Asian-Pacific markets fall

All the major US stock indices were down sharply yesterday, with the S&P 500 closing out at its lowest point this year. The S&P lost 1.5%, while the Dow and NASDAQ dropped 1.6% and 1.8%, respectively. But it was the small cap Russell that once again led the selloff, finishing the session with a decline of 2.1%.

Source: TN Trader

US stock index futures were mixed in early trade this morning but holding up reasonably well given the strength of the dollar and the continued bid under the price of crude oil. The cash Dollar Index briefly topped 100.00, an area of significant resistance, while front-month Brent crude once again pushed above $100 per barrel in early trade.

The US/Israeli war with Iran continues, and it’s clear that Iran still has the capability to strike back at its attackers, while also targeting the energy infrastructure of its Persian Gulf neighbours. It is also abundantly clear that President Trump’s assertion early this week that the war was won was far from true. Iran is clearly able to launch missiles and drones across the region.

It has also effectively blocked the Strait of Hormuz. The fact that the US has been unable to take control of the Strait after two weeks of bombarding Iran’s military infrastructure suggests that this war could last for many months. And if the Strait of Hormuz remains blocked, then it won’t matter how many barrels of oil are released from various strategic reserves (assuming there’s anything left in there) because 20% of the world’s supply will be cut off for an extended period.

Rising energy prices have heightened concerns over additional inflationary pressures, and these are already complicating the Federal Reserve’s monetary policy outlook. At the beginning of February, the CME’s FedWatch Tool was still forecasting two 25 basis-point rate cuts in 2026, with the first coming in June. Now there’s only a 50% chance that there is one cut by year-end.

Today sees the release of the Fed’s preferred inflation measure, Core PCE. This is expected to show a year-on-year rise of 3%, unchanged from the previous reading and well above the Fed’s 2% target. And bear in mind, this update won’t include this month’s jump in oil prices. Nevertheless, this is an important update which could trigger market volatility should it come out significantly above or below the expectation of a +3.0% reading.

European stock indices began the final trading session of the week on a cautious note. Investors continued to assess the economic implications of the Middle East conflict and surging energy prices.

Sentiment hasn’t been helped by President Trump’s assertion at the beginning of this week that the war had already been won, as it’s obvious Iran still has the capability to fight back. Iran also has control over the Strait of Hormuz, so 20% of the world’s supplies of crude oil and liquified natural gas have been cut off.

European oil and gas sectors were one of the few areas of strength this morning as Brent crude topped $100 per barrel. The UK’s FTSE 100 was the only major index across the region to trade in positive territory, as it got a lift from oil majors BP and Shell. This overshadowed data, which showed that the UK economy stagnated in January, coming in flat compared with expectations for an expansion of 0.2%.

Source: TN Trader

The US dollar was stronger across the board this morning amid rising geopolitical tensions and increased inflation risks. The cash Dollar Index briefly topped 100.00 to hit its highest level in close to four months. This level acted as significant resistance throughout November last year.

Ultimately, the Dollar Index failed to break above here. It then pulled back sharply over the next few months until it hit a four-year low of 95.25 at the end of January. Will history repeat? Or can the Dollar Index finally break out? It has rallied a long way in a short time, so the question now is whether it has sufficient upside momentum to take it through 100.00 and then hold this level on all pullbacks.

The dollar has been supported by expectations that the Federal Reserve may delay interest rate cuts due to oil-driven inflation pressures. Markets are increasingly focused on upcoming economic data, including today’s Core PCE inflation report, which doesn’t cover this month’s jump in energy prices.

The Japanese yen remains under pressure. The USD/JPY edged up toward 160.00, a key level that previously triggered currency intervention by Japanese authorities. Finance Minister Satsuki Katayama warned that the government stands ready to take action, if necessary, while Bank of Japan Governor Kazuo Ueda cautioned that a weaker yen could intensify imported inflation due to rising energy costs.

Source: TN Trader

But while the yen is now at its lowest level since policymakers last intervened in summer 2024, there’s a risk that, in the current situation, given the strength of oil prices and the war in the Middle East, intervention may prove useless.

