Asian-Pacific markets rebound off earlier lows

US stock index futures were firmer across the board this morning, with the tech-heavy NASDAQ and S&P 500 leading the gains. Both indices were up over 1.0% by mid-morning, while the Dow and Russell 2000 added 0.5% each. Investors reacted to news of a pause in hostilities between the US and Iran with both sides agreeing to resume technical talks. This followed on from last week’s Iranian drone attack on a cargo vessel traversing the Strait of Hormuz.

Source: TN Trader

Then, over the weekend, Iran attacked more vessels attempting to pass through the Strait, and the US sent fighter jets to attack Iranian military targets. Iran responded by firing missiles at US military bases in Kuwait and Bahrain. President Trump said the US may be “forced to militarily complete the job”, but it appears that calm has returned.

Last week brought some sharp losses across the tech sector. Semiconductor stocks were hit hard on what appeared to be a bout of profit-taking, while ‘Magnificent Seven’ constituents also took a pasting. This brought losses for both the S&P 500 and NASDAQ of 2.0% and 4.6%, respectively.

But there was no general panic, as investors appeared to reinvest the proceeds from tech sales into other sectors. This helped the Dow to gain 0.6% for the week, while the small cap Russell added 0.9%.

SpaceX, which dropped16% last week, was a touch firmer this morning. Elon Musk’s conglomerate is being fast-tracked into the NASDAQ and is expected to join the index on 7th July. Despite this morning’s bounce, investors are still expressing some reservations concerning the future direction of tech in general, and semiconductors in particular.

There are worries over the massive spending by hyperscalers on AI infrastructure. Not only are the sums involved huge, but doubts have been raised over whether this spending will generate sufficient returns on investment. On top of this, the Federal Reserve, under its new Chair, Kevin Warsh, is sounding far more hawkish than it was under Jerome Powell.

According to the CME’s FedWatch Tool, there’s an 80% probability of at least one 25-basis point rate hike before year-end, and a 50% chance of the first rate hike coming in September.

European stock index futures were firmer overnight, encouraged by positive moves across US indices. But these European gains began to fade once the exchanges opened, and most of the majors had drifted down into negative territory by mid-morning.

Source: TN Trader

The US/Iranian ceasefire doesn’t look very strong after both sides took shots at each other over the weekend. It looks as if Tehran still wants to charge vessels a fee for transiting the Strait of Hormuz. This would be a step too far for the Trump administration, as no such charge existed before the war. It is also illegal under international law.

Yet on the flip side, it appears that President Trump is getting increasingly desperate to end the war and get the Strait of Hormuz reopened. The danger is that he may have to resume hostilities to have any chance of getting what he wants. Meanwhile, in the UK, Andy Burnham, who is expected to be installed as the new Prime Minister in just over a fortnight, will deliver a speech to outline his vision.

The US dollar was a touch weaker against most other currencies this morning. The cash Dollar Index pulled back to 101.00, having hit a thirteen-month high last Wednesday just above 101.50. This looks like nothing more than a touch of profit-taking, given the dollar’s upside progress so far this year.

At the end of January, the cash Dollar Index was heading towards 95.00, and looking like it had further to fall. But it has tacked on over 6% since then, with significant gains over the past fortnight, so a pullback seems perfectly reasonable.

The dollar is getting support from rate hike expectations, with an 80% probability of at least one 25-basis point rate increase before year-end. Investors now assign a 50% likelihood that the first rate rise could come as soon as September as inflation continues to come in well above the Fed’s 32% target.

Meanwhile, the dollar rallied modestly against the Japanese yen. The USD/JPY continued to bump its head on 161.90. The US dollar is now over a cent above levels where the Japanese authorities intervened at the end of April to support the yen. While traders expect the yen to weaken further, they are wary of buying the USD/JPY when Japan could intervene to support the yen at any moment.

Source: TN Trader

Last week, gold broke below $4,000 per ounce to hit its lowest level since early November. It subsequently bounced, coming within a few dollars of $4,100 on Friday afternoon. But it has drifted lower today, and not even the weaker dollar has been able to help give gold a lift.

The question for traders to ask now is whether the low is in for gold, given the five-month selloff from the all-time highs hit at the end of January, or has gold got further to fall? If it does drop back under $4,000 again, will gold take out the lows seen at the end of October, just below $3,900?

If it does, then there’s very little in the way of technical support until prices drop below $3,500. The daily MACD is back inside oversold territory. But it is not as oversold as it was at the end of March.

Source: TN Trader

Silver was also weaker overnight, dropping back below $58.00 per ounce. It also looks quite vulnerable down here, with the next significant area of support coming in around $54 per ounce. But its daily MACD is looking as oversold as it was back in February and March.

There’s no guarantee, but these are the kind of MACD levels which could precede a bounce. Yet there’s no indication that the MACD has bottomed out, let alone started to curl upwards, so that also suggests that silver may have further to fall.

Source: TN Trader

A new bout of hawkishness from the Federal Reserve continues to support the US dollar while it weighs on yield-free assets. Markets currently assign a nearly 50% probability to a Fed rate increase as early as September.

Crude oil prices were mixed this morning as investors responded to a fresh outbreak of hostilities between the US and Iran over the weekend. Yet by the time the markets reopened last night, it appeared that both sides had agreed to end their tit-for-tat attacks on each other, in favour of resuming their technical talks.

Source: TN Trader

The problem started at the end of last week when Iran launched a drone attack on a cargo vessel passing through the Strait of Hormuz. There were further attacks over the weekend on shipping, which Tehran insisted wasn’t authorised to pass through the strait.

The US responded, using aircraft to attack Iranian military targets. These appear to be serious breaches of the ceasefire. Yet there’s also a drive to work through the issues on the memorandum of understanding signed by both parties. Risks remain elevated. Iran continues to insist that authority over the Strait lies with Tehran, while US officials have warned of severe consequences should hostilities resume.

Bitcoin remained below the psychologically important $60,000 level and is on track for a second consecutive quarterly decline. The cryptocurrency has fallen more than 30% this year. If current levels persist, Bitcoin will record a quarterly loss of approximately 13%.

Bitcoin is now trading within a band of potential support which stretches down to around $54,000. But a protracted break below there could open up the risk of a deeper fall, as there’s very little left in the way of support until $40,000.

Market sentiment has stabilised following the temporary pause in US-Iran hostilities, but investors remain cautious as geopolitical risks continue to linger.

The key event for markets this week is Thursday’s US Non-Farm Payroll report, which is expected to provide important clues regarding the Federal Reserve’s next policy move. Markets will also need to navigate quarter-end positioning and the shortened trading week ahead of Friday’s US Thanksgiving.

Technology stocks remain in focus. Recent weakness across the AI sector has raised questions about infrastructure spending. But early signs suggest dip buyers are beginning to return to selected names. Baidu’s AI chip IPO plans and reports that SpaceX will join the Nasdaq-100 on July 7 have helped support sentiment in parts of the sector.

For now, investors appear willing to selectively re-enter beaten-down technology stocks. But the labour market data later this week could determine whether the recent recovery gains further momentum.

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