US tech selloff ignored across Asia-Pacific

US stock indices had a mixed session yesterday to close out the holiday-shortened week. The Dow jumped 1.1% to close at a fresh all-time high, while the NASDAQ 100 fell 1.6%. The S&P 500 ended unchanged, while the small cap Russell 2000 slipped 0.6%. For a second day in a row, chip stocks came under selling pressure.

Source: TN Trader

Micron Technologies dropped 5.5% while Marvell lost a thumping 10.2%. SMC, AMD and Intel fell 2.2%, 5% and 5.4%, respectively. But once again, there was no sense that investors were abandoning equities. Rather, it was yet another day of rotation which saw profit-taking across tech, particularly semiconductors, while corporations with lower, and more attractive valuations, were in high demand.

This should not come as a big surprise, given the extraordinary run that the chip sector has experienced since the end of March. Most analysts view these moves as evidence of a healthy market where breadth is improving. That has been borne out by the weekly performance with the Dow, S&P and NASDAQ adding 2%, 1.8% and 2.1% respectively. The Russell 2000 slipped 0.1% but remains within 1% of its all-time closing high.

While all the exchanges are closed today in observation of Independence Day tomorrow, stock index futures will trade until early this evening. These were firmer across the board this morning as traders continue to price in yesterday’s Non-Farm Payroll report. This came in significantly weaker than expected, and the past two monthly updates were revised lower as well. The news led to a sharp selloff in the dollar, while the stock market reaction was more nuanced.

Indices rallied initially before giving back these gains, only to bounce again on the open. But they proceeded to sell off throughout the afternoon before posting a decent rally into the close. This has carried on this morning.

The overall takeaway is pretty straightforward. The weaker payroll number led investors to temper their rate hike expectations, as the data was less supportive of an economy running too hot while inflation remains, by some measures, double the Fed’s 2% target.

The CME’s FedWatch Tool showed the probability of no change in rates by year-end rising to 25% from 17% before the update. The chances of a hike in September fell to 43% from 50%. There is even some talk that a rate cut may come back on the table, although given current inflation expectations, that would probably be for reasons not helpful to equities.

But it’s worth noting that as far as the Fed is concerned, they’re not going to be swayed by a single, volatile data point. And as Fed Chair Kevin Warsh has made clear, inflation currently trumps jobs in terms of priority.

The next big test for the markets is the second quarter earnings season, which kicks off in just over a week’s time. This could prove pivotal. Expectations for earnings growth remain high, but forward guidance will be key. Some investors are looking at the recent slump across ‘Mag 7’ constituents and wondering if there’s a positive earnings story to tell. If there is, then they will look for a sharp rebound. If not, then the seven could have further to fall.

Both the Euro Stoxx 50 and German DAX soared to fresh all-time highs this morning. The UK’s FTSE 100 was a touch weaker, while the FTSE 250 was a bit stronger. Overall, investors were responding to strength across the US stock index futures contracts. But there’s also a similar dynamic going on as the one which is driving the Dow to all-time highs, even as the pullback in tech stocks proceeds.

Source: TN Trader

Yet again, the tech-lite European indices are back in demand, even more so given that the stocks within them trade on much lower P/E multiples than those typically seen over in the US. So, not only are Europe’s indices less exposed to the AI trade, but they are also relatively cheap. We saw this phenomenon earlier this year when Europe outperformed the US for a few months.

In addition, investor sentiment improved significantly after the weaker US jobs report reduced concerns that the Federal Reserve would need to continue aggressively tightening monetary policy. Lower US rate expectations ease pressure on global borrowing costs and reduce the risk of capital flowing away from Europe toward higher-yielding US assets.

Additional support came from comments at the European Central Bank’s annual forum in Sintra. ECB President Christine Lagarde stated that inflation and growth risks across the eurozone are becoming “more broadly balanced,” helping reassure investors following the central bank’s recent rate increase.

Yesterday, the biggest story was about an unexpectedly weak US Non-Farm Payroll report and the subsequent selloff in the US dollar. June Payrolls came in at 57,000, well below the 110,000 expected, while May’s report was revised down to 129,000 from 172,000.

Countering this was a drop in the Unemployment Rate, which fell to 4.2% from 4.3%. But this looks as if this is due to a fall in the participation rate, which raises another worrying question mark over the state of the US labour market.

The poor data prompted traders to reconsider the likelihood of further Federal Reserve rate hikes, and this triggered the selloff in the greenback. According to the CME’s FedWatch Tool, the probability of ‘no change’ before year-end rose to 25% from 17%.

