Asian Pacific indices slide

US stock index futures sold off sharply overnight, adding to losses from Friday. The S&P 500 futures fell back towards 6,800 as the European open approached, to trade at a ten-day low, having broken above 7,000 for the first time last Wednesday. The selloff across tech was particularly pronounced. The Nasdaq-100 futures led the decline, with the index down over 4% at one stage when compared to its all-time high from the middle of last week.

Source: TN Trader

There was an all-round risk-off move which saw deep declines across precious metals, energy and cryptos. The moves looked somewhat panicked in nature and were no doubt exacerbated by the relatively thin and illiquid trading conditions in the Asian Pacific session.

Prices began to steady and then recoup some of the overnight losses as the European session progressed. But traders should exercise caution. The overnight plunge may have provided a good opportunity for the ‘dip-buyers’. But there’s a danger that the selling reemerges once US traders are fully engaged later this afternoon.

There has been a ton of speculation over the cause of this ‘risk-off’ move. Many have blamed President Trump’s decision to nominate Kevin Warsh as his preferred candidate to replace Jerome Powell as Chair of the Federal Reserve in May.

Others point the finger at the hotter-than-expected wholesale inflation numbers on Friday, or some disappointing corporate results from ‘big tech’. These may be contributory factors which helped speed up the pace of selling. But the retreat across US equities really took off on Thursday afternoon.

The main issue was that equities were overbought and valuations were, in many cases, extremely ripe. Investors were looking for an excuse to lighten up, and they finally got several. The fact that precious metals, the US dollar, crude oil and natural gas were trading at stretched levels just meant that, like an elastic band, they were ready to snap back.

This week may help investors decide if the moves to date are simply healthy corrections within longer-term moves or signals showing a longer-term change in trend.

Attention flips back to earnings this week, with more than 100 S&P 500 companies due to report. These include Amazon, Alphabet, AMD, Merck and Pfizer, with Disney and Palantir later today. While the fourth quarter earnings season has been generally positive so far, sharp post-results sell-offs in stocks such as Microsoft have heightened caution.

Deutsche Bank strategists note that earnings growth remains on track to be the strongest in four years, but markets appear increasingly selective. Nvidia is under scrutiny after reports that its planned $100 billion investment into OpenAI has stalled, raising fresh questions around AI spending, valuations and capital discipline.

Friday’s Non-Farm Payroll report also looms large. Economists expect payrolls to rise by around 70,000 - a figure that could influence rate expectations and risk appetite, especially given the market’s sensitivity to Fed leadership and inflation signals.

Across FX, the US dollar was a touch softer overnight but managed to consolidate after last week’s sharp rally. The cash Dollar Index attempted to break above 97.00 but had failed to do so at the time of writing.

Last Tuesday, it slumped to a four-year low of 95.25. So, it has managed to add just under 2% since then. But bear in mind that it lost 4% over the previous fortnight.

Source: TN Trader

Overall, there’s been quite an uptick in FX volatility of late. This suggests a relatively high level of uncertainty amongst investors. And this in turn could be a precursor to a major change in trend. There are some mixed views concerning President Trump’s pick as the next Fed Chair, Kevin Warsh. Some look back at his past behaviour and insist that he’s a hawk.

They point to when he was a Fed governor during the Great Financial Crisis and how he wanted to raise rates to stem inflationary pressures. But that was eight years ago, and the simple fact is that the President wouldn’t have picked Mr Warsh if he had a wildly different view from him over monetary policy.

Mr Warsh will be happy to cut rates. But he is dead against quantitative easing. He also wants to make fundamental changes at the US central bank and boost transparency. All-in-all, he should be someone with whom the markets can deal quite happily.

Precious metals plunged again overnight in some of the most dramatic moves ever seen in gold and silver. Gold came within a few dollars of $4,400 this morning. That low represented a decline of 21% from the all-time high of $5,595 hit on Thursday morning.

Source: TN Trader

It has managed to bounce since then, and, at the time of writing, was closing in on $4,800 per ounce – itself a 9% move in just a few hours. But the damage to silver was even more dramatic. It collapsed by over 30% on Friday to post its worst daily fall since 1980. Overnight, it hit a low of $71.34.

Source: TN Trader

This marked a drop of 41% from Thursday’s high of $121.67. What may have begun as profit-taking turned into an absolute rout, leaving traders who were late to the party seriously out of pocket.

As many have repeatedly warned, the atmosphere has become very thin as prices hit a succession of all-time highs this year. The move was compounded by a sharp snap-back in the US dollar after the greenback hit multi-year lows against both the euro and British pound. So, what next? Does this signal that the bubble in precious metals has finally burst, or has this selloff simply blown the froth off the frothiest of frothy markets?

For now, there’s a bounce-back in response to the speed and scale of the plunge. That may encourage traders to think that the worst is over and that the bull market is back on track. Maybe. But if this rally is eventually curtained by a fresh round of selling, then the prospect of new highs starts to dim.

Crude oil must be included in the long list of things that went up a lot and are now coming down. Front-month WTI dropped back below $62 per barrel this morning, having traded at a high of $66.30 on Thursday. This represented a high-low turnaround of 7.6%.

Source: TN Trader

The trigger for the sharp reversal were comments from President Trump suggesting an easing of tensions with Iran. This reduced fears of an immediate supply shock. Crude oil had been on a tear higher after it broke out of its intermediate downtrend, which began last summer.

It got an additional lift as speculation grew over the possibility of the US taking military action against Iran. But it appears that a diplomatic solution may have been reached, and this news was boosted by reports of indirect talks between Washington and Tehran. Additional supply is also entering the market, with Venezuelan crude adding to available barrels.

Meanwhile, global production continues to exceed demand. OPEC+ contributed to the price drop by extending its current supply freeze, leaving output levels unchanged for March. Combined, these factors have capped prices and put downside pressure on energy markets despite lingering geopolitical risks. Natural Gas fell 16% overnight.

Bitcoin and Ether fell heavily over the weekend, and the selling continued in early trade this morning. But both began to bounce off overnight lows, with Bitcoin finding some support around $75,000 after hitting its lowest level since April.

Should this rally attempt fail, then a prolonged break back below $75,000 opens up the possibility of a retreat to the next line of support around $70,000. It was a similar story for Ether as it found support around $2,500. But should Ether break below here on another selloff, there’s little to help hold up the price until it hits $1,500.

Ongoing whale selling, along with forced liquidations and fragile sentiment, continue to weigh on the space. Bitcoin is now down more than 12% year to date, while Ether has fallen over 23%, reinforcing the risk-off tone across global markets.

Volatility has returned with force as markets reassess monetary policy, liquidity and risk exposure. This week’s focus remains on earnings, but with the addition of updates on US ISM PMIs and Friday’s jobs report, all of which could shape expectations for rates and growth.

AI-related stocks, precious metals, energy, the US dollar and cryptos are all key pressure points. The dollar’s resilience continues to influence cross-asset flows. With the VIX elevated and multiple asset classes under stress, markets appear far less complacent as the new month begins.