Oil, Gold jump as Israel responds

Oil and gold jumped on rising geopolitical tensions after Israel struck targets in western Iran as a response to last weekend’s attacks. One of the concerned cities is Isfahan, home to several military bases and facilities, but also to nuclear facilities including the main technology center. Iran said that the nuclear site is safe. Bloomberg journalists highlighted that as Iran’s weekend attack – which was designed to warn rather than to destroy - Israel bombing remained in the ‘realm of gaming out ‘calibrated’ actions to send messages without raising stakes. But uncertainty looms.  Brent crude traded above the $90pb before easing to around $88.50 at the time of writing, US crude shortly trade past the $86pb level, wheat futures jumped 2%, gold rebounded to a near-record level and Swiss franc gained. We will likely see a further flight to safety before the weekly closing bell on fear of further escalation of tensions during the weekend. Shorting oil and gold is risky as Middle East is boiling. Having exposure to these commodities is a good hedge against the rising geopolitical tensions in the region.

In other hot commodity news, cocoa futures jumped close to 10% yesterday to above $11’000 per ton, and a hedge manager called Pierre Andurand said that the shortages will push the price of a ton of cocoa to $20K. For those who love speculation and adrenaline, cocoa futures is the place to be.

Unimpressed

Elsewhere, tech investors didn’t necessarily bought into TSM’s better-than-expected revenue and earnings compared to the same time last year. They were rather disappointed with a 5% decline in revenue and income compared to the last quarter. The company dialed back its outlook for the chip market expansion due to weakness in smartphones, personal computers and car industry but said that accelerating demand for AI chips should compensate for that weakness and justify spending for capacity expansion and upgrades. They expect their revenue to grow at least 20% this year. But alas, anything less than mind-blowing is not enough for the chip rally to continue given the latest exponential rise. TSM shares fell nearly 5% after the results yesterday, while Micron Technology, which was up pre-market on news that they will get more than $6 billion in grants from the US government for their domestic factory projects, ended up falling almost 4%. The S&P500 extended losses and Nasdaq 100 retreated to near its 100-DMA.

Netflix reported results after the closing bell yesterday and surprised with a third month of blowout subscriptions growth. The company added more than 9 million new watchers in Q1 2024 and posted its best start to a year since the pandemic. The password sharing ban continued to boost Netflix subscriptions as company estimated that they were around 100 mio people using an account without paying for it. Apparently, the password sharing ban convinced a lot of them that Netflix is worth paying for. Unfortunately, Netflix lost almost 5% in the afterhours trading as its Q2 revenue forecast failed to impress. They also said that they will stop reporting quarterly subscribers next year… What a disappointment, that was the most interesting thing to watch in Netflix quarterly results… In terms of market price, Netflix will slip below its 50-DMA today and the toppish signs goes beyond Netflix.

Overall

US jobless claims came in lower than expected, the Philly Fed manufacturing index unexpectedly jumped . Fed’s Raphael Bostic said that he doesn’t expect a rate cut until the end of this year, Neel Kashkari said that the Fed could ‘potentially’ hold its rates steady all year and John Williams said that there is no urgency to cut rates and that he doesn’t rule out a rate hike, though this is not his base case scenario. But the US 2-year yield remained capped near the 5% psychological mark despite strong data and hawkish comments indicating that investors are hesitant to give up their final hope of seeing the Fed loosen its policy.  

The EURUSD is under a renewed downside pressure as the divergence between the hawkish Fed and dovish ECB expectations justifies a further weakness in the single currency. The USDJPY remained offered as core inflation in Japan eased more than expected by analysts to 2.6%. We are still waiting for the Japanese authorities to stop the bleeding as they said they would if the selloff became unsustainable…

The US futures are in the negative at the time of writing. The rising hawkish voices from the Fed back further weakness in stocks, especially the rate-sensitive tech stocks. Unfortunately, the quarterly results from the world’s leading chip and chip equipment makers failed to satisfy this week and set the tone for a – maybe – challenging earnings season for chip companies. And if that’s the case, we could see the risk rally fade into May… which is known to be the month where investors sell and go away.