Daily Market Color July 9, 2018Fundamentals Trump Trade Tensions Jeff Davenport Earnings In Focus Despite a simmering trade war with China, financial markets seemed to have chosen to focus instead on equity fundamentals as we prepare for the start of second quarter earnings season. All three major indices posted gains on the day, with the DJIA leading the way (+1.31%), boosted by gains in the financial sector. The S&P 500 and NASDAQ also posted respectable gains of +0.88% each. US Treasurys sold off on the day, as rates climbed 2-4 bps across the curve. The 10-year Treasury note closed the day at a yield near 2.86% (+3.5 bps). WTI crude futures settled 0.1% lower at $73.72/barrel. In foreign exchange markets, the USD Dollar (USD) rose 0.5% against the British Pound (GBP) and 0.1% against the Euro (EUR). Resignations Rattle UK Parliament Over the past two days, two key members of Prime Minister Theresa May’s cabinet have resigned over the future of post-Brexit trade between the European Union and the United Kingdom, putting her position and her party’s future in jeopardy. May already holds a razor-thin majority thanks to the support of the Northern Irish Democratic Unionist Party members, and the recent departures cast doubt on the ability of the current post-Brexit plan to gain the support necessary among May’s conservative party (Tories). David Davis, who was to lead to the British team negotiating the exit from European Union, resigned on Sunday after a weekend meeting with other cabinet members hosted by May. Davis stated he disagreed with the current strategy, commenting “The best person to do this would be somebody who believes in it, not me.” Boris Johnson, former Mayor of London and current Foreign Minister, also tendered his resignation as a result of the current plan for negotiations. Johnson’s resignation letter outlined his philosophical differences with the current approach, commenting that they are left with a deal which is a “semi-brexit”. “Brexit should be about opportunity and hope. It should be a chance to do things differently. To be more nimble and dynamic and to maximise the particular advantages of the UK as an open, outward-looking, global economy.” Both Johnson and Davis could indeed challenge May for control of the conservative party if the defections lead to a greater crisis among the Tories. The Week Ahead President Trump is scheduled to announce his pick for the open seat on the Supreme Court, being vacated by Justice Anthony Kennedy. Kennedy has long been a “swing” voter on the high court. In addition, President Trump will then head to the NATO summit in Brussels, and then on to the United Kingdom where he will meet with Queen Elizabeth and Prime Minister Theresa May. Economic releases include PPI on Wednesday and CPI on Thursday. Both will be closely watched by the markets. While the first salvos in the trade war between the United States and China were fired over the weekend and the market seems to have taken them in stride, the market may still be sensitive to future trade tensions.