The opinions expressed below are my own and do not necessarily represent those of Visdom Investment Group, LLC.
Is tomorrow the moment?
Over the weekend, President Trump posted that if Iran didn’t agree to a deal by Tuesday, he would order the bombing of bridges, power plants, and energy infrastructure. This threat made markets nervous although Europe and China were closed today, so the reaction of the US market was key. S&P futures traded down overnight but rallied to flat in the wee hours. The S&P opened about +10 points and spent a low volume session chopping around the +20 point level. Crude rallied some and the yield curve flattened a bit. The Dollar was about flat. Capital flow was very low at 62%. President Trump held a press conference today, mostly covering the mission that rescued the downed pilots. He also reiterated his threat to bomb Iran and said that there were ongoing talks for a deal. Markets reacted with small risk-on moves as a result of the conference.
It seems that most investors believe that tomorrow with either bring a true deal or result in a new extension for further negotiations. If the market believed that the escalation was likely, it would likely have traded off. We can’t be sure but it seems a reasonable view.
So we are on the clock again. We don’t know what the actual deadline is, other than it is sometime tomorrow. I wonder if markets will get nervous during the day, if nothing is announced. Obviously, if reports of widespread attacks on Iran break, we will know that the negotiations failed. Given the speed of markets, it’s likely we’ll see price reaction before any published newswire headlines.
It’s going to be a tense day tomorrow. I’m surprised that implied volatilities aren’t higher. It feels like quite a binary outcome is approaching and yet options markets and other markets are calmly waiting.
There is no trading edge that I can see. It doesn’t seem like the crowd is front-running tomorrow. It seems like we’re all resigned to the fact that at some point tomorrow, they’ll be an outcome that’s either bullish or bearish… and we’re just going to have to experience it.
Good luck.
See you tomorrow.
-Mike
Visdom Market Commentary
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