Asia Pacific mixed again

Yesterday, US stock indices posted decent gains across the board as investors considered the outlook for more rate cuts this year. The rally took all four of the major US indices to fresh record highs.

The Dow could only manage a relatively modest advance, ending the session up 0.3%, while the S&P and NASDAQ added 0.5% and 0.9% respectively. But it was the small-cap, domestically focused Russell 2000, which came roaring to life, finishing the session 2.5% higher, finally establishing a fresh all-time high by nudging above its previous record intra-day high from November last year. Any reduction in borrowing costs is seen as beneficial to small caps, as these companies often hold more debt, and this, in turn, tends to be floating rate, rather than fixed.

Source: TN Trader

In contrast, big tech companies are often cash-rich, and any debt is fixed-rate and cheap. Troubled US chip giant Intel closed around 23% higher yesterday, having soared to its best levels in 15 months. This followed news of a $5 billion investment by Nvidia, which rose 3.5%.

US stock futures were flat in early trade this morning, with a slight positive bias. It will be interesting to see how investors behave going into the weekend. Looking back at the FOMC meeting on Wednesday, it’s worth noting that there was a wide range of forecasts in the FOMC’s Summary of Economic Projections, including an overall projection that the labour market would improve. Yet in his subsequent press conference, Fed Chair Jerome Powell said that employment risks have risen significantly recently, to outweigh inflation risks.

In addition, if President Trump gets his way, then there could be a far more dovish element in the FOMC than there is currently. This may not be a good thing, as cutting rates aggressively with unemployment low, growth okay, and inflation above target risks overheating the economy. In addition, it’s important for investors to believe that the US central bank is independent and apolitical, even if it isn’t.

Market watchers noted that earnings remain the primary driver of sentiment. According to Aswath Damodaran, professor at NYU’s Stern School of Business, the breadth of strength across sectors shows the rally is not just a tech story. He emphasised that if earnings continue to meet or beat expectations, there is little reason for markets to undergo any major adjustment.

European stock indices were firmer across the board this morning. The French CAC and Euro Stoxx 50 led the advance, while the German DAX wafted higher in their wake. The UK’s FTSE 100 was relatively unchanged as investors considered this morning’s update on the latest UK government’s borrowing. This continues to soar, coming in at a five-year high and well above expectations, leading to a sell-off in sterling and an uptick in gilt yields.

Source: TN Trader

After a busy week of central bank decisions, the focus remains on monetary policy. On Wednesday, the Federal Reserve cut rates by 25 basis points, while yesterday the Bank of England opted to hold steady at 4%. The Bank of Japan also kept rates on hold while Norway and Canada trimmed their respective policy rates, all as expected.

Geopolitics is also on the radar. US President Donald Trump, fresh from his state visit to the UK, is expected to speak with Chinese leader Xi Jinping today. The call comes after negotiators reached a framework deal over TikTok’s US business during talks in Madrid earlier this week.

In FX, the Japanese yen strengthened following the Bank of Japan’s decision to keep its policy rate steady at 0.5%. Governor Ueda reinforced the view that rates could rise further if both economic conditions and inflation continue to meet projections, which lent the yen some support.

At the same time, the US dollar extended recent gains, in a move which saw the Dollar Index push back above 97.00, having breached 96.00 on Wednesday, to hit its lowest level since February 2022. The US dollar has managed to hold its ground, despite the Fed’s 25 basis point rate cut, along with the forecast of an additional 50 basis points worth of easing prior to the year-end.

The price action suggests that markets may be reassessing the policy stance as less dovish than initially interpreted, while dollar bulls are hoping that the bottom may now be in for the greenback.

Gold began the day little changed, but it started to rally later in the European session. Gold hit an all-time high on Wednesday night, trading above $3,700. But it fell back amidst the volatility after the Fed’s rate cut announcement and as investors sought to parse the accompanying statement, the FOMC’s quarterly Summary of Economic Projections and Fed Chair Powell’s subsequent press conference.

It fell again yesterday but appears to have found some support around $3,630.  This suggests that the current bullish sentiment remains intact. Yet the daily MACD is still in overbought territory, even as it flattens out and curls lower. Gold may need another period of consolidation, or more of a correction, before it can build some fresh upside momentum for the rally to continue.

Source: TN Trader

Silver fell sharply yesterday as the US dollar bounced back and as sellers came in to take advantage of silver’s recent strength. But it rallied this morning and managed to push back over $42 per ounce. But, as with gold, its daily MACD looks overbought at current levels, so traders shouldn’t rule out the possibility of a bigger pullback or a significant period of consolidation.

Yet both precious metals remain underpinned by investor demand, with both metals showing resilience despite fluctuations in broader markets. And as noted before, unlike other times of strength across precious metals, these current moves have largely passed under the radar as far as retail investors are concerned.

Source: TN Trader

Crude edged lower in early trade this morning, with fundamentals once again setting the tone for the market. Recent gains were driven by fears of a crimp in supply as Ukraine significantly escalated its attacks on Russia’s energy infrastructure.

The Biden administration had effectively forbidden Ukraine to undertake this kind of attack on pipelines and refineries fearing a prolonged spike in global energy prices. But that is no longer the case. The overall market dynamics remain unchanged. Supply is plentiful, while global demand growth continues to soften. If prices were to fall further, the first significant support for front-month WTI would come in at around $61.60.

Source: TN Trader

Natural gas prices declined sharply, shedding 4% in the previous session. The move followed a significant, and unexpected, build in storage, which weighed heavily on sentiment and dragged the market lower. The repeated swings above and below the $3 threshold underscore the lack of clear direction in the market, with both bulls and bears struggling to take control.

Bitcoin and Ether fell sharply overnight, though both remain within their established trading ranges. Despite the pullback, price action suggests consolidation rather than a decisive downside break, leaving the sector in its familiar pattern of range-bound movement.

The VIX held steady overnight, reflecting calm conditions after the earlier volatility surrounding central bank decisions. While equity and FX markets experienced notable moves earlier in the week, the volatility index has since settled back.

Its position suggests that investors remain broadly comfortable with risk levels heading into the weekend, preferring to hold steady rather than hedge aggressively.

Record stock market highs continue to dominate headlines, with investor optimism brushing aside any doubts surrounding the Fed’s decision. The Bank of Japan’s steady hand follows the same path as the Bank of England, leaving policy steady while awaiting further clarity. The dollar looks to have found some support, though questions remain about its durability.

For now, the bulls continue to ride a wave of euphoria and optimism, with central bank guidance and geopolitical developments likely to set the tone into next week.