Gold fell steadily throughout Thursday’s session, dropping back from resistance just shy of $5,200 to close to $5,050 yesterday evening. It was a touch higher this morning, although it continues to struggle against a stronger US dollar and rising Treasury yields, which both limit the metal’s upside potential.

Source: TN Trader

Investors now believe that the Federal Reserve may keep interest rates elevated for longer as this month’s surge in energy prices should add to existing inflationary pressures. Despite this, geopolitical tensions continue to provide some underlying support for the precious metal.

Iran’s Supreme Leader warned that US military bases in the region should be shut down or face potential attacks. These offsetting factors may help to keep gold rangebound between $5,200 and $5,000. But investors shouldn’t get too complacent. Gold is no longer a ‘flight to safety’ asset as its recent behaviour has shown. So be wary of another sharp move, although yet again it’s difficult to work out in which direction.

In contrast to gold, silver was weaker in early European trade this morning. But like gold, it continues to be rangebound, with resistance at $90 per ounce and support around $80. It retested that resistance in the early hours of Tuesday morning. But it was unable to break through, and a combination of US dollar strength and rising Treasury yields put downside pressure on silver until it broke below $82 this morning, hitting its lowest level since Monday.

Source: TN Trader

As with gold, geopolitical tensions could still support safe-haven demand. But it looks as if it will continue to struggle to make significant gains while the US dollar remains the preferred ‘flight to safety' vehicle.  Investors are closely monitoring developments across the Middle East as well as today’s PCE inflation report.

Crude oil remains the focal point for investors after the US/Israeli attack on Iran triggered what has been described as the largest supply disruption in the history of the global oil market. US crude prices have surged more than 40% since the conflict began, and, at one point on Sunday night, front-month WTI was up 72% from its pre-war close.

Source: TN Trader

There have been several pledges to release crude oil from strategic reserves, with the biggest coming from the 32-member International Energy Agency. But these are really ‘one and done’ measures, which have failed to push oil prices lower.

Even an announcement from US Treasury Secretary Scott Bessent to lift sanctions for a month on currently seaborne Russian tankers did little to dent recent advances. Although no doubt Mr Putin is pleased. The main issue is that the Strait of Hormuz remains effectively blocked to all shipping, thereby cutting off around 20% of the world’s energy supply.

Iran has shown that it is still in control of this vital chokepoint, putting a lie to President Trump’s boast earlier this week that the war is won.

Bitcoin and Ether have shown remarkable resilience in the face of gathering negative sentiment towards risk assets in general. Both have held up well, despite significant downward pressure on global equity prices, led by tech. Bitcoin is rising, along with the US dollar and crude oil, while gold and silver struggle.

The simplest explanation is that crypto markets had come under near-relentless downside pressure since Bitcoin hit an all-time high above $126,000 six months ago.

It went on to lose 52% of its value as it slumped to $60,000 early in February. So, technically, it looked ripe for fresh buying. Time will tell if this is a short-lived trade which quickly peters out or something more significant.

Market volatility has climbed sharply, with the March VIX index spiking above 26 — a level that reflects heightened investor fear and uncertainty. But it pulled back as the S&P 500 rallied off overnight lows. It will be interesting to see if volatility spikes again ahead of the weekend, when markets face the risk of further geopolitical developments that could impact trading when markets reopen.

Global risk assets have sold off significantly as geopolitical tensions, surging oil prices, and rising inflation fears dominate the macro landscape. Equity markets across Asia, Europe, and the United States are weakening, while the US dollar continues to strengthen as investors seek safety.

Oil has emerged as the key driver of market sentiment, with the conflict in the Middle East creating what the International Energy Agency describes as the largest supply disruption in modern energy markets.

Attention now turns to the Federal Reserve’s March policy meeting next week, where interest rates are widely expected to remain unchanged. However, the quarterly meeting will provide updated economic projections and the closely watched “dot plot,” which could signal that policymakers are less inclined to cut rates later this year.