Asian-Pacific indices under pressure

US stock index futures have been unusually volatile overnight with big swings in both directions. But they were all in negative territory by mid-morning in London with the tech-heavy NASDAQ down 1.2%, although off the lows hit during the Asian Pacific session. The S&P and Russell 2000 were both 0.6% lower, while the Dow was little changed and holding up relatively well.

That could be a positive sign as it suggests that investors are still keen to be fully invested in equities but are rotating out of overheated semiconductor stocks into some overlooked sectors offering better value. The jittery nature of the tech sector was brought into stark relief soon after yesterday’s US open.

Tech stocks, led by semiconductors but including many ‘Magnificent Seven’ stalwarts, dropped sharply. This saw the NASDAQ 100 shed close to 1,000 points, or 3%, in the space of an hour before rebounding into the close.

Source: TN Trader

For the day, Apple fell 6% after announcing price increases for iPads and MacBooks, citing higher memory and storage costs. Microsoft lost close to 4% after raising Xbox console prices due to rising component expenses. Amazon and Meta Platforms both fell 3.2% in sympathy.

Sentiment also took a knock on reports that OpenAI may delay its IPO until next year. But there was some good news on the data front. The final revision to the first quarter GDP rose to 2.1% from 1.6%, while weekly Unemployment Claims showed improvement.

But Core PCE, once the Fed’s preferred inflation measure, rose 3.4% year-on-year. While in line with expectations, it was its highest level since October 2023. Headline PCE also came out as anticipated. But at 4.1% year-on-year, it is now more than double the Fed’s 2% target, which should boost market forecasts of at least one 25-basis point rate hike from the Federal Reserve this year.

In fact, investors were relieved that inflation hadn’t come in higher. Despite this, the prospect of increased borrowing costs is a headwind for equity markets, as are the rising costs of developing AI.

With the major US indices at or near all-time highs, the risks for investors who have benefitted handsomely from going ‘all in’ on the AI trade are getting bigger. And everyone is convinced that they can get out of the market at the top all at once. There’s going to be plenty of disappointment and angst when they find out they can’t.

European stock indices were lower across the board on Friday as the selloff across the tech sector, led by semiconductors and some ‘Magnificent Seven’ constituents, continued overnight. Apple fell 6% yesterday after saying that the rising cost of memory chips meant it had to raise prices.

Source: TN Trader

Microsoft said much the same thing about its Xbox components. The stock dropped 3.7%. Concerns are growing over AI-related capital expenditure and just where all the money required for it is going to come from. It is becoming clear that even the largest tech behemoths can no longer fund AI development out of their operating cash flow.

Investor sentiment took another dip following reports suggesting that OpenAI may delay its IPO until next year. What does that say about raising money from the markets when all the major US indices are at, or near, all-time highs?

The US dollar was modestly lower across the board this morning. This seems perfectly reasonable given its recent strength. The cash Dollar Index dropped back below 101.00 as traders took profits after a week-long rally, which saw it break through significant resistance at 100.00 before going on to hit a thirteen-month high.

The trigger for the pullback was the latest US inflation update in the form of Core PCE. Even though this hit its highest level since October 2023, there was relief that it wasn’t worse. This helped reduce the likelihood of a Fed rate hike as soon as September. The drop in the dollar must have come as a great relief to Japanese policymakers and the Bank of Japan.

Yesterday, the USD/JPY hit its highest level in close to two years. This meant that the Japanese yen was the weakest it has been since a major intervention to support it back in July 2024. The latest intervention, back in April this year, was an unmitigated disaster.

So, it’s no wonder that the Ministry of Finance is picking its moment to go again, while seeking support from US Treasury Secretary Scott Bessent. Sterling also got a bit of a lift. This helped the GBP/USD bounce off support around 1.3200.

Source: TN Trader

In the UK, former mayor of Manchester, Andy Burnham, is expected to become Prime Minister following Sir Keir Starmer’s resignation on Monday. Investors are wondering who Mr Burnham will choose as his Chancellor of the Exchequer.

