Tech led Asian-Pacific selloff halted

The Dow lost 1.1% yesterday while the tech-heavy NASDAQ added 0.2%. While gains across tech were relatively modest, the pullback in the Dow showed that investors are still prepared to put their faith in tech stocks in general, and chip stocks in particular. This required booking profits on recent gains in more value-oriented stocks of the kind found in the Dow, as well as the small cap Russell 2000.

Yet all the majors began Wednesday’s session on the back foot. Having drifted lower during the Asian Pacific session, all took a sharp leg lower after President Trump said that the US/Iran ceasefire was over, and that he was no longer interested in negotiating a new memorandum of understanding with Tehran.

Crude oil was up about 6% soon after the announcement, but gave back around half these gains by the end of the session. Likewise, US equities soon recovered their poise as investors seemed relatively sanguine about the resumption of hostilities in the Gulf and the implications for restoring traffic through the Strait of Hormuz.

Following yesterday’s mixed close, US stock index futures were firmer across the board this morning. Investors continued to favour growth over value as the Dow and Russell lagged the advances made by both the NASDAQ and S&P 500. This morning’s gains came despite reports that Iran had targeted oil tankers near the Strait of Hormuz, and the US had retaliated with over 60 strikes on Iranian military targets.

Source: TN Trader

Despite this, it appears that shipping is still transiting the Strait, although at a reduced rate when compared to last week. As far as the Fed’s monetary policy outlook is concerned, there’s still an 83% probability that the central bank raises rates by at least 25-basis points before year-end.

Minutes from last month’s FOMC meeting suggested that members remain divided over future monetary policy. They showed that the majority were concerned by inflation but felt that it would recede quickly once the upside pressure on energy prices was quashed by the reopening of the Strait of Hormuz. That expectation has taken a knock since the June meeting took place.

The earnings season gets underway properly next week when most of the major US banks report. But PepsiCo reported weak earnings on stronger-than-expected sales this morning. The stock was up 1% soon after the release.

European stock indices staged a modest rebound on Thursday after suffering their steepest daily decline in nearly four months during the previous session. As with their US counterparts, it was technology stocks which led gains across the indices, while investors took profits on value plays and oil stocks, the latter following Wednesday’s bounce as crude prices surged.

Source: TN Trader

Investors appear relatively unrattled by President Trump’s assertion that, as far as he’s concerned, the US/Iran ceasefire is over. Despite further attacks by Iran on shipping near the Strait of Hormuz and US retaliation, the overall feeling appears to be that this is simply another Trump ploy to get a little bit more of what he wants.

Unfortunately, experience shows that this hasn’t worked with Tehran so far. And frankly, there’s little reason to think it will in the future. So, either both sides find a way to come back to the negotiating table, or the US simply repeats its threat to ‘bomb Iran back to the stone age’. Meanwhile, Iran still exerts significant control over the Strait of Hormuz.

The cash Dollar Index came within a few ticks of 101.00 yesterday afternoon as it benefitted from a minor scurry to safety as relations between the US and Iran deteriorated quite publicly. But it pulled back from its best levels and then fell even further following the release of the latest Federal Reserve meeting minutes. These revealed a divided central bank.

While some policymakers suggested interest rates could end the year at or below current levels, others argued that further policy tightening may be required to bring inflation back toward the Fed’s 2% target. The minutes showed that concerns about persistent inflation remain elevated, particularly as rising oil prices threaten to create additional price pressures.

At the same time, there was a significant number of members who saw inflation receding quickly as the Strait of Hormuz reopened, ultimately returning as a significant route for the passage of global energy and chemicals supply. Of course, that hope was dashed to some extent thanks to President Trump’s comments yesterday, saying that as far as he was concerned, the ceasefire with Iran was over.

As things stand this morning, there’s an 83% probability of at least one 25-basis point Fed rate hike before year-end. That means that last night’s FOMC minutes did little to shift rate hike expectations. The cash Dollar Index dipped below 100.50 earlier today. But it has since rebounded, and it appears quite resilient of late, suggesting that there could be more upside to come.

Source: TN Trader

Meanwhile, the Japanese yen was a touch softer this morning. Despite this, it continues to trade near forty-year lows. This means that the risk of intervention to support the yen remains a threat.

