A positive start for Europe

US stock exchanges are closed today for the Labor Day holiday. This means that there will be no trading on individual equities, although stock index futures will run until 18:00 BST. US stock indices closed lower across the board on Friday, led by the tech-heavy NASDAQ. This lost 1.2% on the day, with downside pressure coming from Nvidia, which lost around 3.5%.

Investors have been trimming their exposure to the generative AI chipmaker since it released quarterly results last Wednesday. The numbers weren’t bad at all, but investors were quietly hoping for something stronger.

Looking at the chart, Nvidia spent August stuck in a range, with resistance coming in around the stock’s all-time high just above $184, while support has held around $170. All the other US majors were down between 0.2% and 0.6%. But for August as a whole, US stock indices put in a solid performance: the Dow gained over 3%, while the S&P and NASDAQ ended up around 2% and 1.6% respectively.

Source: TN Trader

Meanwhile, the Russell 2000 tacked on over 7% as investors sought to broaden their exposure by adding smaller, overlooked value stocks to their tech-dominated, growthy portfolios.

Even though US equities put in a solid summer, investors are mindful of seasonality. September is historically a difficult month for stocks, with the S&P 500 averaging a 0.7% decline over the past decade. August gave investors plenty to cheer about, but history suggests some caution may be warranted as September begins.

The S&P 500 capped August by hitting a record high just above 6,500, while the Dow Jones also touched fresh peaks. It could be that this strong upside momentum gets tested in the months ahead.

Last week, President Trump’s tariffs were declared illegal by the US Appeals Court. The Trump administration has been given leave to appeal the court’s decision by mid-October. Meanwhile, there are mounting concerns over the Trump administration’s political interference in the US Central Bank and government agencies that collect and disseminate economic data.

Asian Pacific stock indices ended mixed on the first day of September. Hong Kong’s Hang Seng jumped over 2%, led by a 19% surge in Alibaba’s stock, and on renewed confidence in China’s homegrown AI abilities. Meanwhile, the Japanese Nikkei fell 1.2%, as tech names, particularly chipmakers, came under pressure.

Economic data out of China also helped shape sentiment. The RatingDog manufacturing index for August came in at 50.5, marking the fastest pace of expansion in five months. China’s Manufacturing and Non-Manufacturing PMIs were released on Sunday and were in line with expectations. Non-Manufacturing continues to expand, gently, while Manufacturing remained in contraction territory, and has failed to expand since March this year.

Relations between India and China were also in focus. Leaders from both countries emphasised they are “development partners, not rivals” during the Shanghai Cooperation Organisation (SCO) summit. Chinese President Xi Jinping urged SCO members to strengthen AI cooperation while rejecting what he termed a “Cold War mentality.”

Meanwhile, a US federal appeals court ruled that most of President Trump’s “reciprocal tariffs” were illegal, saying he had overstepped his authority with his April 2 “liberation day” announcement. The ruling adds another layer of uncertainty around trade policy.

The euro was the standout performer in Forex this morning, having pushed back above 1.1700 against the US dollar. This took the EUR/USD back up to the highs hit after Fed Chair Jerome Powell’s ‘dovish’ speech at the Jackson Hole Economic Symposium. The US dollar was weaker across the board this morning.

Source: TN Trader

As far as the Dollar Index is concerned, there is some mild support around 97.00. But a break below here would increase the possibility of a retest of the multi-year low hit at the beginning of July, when the index briefly broke below 96.00. Since the euro accounts for more than half of the index’s weighting, even a modest rise in the single currency exerts outsized pressure on the Dollar Index.

Some analysts have pointed out that the market is very short of the dollar. That’s not to say it can’t go lower, but it does suggest that any positive news for the greenback could trigger a big rally if shorts rush to cover their positions.

Gold shot higher in overnight trade. At the end of last week, gold was testing resistance at the upper end of a trading range which has been building for three months now. The top end came in around $3,450, and gold sliced through this in the thinly traded Asian Pacific session to come within $10 of its April all-time high of $3,500.

Gold has made steady upside progress over the last two weeks or so, helped by some softening in the US dollar as traders assess the likelihood of a Fed rate cut this month. According to the CME’s FedWatch Tool, there’s currently a 90% chance of a 25-basis point cut as the Fed concludes its monetary policy meeting on 17th September. But it’s worth remembering that there are some significant data releases due before then.

Source: TN Trader

This includes Friday’s Non-Farm Payroll report, while there are further inflation updates due, with CPI and PPI out next week. If, for instance, this week’s jobs report was to surprise to the upside, that could upend the probability of a rate cut later this month.  

Meanwhile, silver outperformed this morning and surged above $40 per ounce to hit its highest level since September 2011. Silver bulls now have the all-time high from April 2011, just shy of $50 per ounce, in their sights. The big question now is whether silver can head directly to this level or if it heads to consolidate first. Alternatively, could current levels mark the high for now?

Source: TN Trader

Crude oil was firmer this morning. Front-month WTI was little-changed in the Asian Pacific session. But it flew higher as Europe opened for business, with WTI making decent progress above $64 per barrel.

Prices rose as the US dollar came under selling pressure, and on ongoing concerns about possible supply disruptions as Russia and Ukraine target each other's energy infrastructure. Despite this, oil remains stuck in a relatively narrow trading range. For WTI, this means resistance around $65, with support coming in around $62.

It’s worth remembering that the market is likely to be illiquid today with US traders on holiday. This can contribute to volatility, although there are no obvious catalysts for a big move currently. Overall, the market remains well supplied, and this is likely to persist as OPEC+ continues to unwind previous production cuts at a faster-than-expected rate.

Meanwhile, demand growth shows signs of cooling further, as global economic growth continues to slow.

Natural gas prices found support and jumped over 2% in early trade this morning. The bounce helped the commodity recover from earlier weakness, with the move back north of the $3 mark viewed as an important level for sentiment in the near term.

Cryptocurrency markets continued their retreat. Bitcoin pulled back towards $107,000 this morning, extending recent losses. The world’s largest digital asset has fallen steadily since hitting a record high just shy of $125,000 in mid-August.

Still, some analysts remain optimistic, suggesting that September could bring renewed strength. Should there be a sustained break below $107,000, then the next obvious significant support comes in around $100,000.

Ether continues to drift lower in a move which is helping to blow off recent frothiness while resetting the daily MACD to less overbought levels. The second-largest cryptocurrency by market cap now has traders eyeing support around $4,000 as the next target, rather than $5,000. The adjustment underscores the more cautious tone that has settled over the broader digital asset space.

The VIX index appears to be comfortable at levels consistent with the calm seen across global equity markets. With stock benchmarks at or near record highs, investors appear to be remarkably sanguine, if not complacent, about potential volatility and the risk of a significant pullback from current levels. Traders are not yet positioning for significant turbulence, though September’s reputation as a volatile month keeps the risk on the radar.

Trading volumes are expected to stay muted with US markets closed for Labor Day. September, however, is historically a more difficult month for equities, and investors will be watching closely to see if this seasonal pattern re-emerges.

The US dollar remains on the back foot, with jobs data later in the week potentially critical for its performance. Meanwhile, precious metals are commanding increased attention, with gold approaching the $3,500 record high and silver surging to 14-year highs. Traders will want to keep a close eye on these levels in the days ahead.