Former Health Secretary Wes Streeting may provide some reassurance to financial markets, while some analysts think that Energy Secretary Ed Milliband could crash the pound quicker than a Truss budget. Well worth getting hold of some popcorn for this one.

On Wednesday, gold fell below $4,000 to hit its lowest level since early November last year. Since then, it has managed to stage a modest rebound, which briefly took it back above $4,050. Relief that yesterday’s US inflation update came out in line with expectations triggered a pullback in the US dollar.

This certainly helped the precious metal find some support, and the bulls will now be hoping that the area around $4,000 acts as support. But in the same way that the dollar was overdue for a pullback, gold was overdue for a rebound. Consequently, it may be too early to sound the ‘all clear’.

For a start, while expected, Core PCE inflation still came in at its highest level since October 2023, while the headline figure is now more than double the Fed’s 2% inflation target. According to the CME’s FedWatch Tool, investors still assign a 78% probability to at least one 25-basis point rate hike before year-end.

Also, while gold’s daily MACD is looking oversold, it is nowhere near as oversold as it was back in March. That means there is a possibility of another attempt by sellers to flush out the longs.

Source: TN Trader

As has often been the case since last year, the situation for silver is very similar to that of gold. On Wednesday, silver fell below $56 per ounce to hit its lowest level since November. It, too, has bounced, finding support at an area that acted as mild resistance back in December.

Unlike gold, silver does look oversold according to its daily MACD. So, that is a piece of evidence suggesting that it may be bottoming. But the MACD isn’t reliable on its own. Traders should keep in mind that silver is particularly volatile and often overshoots or undershoots technical levels. The next big support level comes in around $54, an area which worked as resistance back in October last year.

Source: TN Trader

Crude oil rebounded yesterday following three sessions of significant weakness. But all those gains were unwound overnight, taking prices back towards four-month lows. Investors were rattled by reports that Iranian drones attacked a Singapore-flagged cargo vessel passing through the Strait of Hormuz and close to the coast of Oman.

The vessel was damaged but continued its journey, and reports suggest there were no casualties. It would appear that the Trump administration is letting this one go and not accusing Tehran (in public at least) of violating the memorandum of understanding. While that is good news, and reports suggest that shipping is making its way through the Strait of Hormuz, the attack certainly raises uncertainty.

It would appear to suggest that President Trump is desperate to bring this war to an end. Yet Tehran is determined to show that the war will end on its terms, and not Trump’s.

Meanwhile, oil prices also saw some downward pressure on reports that Iraq is understood to be threatening to leave OPEC+ unless it's allowed to increase production. The UAE left the cartel back in May for the same reason.

Source: TN Trader

Bitcoin has managed to rally this morning, breaking back above $60,000. Yesterday afternoon, it broke below $59,000 and came within 200 points of $58,000 to hit its lowest level since September 2024. As with precious metals, sentiment has soured towards bitcoin and other cryptos. The question now is whether there’s more downside to come, with the danger of complete bullish capitulation, or if the selloff is close to exhaustion.

The daily MACD failed to drop back to the oversold levels seen in February, which could add weight to the bearish argument. But there’s also a chance that bitcoin can start to build a base around $60,000. Time will tell.

Market volatility remains elevated, with the July VIX climbing 4% and approaching the key 20 level as investors reassess both inflation risks and technology sector valuations.

The sharp selloff across semiconductor and AI-related stocks remains the dominant theme. Reports suggesting OpenAI may delay its IPO until 2027 have added further uncertainty to a sector already grappling with questions over spending levels and profitability.

Federal Reserve policy remains a critical focus. While recent inflation data slightly reduced the likelihood of immediate tightening, markets continue to expect at least one rate increase later this year. Fed officials remain concerned that inflation remains too high despite some improvement in energy prices.

Commodities and cryptocurrencies continue to struggle. With inflation, rates and technology valuations all under scrutiny, traders should expect heightened volatility and continued focus on the technology sector heading into the final trading session of the week.

* 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.