Asian-Pacific indices steadier overnight

US stock futures were mixed in early trade on Tuesday. Traders balanced escalating geopolitical tensions against the start of earnings season and the upcoming release of key inflation data.

The Dow, S&P 500 and Russell 2000 were all a touch softer in early trade. This was a continuation of yesterday’s weakness, which saw the Dow drop 0.3% while the S&P and Russell both lost 0.8%. The NASDAQ ended down 1.6% as chip stocks took a tumble in the wake of the South Korean selloff.

Source: TN Trader

The iShares Semiconductor ETF (STOXX) dropped 4.8% yesterday, while the S&P’s Energy sector was up 3.2% thanks to a surging oil price. But the tech sector managed to steady this morning, and there were some modest gains across individual semiconductor stocks.

The NASDAQ edged up into positive territory while the STOXX ETF was up around 2%. Meanwhile. Yesterday saw SpaceX drop below $137, to come within spitting distance of its IPO price of $135. Pity those shareholders who are locked in for months to come.

IBM suddenly lurched lower this afternoon, taking the Dow down with it, after ‘Big Blue’ (as it was) issued a profits warning. The stock was down 23% at the time of writing.

Yesterday, President Trump announced plans to reinstate a blockade on Iranian ports around the Strait of Hormuz. This will effectively stop exports of Iranian crude oil. Mr Trump has also suggested that the US become the ‘Guardian of the Strait’ and charge all shipping 20% of its cargo value for providing such a service.

Putting aside the fact that no such talk of a US ‘Guardian Service Charge’ or an Iranian ‘Safe-Shipping Fee’ was necessary before the US/Israeli attack on Iran at the end of February, the key point here must be that any such levy is illegal under international maritime law. So, come on. Let’s not go there.

The announcement triggered a surge in oil prices. These had already shot higher this month as hostilities between the US and Iran had escalated. The move has renewed concerns that higher energy costs could complicate the inflation outlook. In fact, the CME’s FedWatch Tool puts the probability of at least one 25-basis point rate hike before year-end at 90% this morning, with a 51% chance of the first hike coming in September.

Interestingly, the likelihood of a 25-basis point increase at the FOMC meeting at the end of this month is now 41%, up from 8% a month ago. All this could change today after the release of the latest CPI inflation update. This is followed by Fed Chair Kevin Warsh’s first day of testimony in Washington.

Today also sees quarterly results from most of the world’s major US banks, including JPMorgan Chase, Goldman Sachs, Bank of America, Wells Fargo and Citigroup.

European stock indices were lower across the board this morning as investors reacted to the latest developments in the Gulf region and rising oil prices. Investor sentiment deteriorated after the US announced a renewed naval blockade targeting Iranian shipping. President Trump also mooted plans to charge commercial vessels a fee of 20% of the cargo’s value for transiting the Strait of Hormuz. This is illegal under international maritime law.

Source: TN Trader

Hostilities between the US and Iran have intensified, with Iran attacking US military bases across the Gulf. Oil prices were higher this morning. Yesterday, they had their biggest single day rally since 2020. This is boosting concerns over inflation, while economists argue about including potentially ‘transitory’ price rises (energy) in their monetary policy calculations. Despite this, many analysts expect the Bank of England to raise interest rates by 50 basis points by year-end, which helps support sterling.

Overnight, the cash US Dollar Index rose above 101.00 for the first time in twelve days. The dollar was initially in demand as US/Iranian hostilities escalated. But it soon pulled back into negative territory, even though it remains elevated, and the cash Dollar Index trades significantly above key resistance.

This suggests that traders are still well-disposed towards the greenback as a ‘flight to safety’ but hedging their bets ahead of today’s key US inflation update and Fed Chair Kevin Warsh’s first day of testimony in Washington.

As noted above, the probabilities of at least one 25-basis point rate hike before year-end have edged higher. In addition, some analysts believe that the Fed may choose to move sooner rather than later. The likelihood of tighter monetary policy coming as soon as the FOMC’s next meeting at the end of this month has also increased.

Yet while the ‘real money’ flows suggest that aggressive rate hikes are already in the post, there are many analysts insisting that this is a ‘head-fake’ from the Fed, and that they wouldn’t want to raise rates ahead of the November midterms. We’ll see soon enough.

The British pound strengthened against the US dollar as traders increased expectations that the Bank of England may need to raise interest rates by as much as half a percentage point this year to contain inflation. Earlier this morning, BoE Governor Andrew Bailey told the Treasury Select Committee that the resumption of hostilities in the Gulf underlines instability going forward. If that helps.

