Asian Pacific indices follow Wall Street lower

US stock indices began the week on the back foot, with all closing lower on Monday. Small cap stocks led the decline as the Russell 2000 lost around 2%. The Dow dropped 1.2% while the S&P 500 and NASDAQ lost 0.9% and 0.8% respectively. 

It may have been small caps which bore the brunt of yesterday’s selloff, but it was tech, and specifically corporations at the forefront of the Artificial General Intelligence (AGI) trade, which was the trigger for the move lower.

Source: TN Trader

Nvidia had another weak session, losing around 2%. It fell again overnight but was trading off its lows at the time of writing. Investors in the world’s biggest company, as measured by market capitalisation, have been rattled by news that some well-known investors have either cut their exposure to the chip designer or taken out short positions on it.

Yesterday, it was revealed that the hedge fund owned by PayPal founder and tech investor Peter Thiel had sold its Nvidia holdings in the third quarter. Mr Thiel has previously expressed his concerns over the Artificial Intelligence (AI) ‘hype loop’, which highlights the circularity of so much of the promised investment in AGI.

This followed last week’s news that Micheal Burry of ‘The Big Short’ fame has a large short position on Nvidia, and Japanese tech investment giant SoftBank sold off its holding in the stock to raise funds to increase its exposure to OpenAI, owner of ChatGPT.

Nvidia dropped to around $181 per share overnight, representing a decline of over 14% from the all-time high hit at the end of October. It will release its latest set of earnings and revenues after tomorrow’s close.

Given its leadership position in the AGI trade, as well as the current concerns around overvaluations and future returns on investment, this could be a pivotal moment for equity markets as we head towards year-end.

Investors are worried, as can be seen by the size of the recent selloff. But for those of a strongly bearish persuasion, it may be worth considering that the recent pullback in Nvidia’s stock price does give it some room to the upside, should tomorrow’s release beat expectations. Revenues and earnings are important, but it’s Nvidia’s forward guidance which may prove key to how it performs after tomorrow’s results.

US stock index futures were lower across the board this morning but trading above overnight lows. Concerns over the tech sector are weighing on stock prices, although investors are also having to price out the prospect of another rate cut from the Fed next month. This follows a series of statements from members of the Federal Reserve, beginning with Chair Jerome Powell after the October meeting, when he warned that another rate cut in December was not a foregone conclusion.

Since then, other FOMC members have expressed their concerns about above-target inflation and a lack of clarity over the state of the economy. This is due to the lack of official economic data during the government shutdown. This has led many to favour no change in the Fed Funds rate after next month’s meeting, which means the removal of a strong tailwind for equity markets.

Aside from Nvidia’s results, this week also sees trading updates from some large bricks and mortar retailers, including Lowe’s and Target tomorrow, and Walmart and Ross Stores on Thursday. These should provide some insight into the health of the retail consumer.

In an indication that there are some early signs of discomfort, Home Depot has just announced that it has missed its earnings expectations for the third straight quarter. It also announced a cut to its full-year forecast. The stock dropped 1.7% to trade at its lowest level since June. It has now lost 18% over the last two months.

European stock indices were sharply lower across the board this morning. Investors responded to a late lurch lower on Wall Street, together with early weakness in US stock index futures, by cutting their exposure to European equities.

Source: TN Trader

Investors around the world are transfixed by US tech, amid concerns that the sector could be grossly overvalued should future returns on investment fail to match current expectations. Nvidia, the first corporation in history to hit a market capitalisation of $5 trillion, will release its latest earnings and revenue update after tomorrow’s close.

The stock has dropped around 14% since the end of last month as regulatory filings have revealed that several significant individuals have either cut their exposure to the company or taken outright short positions on it.

Forex had another quiet start to the day in relatively featureless trade. There was a modest uptick in commodity currencies, such as the Australian and Canadian dollars, while the US dollar was little changed against a basket of currencies. The Dollar Index hovered above 99.00, but showed no inclination to push much higher, despite the increased likelihood that the US Federal Reserve will keep rates unchanged at next month’s FOMC meeting, rather than cutting them as previously expected.

Source: TN Trader

The British pound continues to move sideways with the upside capped. There’s some resistance around 1.3200 for the GBP/USD. Traders are looking ahead to next week’s budget from the UK’s Chancellor of the Exchequer, Rachel Reeves. But before that, tomorrow sees the latest update on UK inflation.

