 0.8% as semiconductor stocks suffered a bout of selling pressure. The Dow eked out a modest gain of 0.3%, but the S&P 500 and Russell 2000 fell 0.3% and 0.8% respectively. Despite recent weakness, the S&P has held the top line of support around 7,640 on cash. Following the subdued start, all the majors rallied mid-morning. Yesterday a delegation from Pakistan held talks with Iranian leaders in Tehran.

Source: TN Trader

Today it was reported that Field Marshall Asim Munir, Pakistan's Chief of the Army Staff, was taking Iran an offer to halt the US blockade and lift sanctions under the memorandum of understanding. The news led to a 3% drop in crude prices while the S&P and NASDAQ easily recouped yesterday's losses.

Yesterday, US Treasury Secretary Scott Bessent threatened a raft of new economic sanctions against Iran and warned off countries from doing business with the country. He suggested that any countries ignoring his warning could face secondary sanctions as part of what the administration billed as an economic D-Day against Iran, or 'Operation Economic Outcast'. Yet Mr Bessent didn't spell out explicitly what secondary sanctions would mean in practice, nor did he name the countries who may be in his firing line (China).

Meanwhile, the fallout from last week's announcement from Mr Bessent (again) that the US Treasury would double its purchases on longer term government bonds, continues to reverberate. The overall effect on longer-term yields unwound quickly. After all, $4 billion-worth of purchases, up from $2 billion, is neither here nor there in a Treasury market worth over $32 trillion.

Some keen observers were more bothered by Mr Bessent's comment when he said he was taking the action because the markets 'were getting it wrong'. That was seen by some as an extraordinary comment coming from a Republican ex-hedge fund operator, rather than, say, from Alexandria Ocasio-Cortez.

NVIDIA, the world's largest corporation by market capitalisation, and the lodestar for the AI trade, releases earnings after tomorrow's US close. Yesterday in dropped close to 3%, taking some other big semiconductor stocks down with it.

As of yesterday's close, it had lost over 7% in the past week. But it is up over 1% this morning in a move which has helped steady the chip sector overall. Before NVIDIA, investors will get the latest US inflation update through the release of Core PCE. Known as the Fed's preferred inflation measure, it came in at +3.3% last month, well above the Fed's 2% target, and is expected to come in unchanged tomorrow.

European stock indices were firmer across the board this morning. After a quiet start, the gains accelerated as US stock index futures rallied, and the oil price fell, following speculation of a sudden, and unexpected, breakthrough in US-Iranian negotiations. This followed reports that Field Marshall Asim Munir, Pakistan's Chief of the Army Staff, was returning to Tehran after talks yesterday with an offer to halt the US blockade and lift sanctions under the memorandum of understanding.

Early days, and investors haven't got too carried away, but it's a good piece of news as it follows on from yesterday's 'Operation Economic Outcast' announcement from US Treasury Secretary Scott Bessent. In this, he outlined further sanctions targeted at Iran, as well as any country daring to do any kind of business with it. The news had been well trailed, and Mr Bessent's announcement was light on detail, so the market reaction was tepid.

Meanwhile, data released this morning showed that Germany's economy expanded faster than initially estimated, with second-quarter GDP up 1.0% year-on-year. In addition, Germany's ifo Business Climate survey surprised to the upside, coming in at its best level since this time last year. The UK's FTSE 100 continues to push higher, having held and bounced off support at 10,700. Can the bulls now retest resistance at 11,000?

Source: TN Trader

The US dollar was a touch firmer this morning, adding (very) modestly to gains made yesterday. Those gains came on the back of the additional sanctions announced by US Treasury Secretary, Scott Bessent, aimed at breaking Tehran's resolve by destroying its economy. Mr Bessent also announced that secondary sanctions would be levied on any country that continued to do business with Iran, yet his speech was light on specifics.

The cash Dollar Index ticked up above 98.80 this morning but then pulled back a touch. Last week it dropped sharply after Scott Bessent announced that he was doubling the Treasury's purchases of longer-dated government bonds with the aim of bringing down 10-to-30-year interest rates.

10 and 30-year Treasury yields did drop sharply on the news but then unwound most of their losses over the next two days. Bond yields were down a touch this morning with the 10-year off 3 basis points to 4.67%. Some commentators have noted that the US dollar appears to have broken its relationship with bond yields to a significant extent.

Generally, the dollar moves in the same direction as yields, but there is some suggestion that this is no longer the case. This would indicate that investors have lost their appetite for the greenback and no longer see it as the obvious target on a flight to quality. This fear is probably overdone, as the dollar has not yet broken major support levels. Yet it no longer has much of a tailwind from the prospect of Fed rate hikes.