Nevertheless, the Fed is unlikely to react much to a single months-worth of data, and its Chair Kevin Warsh has made it clear that getting interest rates down to its 2% target takes precedence over employment currently. But it does seem more likely that the Fed will leave rates unchanged this year rather than hiking them by 50-basis points or more.

Just over a week ago, the cash Dollar Index hit a thirteen-month high above 101.50. Yesterday it dropped to 100.25 and is not much higher this morning. Could this signal that the dollar’s bull run is over? Well, anything’s possible, and Japanese policymakers will certainly be hoping so.

Yesterday, the USD/JPY fell significantly. Part of this was down to the dollar selloff. But there were also signs that traders were buying back yen on fears that Japan’s Ministry of Finance may have used today’s thin holiday market conditions as an opportunity to intervene. Yet there’s no evidence that they have so far. So, they’re saving the Japanese taxpayer a bit of money, which they’ll need following the expense of April’s intervention.

Source: TN Trader

Overnight, gold built on yesterday’s gains and came within a few dollars of $4,200, hitting its highest level since early last week. Having broken below $4,000 in six sessions since last Wednesday, gold repeatedly found support around $3,950-$3,960. That was good news for the bulls, as a break below there could have set gold up for an even deeper pullback.

Yesterday, the precious metal got another boost following the release of a weak set of labour data. Non-Farm Payrolls came in miles below expectations, and the data from the previous two months were also subject to significant downward revisions. This triggered a sharp selloff in the US dollar as investors shifted their rate hike expectations from the Fed. The June payrolls report reinforced the view that economic momentum may be slowing.

Combined with lower oil prices and moderating inflation pressures, markets have shifted from expecting one or two Fed rate hikes in 2026 to pricing in between zero and one increase. The probability of ‘no change’ before year-end rose to 25% from 17%, weighing on the dollar and helping to boost gold.

The daily MACD has started to turn upwards, which is a positive sign. Gold may need to pull back and consolidate a touch now. But if it can then break through $4,200 on its next rally attempt, then the future will start to look a bit brighter for the bulls.

Source: TN Trader

Things are looking better for silver as well this morning. Like gold, this morning it was trading at its best level since early last week. And like gold, it got a significant boost from yesterday’s weaker-than-expected Non-Farm Payrolls and the subsequent dollar selloff.

Silver’s daily MACD is curing up from very oversold levels, which is encouraging from a bullish perspective. But there may have to be some consolidation, or even a pullback, for silver to push much higher.

Source: TN Trader

Oil prices were little changed this morning as traders hoped for signs of progress in US-Iran peace negotiations. Both WTI and Brent remain close to levels last seen before the US-Israeli conflict with Iran began just over four months ago. Investors remain cautiously optimistic that diplomatic efforts will continue to reduce tensions and allow oil exports through the Strait of Hormuz to normalise. Shipping activity through the chokehold has gradually improved.

Trade intelligence agency Kpler reported that Saudi oil shipments have more than doubled over the past fortnight, when compared to the first three months of the year. In addition, Kuwait’s oil production increased sharply in June, while Saudi Arabia has taken measures to accelerate crude sales into Asian-Pacific countries, which rely heavily on imports for their energy needs.

As noted earlier this week, the market structure has also shifted from a large backwardation to a modest contango, signalling expectations of improved supply availability and reduced concerns over future shortages.

Bitcoin has continued to recover this morning. Yesterday it briefly broke above $62,000, hitting its highest level in over a week. It subsequently sold off but has made back some ground in early trade.

Sentiment towards bitcoin improved after the weak payroll update, which tempered fears that the Federal Reserve may hike rates more than once before the year-end. The news led to a selloff in the US dollar and a rally across risk assets. Lower borrowing costs can often support risk-sensitive assets such as cryptocurrencies by improving liquidity conditions.

Markets will enter next week with investors reassessing expectations for Federal Reserve policy following the significant downside surprise in US payrolls data.

Attention now shifts to Monday’s ISM Services PMI report, which should provide further insight into the health of the US economy and could influence interest rate expectations. With the services sector accounting for roughly two-thirds of economic activity, the data will be closely watched.

The rotation out of technology and semiconductor stocks and into value remains a major theme, particularly after a strong first-half rally driven by artificial intelligence optimism. Investors will be watching to see whether weakness in chipmakers represents a temporary consolidation or the beginning of a broader shift in market leadership. 

Meanwhile, developments surrounding US-Iran negotiations, potential Japanese currency intervention, and the outlook for global growth are likely to remain key drivers of market sentiment in the sessions ahead.

* 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.