Asian-Pacific indices slide

US stock index futures were mixed on Tuesday morning, indicating more signs of rotation. The Dow was building on Monday’s gains and pushing up further from 53,000, which it crossed above last night for the first time. The small-cap Russell 2000 was also a touch firmer this morning, but the NASDAQ and S&P 500 were both lower, with the tech index down close to 1% mid-morning.

There were hefty losses across semiconductor stocks in early trade. The iShares Semiconductor ETF (SOXX) was down 3.5% this morning, easily wiping out yesterday’s 2.7% gain. On Monday, tech stocks had rallied, helping the NASDAQ to close up over 1% while the S&P added 0.7%. But it looks as if investors have been influenced by the Asian Pacific selloff, which came despite blow-out numbers from Samsung Electronics.

Source: TN Trader

Investors are wondering if SpaceX can improve the mood as it enters the NASDAQ 100 later today. Its inclusion looks likely to trigger some large buying orders as funds which duplicate the major indices, and other investment vehicles, will be forced to add the stock to their various funds and portfolios. SpaceX was down 2% this morning but still trading at a 16% premium to its offer price of $135.

Meanwhile, investors are having to deal with a rate hike expectations conundrum. Kevin Warsh, the new Chair at the Federal Reserve, has kicked off his term in a hawkish fashion. He stated that the Fed’s focus is on getting inflation down to its 2% target, even as Core PCE ticked up to 3.4% year-on-year last month.

This has brought about a sharp increase in rate hike expectations, with the CME’s FedWatch Tool, which measures real money flows, indicating a 78% probability of at least one 25-basis point rate increase before year-end. Despite this, inflation expectations have dropped sharply along with the price of oil, and many analysts are stating that they don’t expect any rate hikes from the Fed this year. Who to believe: the market or your own ‘lying eyes’?

European stock indices were mixed this morning, with many taking a pause following a strong rally that recently pushed major benchmarks to record highs. Despite the pullback, market sentiment remains constructive.

Source: TN Trader

Falling energy prices, softer Eurozone inflation data and signs of cooling labour market conditions in the United States have helped support risk assets. These developments have reduced concerns that central banks will need to tighten monetary policy much further.

Fresh from his partisan meddling in the World Cup, President Trump is on his way to Turkey for an important NATO meeting. European defence stocks were generally firmer this morning. 

Meanwhile, the European tech sector, such as it is, showed general weakness. Investors reduced their exposure following the selloff across Asian-Pacific tech, which spread across US equities and indices during this morning’s trade.

The US dollar was a touch firmer this morning. It made modest gains versus all the majors, except the Japanese yen, which was a tad firmer. The cash Dollar Index appears to be consolidating, and, as things stand, is unable to build enough momentum to push back above 101.00.

Just under two weeks ago, it traded at a thirteen-month high above 101.50. But following a period of consolidation, it broke lower last Thursday, dropping down to 100.25. The trigger for the selloff was the disappointingly weak US Non-Farm Payroll update. This was viewed as reducing the likelihood of aggressive Fed rate hikes for the rest of this year. That removed a support plank from under the greenback, although it has shown some early signs of recovery so far this week.

The dollar has also benefited from some ‘safe haven’ buying. Reports that an oil tanker near the Strait of Hormuz was struck by a projectile have raised concerns about the durability of the US-Iran ceasefire agreement.

Meanwhile, the USD/JPY pair dropped back below 162.00 after hitting a fresh forty-year high last week. The Japanese yen received modest support from reduced Federal Reserve tightening expectations. Japanese authorities continue to warn that they are prepared to intervene to support the yen if ‘volatility becomes excessive’.

Source: TN Trader

Nevertheless, traders remain sceptical that intervention alone can reverse the powerful carry trade supporting the dollar and weighing on the yen. But as was experienced back in July 2024, official intervention can have dramatic effects as it forces the unwinding of the yen carry trade. That can be felt throughout financial markets.