Although it's worth noting that there's only a 60% possibility of 'no change' at next month's meeting, which means it remains 'live' inasmuch as a 25-basis point rate increase can't be ruled out. Perhaps tomorrow's inflation update will shift the needle.

The USD/JPY was back above 159.00 this morning. The underlying backdrop still tilts toward further yen weakness given concerns over Japan's worsening fiscal position, its large debt burden, and a widening budget. This all keeps the yen carry-trade in play, even after July's joint US-Japan currency intervention.

Source: TN Trader

Gold came within a few dollars of $4,700 in the early hours of this morning, to trade at its highest level since mid-May. But it then ran into a wall of selling which drove it back down below $4,615 over the next couple of hours. It has now steadied and has spent most of this morning's European session testing some mild resistance around $4,650.

The recovery in the US dollar since Friday's lows hasn't helped gold. But it's also fair to say that it was overdue a pullback given its near-17% rally since the end of last month. It wouldn't be completely surprising to see gold reverse direction now and retest $4,400, previously resistance, as support. If it does, traders will want to watch prices very carefully to ensure that the selloff has completed before buying.

Source: TN Trader

In the meantime, attention turns to Wednesday's PCE inflation update and Friday's Jackson Hole address from Fed Chair Kevin Warsh. These could provide the catalysts for the next big move.

It has been a similar story for silver. Overnight, it retested resistance at $70 per ounce. But having failed to take this out, sellers emerged and drove silver back down towards $67.50 in the space of a few hours. Silver does look vulnerable should selling pressure start to build from here.

The next obvious area of support comes in around $65 per ounce. But a quick scan of the charts shows that $60, or even $55, appear to be far more significant support levels. If silver did pull back that far, the big question would be if there were any buyers left brave enough to attempt to try and push prices back up?

As with gold, traders will keep a close eye on the dollar, and how it reacts to tomorrow's inflation update and Friday's speech from Fed Chair Kevin Warsh.

Source: TN Trader

Both WTI and Brent were a touch lower in early trade this morning but holding steady after a two-and-a-half-week rally. This saw front-month (October) Brent trade around $92 per barrel, having approached $95 on Friday evening. But prices fell sharply soon after the European open after reports came through that Pakistan's Chief of the Army Staff, Field Marshall Asim Munir, had an offer for Iran which included the halt of the US blockade of Iranian ports as well as lifting sanctions.

Source: TN Trader

Bear in mind that this came just a matter of hours after US Treasury Secretary, Scott Bessent, announced sanctions against individuals with ties to Iran while warning countries against doing business with Tehran or face secondary sanctions. China remains a major buyer of Iranian oil, and while Washington has criticised the purchases, it has so far stopped short of directly targeting Chinese banks.

Iran signalled it is ready to retaliate and has previously indicated it could further disrupt Middle East oil flows in response to US economic pressure. Meanwhile, there have been reports coming through suggesting there had been an increase in shipping passing through the Strait of Hormuz, though activity remains a fraction of pre-war levels.

Bitcoin edged above $80,000 in the early hours of this morning. It went on to top $81,200 briefly, hitting its highest level since mid-May. That meant that bitcoin had rallied just under 30% in little over a week.

Bitcoin had been stuck in a trading range of roughly $62-66,000 since early July. But it broke out of this last Wednesday as US Treasury Secretary Scott Bessent announced that the Treasury would double its purchases of longer-term government bonds. Bitcoin's move has mirrored that of gold largely as the latter appeared trapped around $4,400 per ounce until Mr Bessent's news saw it surge higher.

In both cases, the speed and size of the rallies have caused a lot of damage to short sellers, many of whom have been forced to buy and cover their positions thereby incurring large losses, particularly if leveraged. Bitcoin is now facing an area of stiff resistance between $80-82,000, so it may pull back and consolidate if profit-takers emerge in size.

Germany's GDP came in a touch better than expected, as did the ifo survey. President Trump continues to rail against Canada and is threatening to double tariffs on car imports, trucks and auto parts from January 1st, with markets now awaiting Canada's response. Treasury Secretary Bessent's Iran sanctions package, dubbed Operation Economic Outcast, aims to isolate the Iranian economy while threatening secondary sanctions on anyone assisting it.

Elsewhere, a Goldman Sachs partner has warned of the scale of disruption AI could bring to banking roles given the shortage of skilled staff. The Nasdaq is looking to claw back recent losses with Nvidia's report tomorrow likely the key swing factor.

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