NASDAQ on Three-Day Skid

Tech Drags on Equity Markets

After a series of disappointing earnings releases, tech stocks had their third consecutive down day.  All three major equity Indices were down on the day with the NASDAQ posting the largest loss of the three, falling 1.4%  on the tech sector slide.  The S&P 500 was down 0.58% while the DJIA was down 0.57%.  Beyond the three year point of the curve, US Treasury yields moved higher, in a bear-steepening pattern.  The yield on the 10 year Treasury closed near a yield of 2.97%, up 2 bps.  In foreign exchange markets, the USD Dollar fell 0.2% against the British Pound and dropped 0.4% against the Euro (EUR).

Oil Spikes on Supply Concerns

Three key potential challenges to the supply of oil sent the price of crude oil futures higher on the day.  First, there is speculation that it may take longer to bring the Canadian Oil Sands facility back on line after it suffered a power outage recently.   Second, there is labor unrest on platforms in the North Sea with the British Unite labor union carrying out a 12 hour strike today and announcing a series of 12 and 24 hour strikes planned for next month.  Finally, after two oil tankers were attacked by Yemini Houthi rebels in the Red Sea last week, Saudi Arabia has suspended shipments along the route which carries oil from Saudi Arabia to both the US and the EU.  WTI Crude oil futures settled up 1.9% on these developments, at a price of $69.98/barrel.

Trumps Opens Door to Iran Meeting

After several months of escalating actions and rhetoric between the United States and Iran, President Trump said today that he would be willing to meet with President Hassan Rouhani without preconditions.  The relationship between the United States and Iran has been challenging since the Iranian Revolution nearly 40 years ago, but recent actions and rhetoric have pushed the relationship to an extreme low. President Trump withdrew from the Joint Comprehensive Plan of Action, more commonly known as “The Iran Deal” as he felt it was “one-sided”.  US sanctions that were lifted when the deal was agreed are set to be re-imposed, including sanctions against any country or company that buys oil from Iran. Currently those sanctions are set to go into effect in November.  Recently it seemed tensions were escalating as President Trump sent out a tweet in all CAPS, warning Iran of the consequences of threatening the United States.  It remains to be seen if Iran will accept this overture for an unconditional meeting from President Trump. According to the Iranian state-run news agency President Trump has asked multiple times in the past to meet and was rejected each time.        

Central Banks at the Center

Bond markets will be paying close attention to the news from a number of central bank meetings taking place this week:

• Bank of Japan:  Initially expected to be a non-event, the decision tomorrow has drawn speculation after 10-year JGB yields experienced their largest daily movement in more than two years last week.  Any shift from the BOJ’s ultra-loose policy stance, whether that be reducing bond or ETF purchases, could dramatically affect global yields.

• Federal Reserve:  The FOMC is expected to hold rates unchanged after its meeting this week.  The policy statement to be released Wednesday will be parsed to extract any future rate hike guidance, especially related to the threat of an overheating economy as inflation continues to rise alongside last week’s GDP figures, which pointed to a four-year high in growth.

• Bank of England:  On Thursday the BOE is expected to hike its benchmark borrowing rate for the first time since last November and only the second time since the ’08 financial crisis.  Factors weighing on the central bank’s decision to tighten policy include tepid inflation growth in the UK (and the eurozone more broadly), along with continued uncertainty surrounding Brexit negotiations.

Albeit less impactful on the international scene, the central banks of Brazil and India are also scheduled to meet this week.  The Brazilian central bank is expected to hold benchmark rates steady at a historic low of 6.5%, while there is some uncertainty as to whether the Reserve Bank of India will hike short term rates given the acceleration of inflation in the region.