Early on Monday morning, gold prices edged above $4,200 to hit their highest levels in a fortnight. Gold then drifted lower before it inched up again yesterday afternoon. But the sellers reappeared during the Asian Pacific session, pushing it back down towards $4,100 as the US dollar edged higher.

Gold appears to be consolidating now, and it could be that it manages to hold above $4,100. Its daily MACD has pushed up off mildly oversold levels, suggesting that momentum is building to the upside. But gold remains vulnerable to any additional dollar strength, and it’s far from sure if the bulls are ready to come out in strength.

A failure to hold above $4,100 obviously opens up the possibility of a decline back below $4,000. Then there's the added danger of another break lower. So, much depends on the greenback and investor sentiment this week, with tomorrow’s release of minutes from the Fed’s FOMC meeting last month a focal point.

Despite the pullback, there are signs that further downside pressure could prove limited. Last week’s softer US labour numbers have reduced expectations for aggressive Federal Reserve tightening, while central bank demand for gold continues to provide a strong underlying support base.

Source: TN Trader

Silver was also weaker overnight. Yesterday morning, it traded at a two-week high just short of $63.30. But the uptick in the US dollar saw prices pull back towards $60 per ounce this morning.

Despite this, silver’s daily MACD has turned up off very oversold levels, suggesting that upside momentum is building. This could change quite quickly if silver continues to fall further. But if it manages to hold above $60 and consolidate, then there’s a chance that it encourages some fresh buying interest, which could push prices up again and improve sentiment.

Source: TN Trader

Crude oil prices were firmer overnight in a move which saw Brent Crude up by over a dollar. This added to the modest gains made on Monday, as crude oil tracks sideways along a level of major support and as prices, according to the various daily MACDs, continue to suggest that oil is very oversold at current levels.

Source: TN Trader

This isn’t to say that prices can’t fall further, or even that they must correct upwards significantly. But it is a warning that investors could experience a spike in volatility after a selloff which has lasted for the best part of seven weeks. It is perhaps surprising that there wasn’t more of a reaction to reports from Axios saying that Iran had fired missiles at ships in or near the Strait of Hormuz on Monday.

The incident renewed fears of a fresh escalation in hostilities between the US and Iran. It also reminded investors that the Strait of Hormuz remains a dangerous place to transit, even as it once saw around 20% of the world’s energy supply pass through it. Reports suggest that the number of ships traversing the Strait has flattened out after an initial jump.

Despite this, supply continues to hit the market. Over the weekend, OPEC+ agreed once again to increase production targets, this time from August. Saudi Arabia has also reduced official selling prices for Asian buyers.

Bitcoin fell overnight but remained above the $63,000 level on Tuesday, briefly reaching $64,700 during the previous session. While Bitcoin has recovered from recent lows below $58,000, investors remain cautious. Renewed tensions in the Strait of Hormuz and broader weakness across Asian technology stocks weighed on risk sentiment. However, there were signs that institutional demand continued to improve.

Markets are entering a relatively quiet period ahead of next week’s earnings season, but several important themes continue to dominate investor attention. These include the Federal Reserve’s June meeting minutes, due on Wednesday, which could provide greater clarity on the Fed’s thinking on inflation and rate hikes.

Currency traders are still focused on the Japanese yen, which continues to trade near 40-year lows. Investors are watching closely to see whether Japanese authorities are willing to intervene more aggressively.

Geopolitical developments remain another key risk factor. Iran’s continued push to impose fees on vessels using the Strait of Hormuz and recent attacks on commercial shipping highlight the fragile nature of the current ceasefire environment.

Meanwhile, the rotation out of technology stocks remains one of the market’s most important themes. While the Dow continues to reach record highs, investors are increasingly shifting capital away from semiconductor and AI-related stocks and into other sectors.

With earnings season approaching and volatility remaining subdued, investors are likely to spend the coming days looking for fresh catalysts that can determine whether recent market gains have further room to run.

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