Geopolitics dominate

President Donald Trump continues to consider whether to throw US support behind Israel’s military campaign, with the possibility of direct US involvement against Tehran. The White House has indicated that a final decision will be made within the next two weeks.

Markets remain highly sensitive to any developments on this front. The geopolitical backdrop in the Middle East remains a significant driver of risk sentiment across global financial markets.

European stock indices were firmer across the board in early trade on Friday. The gains were led by the German DAX, while the Euro Stoxx 50 also exhibited strength. The UK’s FTSE 100 shrugged off a disappointing retail sales report that showed a 2.7% monthly drop in May to record the steepest decline since December 2023. The data broke a four-month streak of rising retail sales, with economists having expected only a 0.5% decline.

Source: TN Trader

The sharp pullback was blamed on the unwinding of the strong April numbers, which were supported by unusually sunny weather. While the retail figures cast a shadow over UK consumer strength, sentiment across Europe showed signs of stabilising, taking heart from today’s recovery across US stock index futures. This comes as US President Trump appears to be having second thoughts about joining Israel in attacking Iran.

Asian Pacific stock markets were relatively subdued overnight. The Shanghai Composite, Australian AXS 200 and Japanese Nikkei all ended down between 0.1% and 0.2%. 

Japan’s Core inflation rate rose 3.7% year-on-year in May. This was the highest reading since January 2023, surpassing both expectations and April’s 3.5% update. Despite this, the Japanese yen was little moved. 

Investors still believe that the Bank of Japan will hold back from hiking rates further until there’s further evidence of ‘sticky’ inflation. As expected, China kept its 1- and 5-year Loan Prime Rates unchanged. Meanwhile, Hong Kong’s Hang Seng Index rallied sharply, closing 1.3% higher with the tech sector dominating.

In currency markets, the US dollar was weaker across the board, leaving the euro to take the lead in quiet trade. The US dollar is attempting to stabilise after a choppy week, with price action reflecting the tug-of-war between heightened geopolitical tensions and economic fundamentals.

Sterling broke below 1.3400 yesterday against the dollar. But it has managed to push higher this morning, building on yesterday’s rebound, despite the poor Retail Sales number.

Source: TN Trader

Precious metals retreated as investors rotated back into risk assets. Gold started the week trading at $3,450, hitting its highest level in close to two months, on the day it made a record high of $3,500. But it has spent the rest of this week taking baby steps down, to break below its 20-day moving average earlier this morning.

Source: TN Trader

Silver took a more significant stride lower this morning, falling to $35.50 as Europe opened. Yet it was only this Wednesday that silver hit $37.31, trading at its highest level in more than thirteen years. It has moved up sharply this month and broken into overbought territory. It appears to be correcting currently, and a deeper pullback can’t be ruled out.  

As usual, silver continues to be extremely volatile, due mainly to the fact that it is a relatively small market. That means that big price move can come from out of the blue, and in either direction, no matter what the charts may be suggesting.

Source: TN Trader

Crude oil prices were mixed this morning in choppy trade. Despite the underlying geopolitical risks tied to the Middle East conflict, the market struggled to sustain upside momentum. Since prices surged last Thursday, crude has been relatively rangebound, albeit in a wide one, with front-month WTI flitting between $75 and $70.

Source: TN Trader

Traders remain headline-sensitive, with any escalation in hostilities between Israel and Iran, together with the threat of US involvement, likely to spark fresh volatility.

Natural Gas rose above 4 BTU, in a move which could suggest an upside breakout. The move reflects growing technical momentum after a week of steady gains.

Traders are watching closely to see if this level holds as support on any pullback. With limited data and little noise in the broader commodity complex, gas has emerged as one of the more interesting charts to watch into the weekend.

Cryptocurrency markets were quiet overnight, but broadly positive. Bitcoin continues to oscillate around $105,000. The lack of momentum reflects broader market fatigue, with sentiment in the digital asset space still tethered to macro headlines. 

Meanwhile, Ether appears even more clearly rangebound. Support has been building around $2,400 since early May, while $2,800 continues to put a cap on prices. Until risk appetite or regulatory news shifts, crypto appears content to drift.

The VIX dropped 2% this morning, reflecting easing short-term volatility expectations despite ongoing geopolitical noise. The decline suggests traders are still largely unconvinced that the Israel-Iran conflict will escalate into broader market turmoil.  However, complacency may be short-lived, with major data and event risk looming.

US stock index futures have bounced off yesterday’s lows. But they remain under pressure as investors assess the risk of further escalation in the Middle East. President Trump’s comments concerning giving Iran “a chance to make a deal before we strike” may have helped to calm nerves, but perhaps only temporarily. 

Meanwhile, Mr Trump also took a fresh aim at Federal Reserve Chair Jerome Powell, suggesting that interest rates should be 2.5% below current levels. This followed the Fed’s decision from Wednesday to keep interest rates unchanged.

Gold has retreated, oil remains reactive, and gas continues to draw attention. For now, the tone is cautious, particularly as investors consider how to position themselves going into the weekend.