Nikkei hits record high

Both the S&P 500 and NASDAQ posted fresh record closing highs last night, as stocks within the tech sector experienced high demand. ‘Magnificent Seven’ corporations have been on an absolute tear since the end of March, as have semiconductors, and even the major investment banks have joined in, despite some mixed first-quarter results.

Source: TN Trader

Overall, the month-long selloff, which began at the end of February when the US and Israel launched attacks against Iran, knocked about 8% off the S&P 500 at its lowest point. And yet two weeks later, the index has soared over 11% to new all-time highs.

Investors piled back in to ‘buy the dip’, repeating a behaviour that has proved consistently profitable since October 2022. There was always an expectation that the war would be relatively short. The consensus view was that it would be longer than a fortnight but was likely to be over by the end of April. Expectations are certainly high that a peace deal between Washington and Tehran could soon materialise.

President Donald Trump reiterated that the conflict was “very close to over,” while a White House official confirmed that a second round of negotiations between the two countries remains under discussion.

The ceasefire called late Tuesday last week appears to be holding, although the Strait of Hormuz remains closed to most shipping, and it’s still unclear how effective the US blockade of Iranian ports in the region is proving to be.

One thing is for sure: investors seem comfortable adding to their exposure to equities despite an oil price which is up over a third since hostilities began, and, as around 20% of the global supply of crude oil, liquified natural gas, fertilisers and helium remains offline. It’s one thing to live with high energy prices. It’s quite another to live without any energy.

Technically, all the US majors are looking overbought at current levels. They have risen too far too fast, suggesting that a pullback may be on the cards. But it’s also possible that stock indices push higher from here, as FOMO plays its role in driving fresh buying from investors who feel they are underexposed to record-breaking markets. We saw something very similar with gold and silver back in January. And we all know how that ended.

European stock indices were mostly firmer in early trade this morning. Investor sentiment was broadly positive following record closes for the S&P and NASDAQ yesterday. In addition, US stock index futures built on yesterday’s gains this morning and were all modestly higher in early trade.

But it is interesting to compare the charts of the US majors with those of the Euro Stoxx 50, German DAX and the UK’s FTSE 100. The latter all remain significantly below their all-time highs from earlier this year.

Source: TN Trader

In addition, all look as if their rallies from late March are losing momentum, while the US majors appear unstoppable. It appears that European investors are exercising some caution and taking some money off the table following a strong run over the past fortnight.

It will be interesting to see if this proves to be a sensible move or provides evidence that European investors are unnecessarily cautious when compared with their American cousins.

The US dollar was firmer across the board in early trade on Thursday. Yesterday, the cash Dollar Index hit its lowest level since the war began at the end of February. But it found some support around 97.50 and is now butting up against some mild resistance at 98.00.

It’s interesting that investors should be so aggressively ‘risk on’ when it comes to equities, buying in such quantities to drive both the S&P 500 and NASDAQ to all-time highs.

Yet the pick-up in the US dollar would suggest that there’s still some caution out there as, despite assurances from President Trump, the war with Iran is ongoing, the ceasefire is fragile, and the Strait of Hormuz remains blocked to most shipping. At its most basic, prices don’t move in straight lines.

Source: TN Trader

The US dollar rallied sharply when hostilities broke out and fell back quickly on expectations of a short war. Prices have risen as buyers came in to take profits on shorts or establish fresh long positions as support held. The problem for the Dollar Index is its inability to take out key resistance at 100.00.

Early yesterday, gold hit a near-monthly high of $4,870. It subsequently reversed direction to close below $4,800. This remains a key level, and for most of Thursday morning, gold was trading comfortably above here. But it began to cede ground as the European session progressed, and it wasn’t helped by renewed strength in the US dollar.

Source: TN Trader

While US equity investors seem happy to take President Trump at his word and are convinced that a peace settlement with Iran is close to being achieved, others are hedging their bets. This has seen a modest bounce in the US dollar following its recent pullback. If the dollar continues to catch a bid on another ‘flight to safety’, then this will make it difficult for gold to make significant upside progress.

Looking at the chart, it is apparent that silver has made steadier upside progress than gold over the past fortnight. But as things stand, it hasn’t yet been able to build enough upside momentum to break convincingly above $80 per ounce. While it has made several attempts so far this week, it has failed to hold above $80 on each pullback.

Despite this failure, silver’s daily MACD looks quite constructive from a bullish perspective. It is sloping upwards and just about breaking above the ‘neutral’ level. However, if it can’t manage to break out convincingly above $80, that upside momentum will start to fade.

Source: TN Trader

Meanwhile, as with gold, much depends on how the US dollar behaves now. If the greenback looks like it may recover following its recent pullback, then that would be a headwind for higher silver prices.

Both Brent and WTI crude oil were a touch firmer in early trade this morning. Despite this, both contracts continued to trade near the bottom end of their respective ranges, which have been building over the last five weeks or so.

Front-month Brent was trading a few dollars north of $90 per barrel, which was well below the upper end of its recent range at $110. Front-month WTI was trading below $90, again, well below the top end of its range.

Source: TN Trader

The forward curves for Brent, and to a lesser extent WTI, continue to show backwardation, in other words, short-term supply issues which ease up over the rest of the year. But this backwardation is not as steep, or indeed as regular, as it was a week ago. That suggests some nuances are coming back into pricing, which also suggests that the overall situation may be considered clearer than it was recently.

Having said that, the Strait of Hormuz remains closed, irrespective of what President Trump may be saying. The US blockade targeting Iranian ports has already forced several vessels to turn back, while Iran warned it could halt trade across the Gulf region if the blockade is not lifted.

Instability in the Strait of Hormuz continues to act as a key variable influencing global energy prices and limiting downside pressure on crude.

Bitcoin was a touch lower overnight but continues to consolidate around $75,000. While still rangebound, it has made steady upside progress since the end of last month, when it was trading around $65,000.

The daily MACD is above the neutral level and pushing higher, suggesting that momentum remains to the upside. It is also worth noting that Bitcoin and Ether continue to plough their own furrows, rather than their movements being closely correlated to tech stocks, the US dollar, interest rates or anything else.

Volatility remains subdued as equity markets continue printing fresh records and demonstrating how quickly sentiment has shifted. Just one month ago, markets were roughly 10% lower at the height of the conflict, highlighting the speed of the recovery as diplomatic expectations improved. Corporate earnings remain a focus, with Netflix likely to draw significant attention as it reports later today.