Meanwhile, USD/JPY continues to trade near 40-year highs. So far, there has been no intervention to boost the yen. Last week, the yen got a lift after Japan’s Minister of Finance, Satsuki Katayama, suggested encouraging Japanese pension funds, including the Government Pension Investment Fund, with assets of $1.8 trillion, to unwind some of their foreign holdings and buy Japanese assets with the proceeds.

This would boost the demand for yen and, hopefully, put a floor under it. Although what this may do to the funds’ existing foreign holdings is unclear. Ms Katayama has refused to comment.

Source: TN Trader

Gold bounced back over $4,000 per ounce this morning, helped by a slight softening in the US dollar. Yesterday it dipped to a near-two-week low. Despite this, there was no retest of $3,950 – a level that it broke at the end of last month. Yet gold continues to trade around lows last seen in November.

Although back then, prices were on their way to all-time highs. This time, gold is on the other side of the peak. The question now is whether gold has pulled back far enough to establish a base from which it can rally. One of the alternatives would be that there is still some downside to retest.

Gold appears, once again, to have found some support just below $4,000 per ounce, and the daily MACD has turned up a touch. But there’s still an air of fragility about it at current levels. And it’s far from clear that support would hold should the dollar perk up again. Much may depend on today’s CPI update and Kevin Warsh’s testimony.

Source: TN Trader

Silver broke below $57 in the early hours of this morning before it managed a rebound. Similarly to gold, it has not yet retested its recent cycle low hit back in June around $55.50. This isn’t necessary for silver to find a floor, but another push lower is likely to drive out most of the existing longs while exhausting the sellers. And it’s situations like this from which a base can form for a more protracted rally.

So that’s something which may bring comfort to the bulls. Aside from that, there’s some evidence of negative divergence on the daily MACD. This is where the MACD is rising while the silver price is falling. This can, in some circumstances, lead to a turnaround in prices as they once again start to track the momentum indicator. But, as with gold, much now depends on what the dollar does next.

Source: TN Trader

Crude oil prices rose again on ‌Tuesday. Front-month (September) Brent hit a four-week high overnight after the US announced that it would renew its blockade of Iranian ports and prevent the country from exporting oil.

Source: TN Trader

In addition, President Trump suggested that as the US was now acting as ‘Guardian of the Strait’, any vessel which wanted to pass through it should be subject to a tariff of 20% of the value of its cargo. This would be illegal under international maritime law, and as a statement from shipping giant Hapag-Lloyd made clear, there is no precedent for such a tariff.

Fees paid to use the Suez or Panama Canals reflect the cost of the infrastructure. That is clearly not the case with the Strait of Hormuz. There has been a steady escalation in hostilities between the US and Iran, despite both sides agreeing to a memorandum of understanding around a month ago.

In early July, Brent crude had dropped back to levels last seen ahead of the US/Israeli attack on Iran at the end of February. But since then, prices have surged 25%. Yesterday saw the largest one-day rally in crude since 2020. Meanwhile, there has been a dramatic drop-off in tankers passing through the Strait of Hormuz, with traffic now at its lowest levels in two months.

Bitcoin managed a bounce today, following Monday’s sharp selloff. But it struggled to generate meaningful momentum despite stabilising after recent declines. Risk appetite has been undermined by the ongoing conflict between the US and Iran, while rising oil prices and inflation concerns have strengthened expectations for tighter monetary policy.

Higher interest rates generally reduce the appeal of non-yielding assets such as cryptocurrencies, contributing to continued selling pressure across the sector. The combination of geopolitical uncertainty, rising inflation concerns, and persistent ETF outflows continues to weigh heavily on cryptocurrency sentiment.

Markets face a potentially pivotal trading session as investors digest a combination of geopolitical developments, inflation data, corporate earnings, and central bank communication.

The June CPI report will provide the latest indication of whether inflation pressures are easing or becoming more entrenched, while Federal Reserve Chair Kevin Warsh’s first semi-annual testimony before Congress will offer investors valuable insight into the central bank’s policy thinking.

At the same time, earnings season begins in earnest with results from major US banks expected to provide an early gauge of corporate health.

With hostilities between the United States and Iran continuing to escalate, oil prices remain the key variable influencing market sentiment. Any further disruptions in the Strait of Hormuz could amplify inflation concerns and increase volatility across global financial markets.

For now, investors appear focused on a single question: whether rising energy prices and geopolitical tensions will be enough to alter the trajectory of inflation and interest rates during the second half of the year.

* The information provided does not constitute investment advice nor take into account the individual financial circumstances or objectives of any investor. Any information that may be provided relating to past performance is not a reliable indicator of future results or performance.