The opinions expressed below are my own and do not necessarily represent those of Visdom Investment Group, LLC.
Iran still matters
Markets didn’t shrug off the attacks in Iran and the Strait of Hormuz. They may have hand waived those geopolitical developments last week but they reacted today. Crude began the day higher and climbed further during the day. US Treasury yields followed suit, starting the day up and then climbing further. Stocks did the reverse, starting down and losing more value over the session. Precious metals fell too, as did Bitcoin. The Dollar strengthened a bit as well. Astute market observers will note this was the typical war-is-worsening reaction across markets. The moves weren’t enormous, and so they didn’t result in fear or volume. Capital flow was a light 81%.
Investor attentions remain on the mechanism of US/Iran fighting leads to higher crude prices, which increases inflation, which forces the Fed to hike. Until the Fed rejects that possibility, if the crude market reacts strongly enough, the other markets will react accordingly. Perhaps cooler inflation data will weaken the perceived linkages above but we’ll have to see what’s in the data.
CPI (3.8% est vs 4.2% prior) releases tomorrow. PPI (6.2% est vs 6.5% prior) releases Wednesday.
Those are high numbers and implied probabilities for a 25 bip hike at the next FOMC meeting are 43%. If the inflation numbers suggest a downward trend, expect the market to reduce the chances for a hike. The opposite is also true.
The first batch of large financial quarterly reports also arrive tomorrow. Goldman Sachs, Bank of America, Wells Fargo, JP Morgan, and Citigroup are scheduled to release before the open. Financials have performed well in the last month and the consensus is that their results will be very strong. Beats are expected as is bumped guidance. If the inflation data is OK, these financials’ results will determine whether the market runs toward new highs or spoils the mood.
I think it’s a high probability that the financials make the broader market happy. So the risk is the inflation data.
All the data, guidance, and narratives will be out well ahead of tomorrow’s open. Futures will certainly project a tone for the day. I wonder if regular hours trading will extend whatever futures begin or reverse it.
See you tomorrow.
-Mike
Visdom Market Commentary
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