The opinions expressed below are my own and do not necessarily represent those of Visdom Investment Group, LLC.
Finally, peace?
The peace-is-progressing trade was in motion this morning. Yields were down and stock futures were up. PPI (+6.5% vs +6.4% est & 5.7% prior revised from +6.0%) threw a bit of a monkey wrench into things but not too much. The S&P opened about +25 and back-and-forthed through midday. It dipped into the red a couple times briefly as US/Iran news, specifically threats by President Trump to take over Kharg Island and take Iran’s oil, rattled markets significantly. In the afternoon, President Trump publicly cancelled planned strikes against Iran and announced that final points of a US/Iran deal were agreed by all parties. Markets loved that news. The S&P zoomed up, yields fell down, the Dollar sank, precious metals popped, and crude fell. All the peace-is-progressing trades moved together. They continued through the close.
Is this the true beginning of a peace process? The markets reacted as though it were. Granted we’ve been down this road before. Everyone could be wrong. However for the moment, the market is pretty confident that the US/Iran conflict is effectively over and *most importantly* that oil prices have peaked. As long as oil keeps dropping, today’s price action is the *start* of a trend.
Who knows what the US/Iran situation has in store for us? We shouldn’t be surprised if it goes badly again. The markets will snap badly in the wrong directions of course. This is the risk. For the moment, markets believe in the peace-path. All we can do is watch.
If this peace-path is finally the one, then markets will slowly return to watching the macro data more than the geopolitical.
The next big macro event on the horizon? The FOMC decision on Wednesday. No changes to policy are expected. The first statement and press conference of the Kevin Warsh-led Fed will be scrutinized heavily. Rates markets have priced in a slight hiking-path for the year. Currently 17 bips of hiking are priced through December.
Most investors are looking/hoping for hints to take those implied hikes out of the market.
See you tomorrow.
-Mike
Visdom Market Commentary
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