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Analysis

Risk Appetite Holds as US-China Dialogue Extends, Small Caps and Metals Catch Fire

Head of Research

Jun 9, 2025

The eyes of the market fall on US-China talks in London, and while expectations of some sort of tangible deal were always low, the nearly 7-hour talks were described by Commerce Secretary Lutnick as “fruitful”, with UST Secretary Bessent coining proceedings as a “good meeting”. The bulls will layer into risk on any rhetoric that publicly keeps the two sides at the table, and with the meeting spilling over to a second day, the idea of some sort of loose agreement is enough to underpin the grind higher in US equity and risk exposures more broadly.

At a high level, the market is now long on sentiment and while on the day the NAS100 and SPX500 have failed to really kick higher and keep the bull trend in check, the fact both SPX500 cash and futures have held 6000 is a small win - with Tesla, Nvidia, Microsoft, Alphabet and Amazon keeping the broader index pinned towards higher levels, with the risk of hitting all-time highs in either market still clearly there. We may hit this milestone soon enough if the US-China talks stay constructive – which seems the base case - and we don’t anything too troubling from the US core CPI report (tomorrow), or the $39b 10-year & $22b 30-year Treasury auctions this week.

Long US smalls caps, HK50 and Kospi

The theme remains to buy high-quality tech and consumer discretionary, with increased exposure to cyclical plays… and while the risk of a narrowing leadership/concentration risk increases, we see rotation into small caps, with the Russell 2k having a solid outperformance of late and looking technically very strong. For the breakout traders, as funds chase the laggards, the R2K is a long position that could kick, and where the perimeters for one's risk are well defined.

Preview

Also on the equity space, the HK50 index has the wind to its back with momentum accounts buying the breakout (of the 21 May range highs), with the index needing a little under 3% for a test of the March highs. The Kospi also looking strong and performing strongly, The ASX200 should benefit from a bid in materials plays but really needs the banks to fire up for new all-time highs, and while we won’t see that today, if the SPX500 can kick to new highs, the ASX200 will come along for the ride.

Eyeing a bullish breakout in AUDUSD, with LATAM FX working

In FX, the USD has been constrained on the day by the net buying in the US Treasury market, with US Treasury yields lower by c.4bp across the curve, which is also a net positive for equity risk appreciation. Higher beta FX is working on the day, with NZDUSD continuing its run of printing higher lows and needing a close above 0.6050 to keep the momentum alive. AUDUSD is also grinding to the upside, and once again is testing the upper limits of the 0.6500 to 0.6350 range it has held since mid-April. A close above 0.6515 would speak to USD weakness, just as it would using the AUD as a proxy for higher HK equity risk. We can also see good flows into LATAM FX with USDBRL and USDMXN working nicely to the downside and breaking to new run low, driven by a mix of local news on fiscal, firm inflation dynamics and the low volatility environment having traders seeking out the relatively high real rates on offer in these justifications.

Strong upside momentum in platinum, palladium and silver

Preview

The big focus in the metals space has shifted away from gold and onto the other precious metals – platinum, palladium and silver. The attention towards platinum has notably picked up, which will typically happen for any market that has gained for six consecutive days and seen such an upbeat rate of change in price. We can also see the move in price backed by significant inflows into the well-traded platinum ETFs and a tight physical market fundamentally underpinning the explosive move higher.

Some have played this through a slower beta long/short strategy, with long silver/short gold getting some airtime, although clients are heavily skewed to the delta-1 strategies and trading these metals more simplistically from the long side.

For those who have missed the recent rally, the question of whether to chase the upside is there, and many will wait for a retracement or a swing to initiate longs. This seems fair, but one also needs to be open-minded to the idea that these metals could kick in once China opens (from 11 am AEST), so buying strength through a buy-stop order may also be fruitful as these less liquid (relative to gold) markets can have very powerful and high-velocity trends when they become the vogue position.

Bitcoin also feels the love and sits 1.1% from the all-time high printed on 22 May - hard to bet against the move here, and the bulls should take this through $112k soon enough.

Good luck to all.

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