Equities: Cyclical rotation extends as tech recovers – Danske Bank

Danske Bank's research team observed that global equities commenced August with fresh all-time highs in several MSCI indices. This upward trend was fueled by a sector rotation, particularly the rebound of the software sector, which surged by 16% over the past week. Meanwhile, lower oil prices bolstered market sentiment; however, defensive sectors lagged behind.

Meanwhile, Asian equities faced skepticism regarding regional tech and semiconductors, leading to a decline, even as US and European futures showed modest gains. "Equities started August on a positive note with fresh all-time highs for several of the MSCI world indices," stated the research team. "The move was driven by a strong sector rotation, combining further relief in software, which has now recovered 16% over the past week, with lower oil prices following more constructive rhetoric around Iran and the Strait of Hormuz."

"The cyclical rotation seen over the past three sessions therefore continued, while several defensive sectors lagged despite the solid index gains." In Asia, sentiment remained cautious due to skepticism around Asian tech and semiconductors, resulting in lower regional market performance. Despite the strong index gains, several defensive sectors underperformed.

As for the currency markets, GBP/USD remained within a range below 1.3450 during the European session on Tuesday, as uncertainty surrounding US-Iran talks prompted traders to seek the safety of the U.S. dollar. The risk-sensitive British Pound suffered due to this uncertainty. EUR/USD maintained steady levels around 1.1505 in European trading hours, with markets remaining cautious ahead of a series of US jobs data releases, starting with the JOLTS Job Openings Survey later that day.

However, the downside was capped by strong Eurozone inflation data in July, which supported the possibility of a European Central Bank rate hike at their next meeting. Gold prices fluctuated between slight gains and minor losses during the Asian session, as traders hesitated and waited for further developments related to the Middle East crisis.

The U.S. dollar struggled to capitalize on the previous day's solid bounce from its lowest level since mid-June and acted as a tailwind for gold. However, uncertainty over the US-Iran peace talks helped limit the downside for the dollar. Ripple (XRP) and Stellar (XLM) exhibited mixed price action, with XRP holding above the crucial $1 support level while XLM faced rejection at $0.173.

Improved derivatives metrics and fading bearish momentum suggested that downside pressure may be easing for both altcoins. The FXStreet Insights Team, composed of handpicked journalists, provided these market observations, which included insights from both commercial analysts and external experts.