A U.S. court decided that Google must share specific search data with its competitors but is not required to sell its Chrome browser. This ruling favoured Alphabet, boosting its shares and positively affecting other technology stocks and U.S. equity futures.
In financial markets, Japanese government bond yields continued to rise, putting pressure on the yen. The USD/JPY reached its U.S. session highs near 148.95, while USD/CHF also approached Tuesday’s peak, with the dollar remaining stable against most other major currencies.
Strong PMI Data From Asia
Data from Australia, Japan, and China showed strong expansion in PMIs. Australia’s Q2 GDP exceeded expectations due to increased consumption and a reduced household savings rate, affecting predictions of interest rate cuts by the Reserve Bank of Australia. Remarks from RBA Governor Bullock are anticipated at 0600 GMT.
In Beijing, President Xi organised a military parade with North Korea’s Kim Jong Un and Russia’s Vladimir Putin present. President Trump claimed the three nations were collaborating against the USA.
The London Metal Exchange postponed the start of Asian trading by 90 minutes, opening at 9:30 a.m. Beijing time. Though no reason was provided, it led to speculation about the exchange addressing potential disruptions linked to a major participant.
Court Ruling On Alphabet Impact
The court ruling on Alphabet is a significant de-risking event for big tech, suggesting regulatory fears were overblown. We see this as a reason to add exposure to the Nasdaq 100, as implied volatility, which was running above 20% last week, is now likely to fall. This makes buying near-term call spreads on the QQQ exchange-traded fund an attractive, defined-risk way to capture further upside.
The persistent weakness in the Japanese yen, driven by rising local bond yields, reinforces a strong trend. With the U.S. 10-year Treasury yield still holding a spread of over 350 basis points against its Japanese equivalent, the carry trade remains highly profitable for institutions. We should consider purchasing USD/JPY call options targeting the 150 level, a key psychological barrier last seen a few years prior in late 2022.
Stronger than expected Australian economic data is a game-changer for their central bank. The household savings rate has now fallen to a multi-year low of 3.2%, indicating consumers are still spending and fueling inflation. As a result, market pricing for a Reserve Bank of Australia rate cut by year-end has collapsed from over 50% to just 10%, which should continue to support the Australian dollar.
The geopolitical theater in Beijing with China, Russia, and North Korea is creating background noise that markets seem to be ignoring for now. The CBOE Volatility Index (VIX) is currently sitting below 17, a level that feels too complacent given the overt display of an anti-U.S. alliance. We view this as an opportunity to buy cheap protection through out-of-the-money put options on the S&P 500.
The sudden halt in London Metal Exchange trading raises serious concerns about liquidity and counterparty risk in the industrial metals space. We all remember the nickel market crisis a few years ago, which showed how quickly these situations can spiral. Until there is clarity, it is best to avoid new directional bets and perhaps look at options strategies that profit from a potential explosion in volatility, like a long straddle on copper.