It seems that the only thing holding back Japan’s Ministry of Finance from acting is the widespread damage that an unruly unwind of the carry-trade would create on a large, concerted yen-buying programme. But bear in mind that it didn’t bother them too much two years ago, let alone earlier this year.

Gold rebounded on Thursday, recovering from a one-week low hit yesterday afternoon. It managed to push back above $4,100 in early European trade, helped along by a softer US dollar. But it was unable to hold above here for long, and by mid-morning, some selling had returned.

The FOMC minutes from the Fed’s June meeting were released last night. These confirmed that policymakers remain divided regarding future interest rate moves. It appears that there are a fair number of members who are hoping that lower oil prices, resulting from a wind-down in US/Iranian hostilities, and a reopening of the Strait of Hormuz, should lead to a sudden drop in inflation.

This would reduce the need for aggressive monetary tightening for the rest of this year. But those hopes may have been dashed after President Trump said that the ceasefire was over as far as he was concerned. So, the precious metal could come under further downside pressure should the US dollar continue to receive safe-haven flows. Traders will keep a very close eye on support just south of $4,000.

Source: TN Trader

Like gold, silver bounced overnight, finding support from a pullback in the US dollar during the Asian-Pacific session. But sellers came back in soon after the European open, and now the jury’s out over what happens next. If the US dollar continues to find support and resume a run higher, then it’s likely that silver will struggle to make much headway.

As things stand, the US dollar is benefitting from a modest flight to quality, along with a favourable interest rate outlook. The Federal Reserve still looks far more hawkish than other major central banks, and this is boosting the dollar’s appeal. This looks likely to be the story for now, given that renewed US/Iranian hostilities could keep a bid under the oil price.

But there are also signs that silver may recover following a four-month drawdown. So, perhaps all is not lost for the bulls. And the geopolitical situation can turn on a sixpence.

Source: TN Trader

Some volatility has returned to the oil market as both Brent and WTI contracts have bounced sharply. This time last week, most tradeable oil contracts had pulled back to levels last seen before the US/Israeli attacks on Iran at the end of February.

Prices then consolidated at these lower levels. Yet the various daily MACDs indicated that oil was extremely oversold, perhaps more so than at any time since some prices went negative in March 2020 due to Covid lockdowns. This set the stage for a rebound. And President Trump provided the trigger.

Source: TN Trader

From Monday’s low, just before Mr Trump said the ceasefire was over, to the high hit yesterday afternoon, September Brent added 13%. Prices dropped overnight, but investors remain concerned by renewed military action between the United States and Iran, and fears over potential disruptions to energy shipments through the Strait of Hormuz.

Traffic through the Strait had been steadily picking up over the last few weeks, and this had been a large reason for the drop in oil prices. But now transit through this chokehold looks set to face disruption again, and the outlook for future oil prices looks more uncertain than ever.

Bitcoin was trading comfortably above $62,000 this morning, bouncing off yesterday’s lows, after retreating from highs above $64,700 earlier in the week. It sold off yesterday after President Trump declared an end to the US/Iran ceasefire while at a NATO summit in Turkey.

Investors are assessing the implications of the latest Federal Reserve meeting minutes, which highlighted concerns that rising energy prices could complicate efforts to control inflation. Despite the recent pullback, there’s some evidence of institutional buying, which is a supportive factor.

Market participants continue to monitor flows into US-listed spot Bitcoin exchange-traded funds, which have become an increasingly important driver of cryptocurrency price action.

Attention now turns to upcoming economic data and further developments in the Middle East, both of which are likely to influence sentiment across digital asset markets.

Market sentiment remains finely balanced as investors weigh improving risk appetite against escalating geopolitical tensions. Investors remain alert to the possibility of further escalation between the United States and Iran, particularly given the strategic importance of the Strait of Hormuz.

The Federal Reserve minutes reinforced the view of a divided central bank, with policymakers still uncertain about the appropriate path for interest rates. Inflation remains a central concern, particularly as higher energy prices threaten to reverse recent progress.

Attention will soon shift toward earnings season, which begins next week with major US banks including JPMorgan and Bank of America. Corporate results are expected to provide important insights into economic conditions and investor sentiment.

For now, oil remains a key market indicator. If geopolitical tensions continue to influence energy markets, traders are likely to remain sensitive to every headline emerging from the Middle East.

* 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.