Trade optimism builds for Japanese markets

Dow jumps on earnings

US equities had another strong session on Wednesday. The Dow closed 1.1% higher to close at its best level since the end of last year. The S&P 500 extended its record-setting streak, adding 0.8% to close at a fresh all-time high, its twelfth so far this year.

Source: TN Trader

The NASDAQ rose 0.8%, to hit another record close, while the small-cap Russell 2000 outperformed, jumping 1.5%, although it is still around 8% below its own record high from November last year.

The news of the trade agreement between the US and Japan boosted investor risk appetite. This has raised hopes that more major deals will be announced, with the European Union foremost, before the Trump administration’s tariff deadline, which is coming up a week on Friday.

Tech giants Alphabet and Tesla reported second-quarter earnings after the US close. Alphabet delivered earnings and revenue that beat expectations. In addition, it raised its spending plans to build out infrastructure to account for increased demand for its Cloud products and services. The news sent Alphabet shares up 2% overnight. This was viewed as a promising start for tech stocks, particularly the market-leading ‘Magnificent Seven’.

Unfortunately, it wasn’t all good news for tech. Tesla fell sharply after it reported its second straight quarter with declining revenues and auto sales. After President Trump's decision to cancel EV incentives, the electric vehicle giant’s stock dropped 6% after hours, reflecting investor concerns about falling volumes along with policy headwinds.

IBM also contributed to the mixed tone, as its share price fell 5% despite beating on earnings and raising full-year guidance. Revenue and gross margin came in below the consensus forecast, and the share price drop helped to push Dow futures into negative territory in early trade this morning.

Aside from the Dow, the US stock index futures markets are pointed to a flat open. Despite the tariff deadline being little more than a week away, traders were focusing on another headline issue: President Trump’s ongoing attacks on the Federal Reserve Chair, Jerome Powell.

These have an added piquancy today as President Trump is due to visit the Federal Reserve building in Washington, DC. This marks the first presidential trip to the central bank in nearly two decades.

It comes as the Trump administration has focused on Mr Powell, not just for his stubbornness in refusing to cut interest rates (blaming uncertainty over the possible inflationary effect of trade tariffs), but also for a large cost overrun on renovations to the central bank building. There is some speculation that Mr Trump may use these as a wedge to get rid of the Fed Chair before his term expires in May next year.

US-EU trade hopes grow

European stock indices were stronger across the board on Thursday, buoyed by positive sentiment from both Wall Street’s rally and reports of progress in US-EU trade negotiations.

The German DAX led the advance, gaining over 1% in early trade. This added to Wednesday’s rally, which was helped along by a Financial Times report suggesting that the US and EU are nearing a 15% reciprocal tariff agreement.

Meanwhile, the UK’s FTSE 100 has sprung to life. Having broken above 9,000 for the first time ever at the beginning of last week, upside momentum has been building. This morning, it made a fresh all-time intra-day high above 9,150.

Source: TN Trader

Earnings in focus: Deutsche Bank, Lloyds, Tesla, IBM

Deutsche Bank beat Q2 bottom-line expectations, reporting net profit of €1.485 billion, well above the €1.2 billion consensus. Despite euro strength and some weakness in its investment banking unit, the lender reaffirmed its full-year guidance.

In the UK, Lloyds Banking Group surprised with a sharp profit beat, signalling solid domestic demand and improved margin performance. These results helped ease broader concerns about the profitability of European banks amid uncertain rate trajectories.

Crude rallies on inventory drop

Oil prices rose sharply following news yesterday afternoon of a larger-than-expected drawdown in US inventories. Ahead of the update from the US Energy Information Administration (EIA), front-month WTI had been trading at its lowest point in a week. But this second successive bigger-than-expected inventory drawdown triggered a rush of buying. This helped to push prices back up towards $66 per barrel.

Traders were also encouraged by the breakthrough in trade negotiations between the US and Japan. This has raised hopes that the US will soon reach a deal with the European Union as well, before the tariff deadline, which expires in just over a week’s time.

Source: TN Trader

Gold and silver pull back as risk appetite rises

Gold was weaker in early trade this morning, continuing a slide which began yesterday. The move saw gold fall back below $3,400, a level which had acted as resistance for around two months now.

Gold finally broke above $3,400 on Tuesday and went on to climb to a six-week high just below $3,440 in the early hours of Wednesday morning. But this level has failed to act as support, and traders are now wondering how deep this pullback may go.

There is some mild support around $3,300, but $3,200 is far more significant. The daily MACD remains neutral, suggesting little in the way of downside momentum. But for now, investors are in full ‘risk-on’ mode, which means that there’s less incentive to diversify into ‘safe havens’ like gold and silver.

Source: TN Trader

BTC treads water below 120K

Both Bitcoin and Ether were a touch firmer this morning, having lost ground on Wednesday. Bitcoin continues to trade sideways in a relatively narrow range and thereby consolidates.

This follows a sharp jump earlier this month, which saw the leading cryptocurrency break to a fresh record high above $123,000. It is now trading below $120,000, which has developed into a significant resistance level, while support comes in around $117,000. 

VIX remains contained at 18

The VIX remains tame and steady at lower levels.  This shows that investors are increasingly comfortable with macro developments and are treating trade tensions and earnings variability as manageable risks, for now. Barring any major surprises from the Fed or geopolitical arena, volatility looks set to stay muted into the weekend.

Data & central bank watch: PMI day and ECB on deck

A slew of flash PMI data hits the tape today from France, Germany, the wider Eurozone and the UK, offering fresh insight into the health of the region’s manufacturing and services sectors. Traders will be parsing every detail for signs of inflation pressure or economic resilience.

Also on deck is the ECB’s rate decision, where no change is expected. But President Lagarde’s commentary will be key. Markets are watching for forward guidance amid sticky inflation and uneven growth across the bloc.

US earnings

On the US earnings front, Honeywell, Interpublic Group and Newmont Corporation report today.

Market outlook

Markets remain in risk-on mode. Trade optimism, upbeat earnings and low volatility have created a powerful backdrop for equities. Wall Street has broken records, Europe is playing catch-up, and Japan is on fire following its trade deal with the US.

Risks remain, including President Trump’s visit to the Federal Reserve, Tesla’s earnings miss, and the ECB rate decision. But the bulls remain in control. Can this upside momentum carry through into August, particularly as trade deals between the US and China and the US and EU remain elusive and as President Trump continues to troll Jerome Powell relentlessly?