Asian-Pacific indices dip

All the US majors ended lower last night, with the Dow, S&P 500 and NASDAQ down 1.2%, 0.7% and 0.9% respectively, pulling back from all-time highs. The small-cap Russell 2000 also lost ground, dropping 1.3%. Looking at sectors within the S&P 500, tech was the worst performer, falling 1.5%. The mood wasn’t helped after Broadcom and CrowdStrike reported after last night’s close.

Source: TN Trader

Broadcom quickly lost 16% after it reported weaker-than-expected quarterly sales, even as earnings per share came in above forecasts. Meanwhile, cybersecurity firm CrowdStrike dropped 11% after issuing disappointing second-quarter revenue guidance.

Away from the tech arena, PVH Corp, owner of fashion brands Calvin Klein and Tommy Hilfiger, slumped 20% as its own forward guidance was deemed underwhelming. The softer tone across US equities has been blamed on the tit-for-tat military action between the US and Iran.

It does appear to have gone up a notch in terms of severity, but then news that Israel and Lebanon have agreed to a ceasefire, thereby removing a major barrier to US/Iranian peace negotiations, has done little to improve the mood today.

Futures on the tech-heavy NASDAQ 100 were down over 1% this morning, with semiconductors worst hit. It’s too early to say if this is simply a mild bout of profit-taking or a harbinger of a more protracted and deeper retreat. But investors will be mindful of the extraordinary gains made in semiconductors over the past two months, and the upcoming SpaceX IPO, which is sure to suck some money out of outperforming stocks.

It’s worth noting that yesterday’s economic data releases, ADP Payrolls, ISM Services and Factory Orders, were all positive. Yet these are of little interest to market participants who are dancing to the beat of their own drum.

European stock indices were mixed in early trade on Thursday. Investors continue to keep a close eye on developments across the Middle East. The ongoing closure of the Strait of Hormuz is a far bigger issue for Europe, the UK and Asian Pacific countries than it is for the US.

All the European majors took a hit yesterday following news that Iran had struck Kuwait International Airport, claiming it was in retaliation for US military action. The US responded with attacks on Iranian targets. But tensions have calmed a touch this morning after news that Israel and Lebanon have agreed to a ceasefire.

Source: TN Trader

If this holds, then it may help to resolve a significant issue as far as Iran is concerned, which may lead to the resumption of peace talks between Iran and Washington. However, Hezbollah is yet to comment, let alone agree to the ceasefire terms. As the group now appears to operate in small units with little overall command, there’s a danger that this ceasefire could disintegrate quickly.

Yesterday evening, the cash Dollar Index hit a two-month high of around 99.30. The move into the US dollar was driven by ongoing geopolitical uncertainty after Iran attacked Kuwait’s airport, apparently in retaliation for US military action, and as the US then hit out at Iranian targets around the Strait of Hormuz.

Investors are also mindful of elevated oil prices, which continue to push up inflation, thereby increasing the likelihood of interest rate hikes from the Federal Reserve, as well as other central banks. But the dollar has given back some of those gains this morning due to news of a truce between Israel and Lebanon. This has raised the possibility that peace talks between the US and Iran could now resume.

The pullback in the US dollar is welcome news for Japanese policymakers. The USD/JPY pair poked its nose back above 160.00 for the first time since the end of April. Back then, the pair rose to 160.70, the dollar’s highest level against the yen since July 2024. In both cases, this yen weakness triggered intervention.

Source: TN Trader

As can be seen, the intervention has failed to work. But whereas it took around three months to unravel in 2024, and even the USD/JPY didn’t get back to 160.00, this time round it took little more than a month.

Japan’s Ministry of Finance, as well as the Bank of Japan, must be extremely frustrated and wondering just what it will take to strengthen their currency. The markets will wait and see, with many participants confident that intervention rarely works, although it can drive out speculators for a while.

Gold continues to be rangebound, but with a modest downside bias. Prices continue to be in thrall to the US dollar. Yesterday, the dollar went up, and gold fell. This morning, the dollar went down and gold rallied. There will come a time when this negative correlation will break down, and gold can do its own thing.

Source: TN Trader

But for now, the two are tied at the hip, which makes life somewhat frustrating for gold bulls. After all, isn’t gold the world’s ultimate safe haven? Haven’t central banks been buying up and hoarding unprecedented amounts of bullion (well, not the Bank of England, obviously)? Yes, and yes. But this doesn’t matter.

Gold’s melt-up and subsequent crash at the end of January have left many gold bulls scarred and upset. It was a painful lesson, felt by silver bulls as well, although, as is often the case, the latter’s punishment beating was far more severe.

The question precious metals bulls should be asking is if this is a repeat of 2011/12? If not, then there’s a chance that both precious metals can put in another rally to new all-time highs. If it is a repeat, and bear in mind there was a failed rally attempt which peaked in early March, then any fresh assault on January’s record highs may well be followed by a protracted bear market.

It is, of course, a similar story for silver, which has also been relatively rangebound, save from a failed breakout attempt three weeks ago. Apart from that, silver has spent much of the past two months stuck between $70 and $80 per ounce.

That’s quite a compression given that it was moving in $5 or even $10 chunks earlier this year. But for now, there’s no clear indication of where silver goes next. And, as with gold, its fortunes remain tied to the US dollar, for now.

Source: TN Trader

Oil prices eased back a touch late yesterday, and again this morning, as traders responded to the new ceasefire agreement between Israel and Lebanon. This has raised hopes that Iran will return to the negotiating table, as one of its conditions for resuming talks was that Israel halt its war in Lebanon.

Source: TN Trader

Hezbollah remains the wild card here. While both the US and Iran have looked past each other’s ceasefire infractions since April, that may not prove to be the case with Israel and Hezbollah. Time will tell.

Despite the ceasefire agreement, uncertainty surrounding the broader Middle East conflict remains elevated. Iran’s Foreign Minister Abbas Araghchi said that talks with the US had taken place recently, but with ‘no tangible progress’. Oil prices remain elevated as the Strait of Hormuz remains closed.

Yesterday, the latest inventory data from the US Energy Information Administration (EIA) showed that last week, crude oil stockpiles fell by far more than expected. This will raise concerns about oil inventories falling to worryingly low levels, removing a buffer which has helped to keep prices in check since the war began.

US stock market volatility remains subdued, as measured by the VIX, despite ongoing geopolitical tensions and elevated oil prices. Investors will focus this afternoon on a busy schedule of central bank commentary, including remarks from Federal Reserve officials and the Governor of the Bank of England. Weekly Unemployment Claims will be watched ahead of Friday’s Nonfarm Payrolls report.

Reports suggest the Bank of Japan is considering a 25-basis-point interest rate increase next week, placing additional focus on the yen. Federal Reserve Bank of Dallas President Lorie Logan stated that inflation is taking too long to return to the central bank’s 2% target, reinforcing expectations that policymakers remain concerned about price pressures.

Questions around equity valuations are also becoming more prominent as markets continue to push higher despite growing geopolitical and inflation risks. Results from Broadcom and CrowdStrike were disappointing.

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