This is expected to moderate somewhat, with Headline CPI dropping to 3.5% from 3.8% previously. If so, despite being well above the Bank of England’s (BoE) 2% target, this will increase the probability of a December rate cut from the BoE.

The Japanese yen weakened overnight ahead of a meeting between Japan’s new Prime Minister, Sanae Takaichi, and Bank of Japan Governor Kazuo Ueda. Investors expect the government to announce a fresh package of fiscal stimulus to help boost the economy. This has contributed to weakness in the Japanese currency. But Governor Ueda is pushing in the opposite direction as he favours a rate hike as soon as next month, or early in 2026.

Gold fell yesterday. The weaker tone persisted in Asian Pacific trade overnight as gold dipped below $4,000 for the first time in nine days. But it soon bounced back as buyers stepped in to support prices.

Last Thursday, gold came close to trading back at $4,250. But since that high point, it has lost around 6%. Just over a week ago, the daily MACD curled up off the neutral line, suggesting that upside momentum was picking up. But it has now flattened out and has started to point lower, suggesting that the selloff from October’s all-time highs may not have completed.

Source: TN Trader

Silver was a touch higher this morning and was closing in on $50.50 at the time of writing. But it had fallen below $50 per ounce overnight to hit its lowest level in just over a week. Like gold, its daily MACD appears to be rolling over again, suggesting a loss in upside momentum.

If so, then the path of least resistance could soon be pointing downwards again. Should prices head lower, then the area around $50 hasn’t offered up much in terms of support. Instead, $49 and $47 per ounce look like greater significance, followed by $45. But if the bulls come back to get the party started again, then there’s very little resistance between current levels and the all-time high of $54.50.

Source: TN Trader

Crude oil was little changed this morning, but with a modest upside bias. Despite this, front-month WTI continued to meander south of $60 per barrel, showing little inclination to break meaningfully in either direction. Over the short-term, traders have reacted to supply concerns after Ukraine launched further successful attacks on Russia’s energy infrastructure.

Source: TN Trader

Some analysts suggest that these attacks are seriously degrading Russia’s ability to export production, as are the US sanctions on two major Russian energy companies, Rosneft and Lukoil. Yet the longer-term fundamentals appear unchanged.

Analysis suggests that the global oil market will have to face an increase in oversupply next year, with an excess calculated to be around 4 million barrels per day. While global demand continues to grow, it is not happening fast enough to absorb future supply. Should this outlook reverse, then prices could experience a significant spike higher.

Gas prices continued to pull back from the eight-month highs hit last week. The daily MACD has turned lower but remains overbought, suggesting that prices may continue to soften, or at least now consolidate, after their strong upside run from the lows hit in August.

Bitcoin briefly dropped below $90,000 overnight, to hit its lowest level since April. The move reinforced the bearish structure that has taken hold and raises questions about whether further downside, potentially toward the $70,000 region, could still be ahead.

Yet the daily MACD suggests that Bitcoin is very oversold at current levels, which raises the possibility of a bounce. Ether continues to hover around $3,000, and this area of support has held for now.

But the tone across cryptos remains uneasy, tracking the weakness in the tech sector. Despite being oversold, investors may be unwilling to buy the dip until there’s firm evidence that the tech sector has found a bottom.

The VIX has shot higher over the past week. This morning, it hit its highest level in a month before pulling back a touch. The rise reflects a notable shift in investor behaviour: traders are increasingly seeking protection as concerns over rate cuts, AI valuations and market breadth intensify.

With volatility climbing this quickly, the backdrop has changed from the calm that characterised markets just weeks ago. For the moment, the VIX is capturing the growing unease more sharply than any single equity index.

Global equities are under pressure as rate-cut doubts and renewed scepticism toward AI valuations weigh heavily on sentiment. The key question now is whether this pullback becomes the opportunity the bulls have been waiting for, or whether the selloff deepens into something more meaningful.

Recent history favours the former. But with Nvidia’s earnings and delayed US jobs data ahead, the next catalysts carry significant weight. Nvidia remains central to market psychology given its influence on the entire AI narrative, while Thursday’s jobs report may be noted but likely interpreted as backward-looking after the long shutdown.

For now, momentum lies with the bears. But the bulls will be hoping to circle the wagons in due time.