Daily Market Color

Stocks Close Higher as Earnings Continue to Outperform

 

Market Rundown

All major US equity indices finished the day in the black.  The tech-heavy Nasdaq (+0.6%) captured the bulk of the attention, posting its fifth straight daily gain (longest streak since May) on the back of a 4% rise in the share price of Facebook, which jumped after news that the social platform was in the process of getting more banks onto their Messenger platform to provide additional credit card and account service alerts.  The S&P 500 (+0.35%) and DJIA (+0.15%) finished with more modest gains, which seem to be shrugging off the tariff wars and are being bolstered by the strength in the recent corporate quarterly earnings season. 

 

 

US Treasurys held within a tight range throughout the session as yields/swap rates finished within 1-2bps of their opening levels.  The yield on the 10-year note is back near 2.94% (down 1bp on the day) after crossing over the 3.00% mark as recently as last Wednesday.  When examining the flatness of the yield curve, we are now again approaching decade-lows in the 2s-10s spread, narrowing to less than 30 basis points.  This week bond markets will pay close attention to the consumer price data set to be released on Friday, while continuing to monitor any developments in the US-China tariff battle.  

 

 

WTI crude futures climbed 0.8% in response to an OPEC report which cited production declines out of Saudi Arabia during July.  The output reduction came as a surprise to energy markets after Saudi Arabia pledged to increase production back in June in an effort to combat the Iran sanctions and decreased capacity in Venezuela.  WTI crude finished the session at $69/barrel.

 

 

In cryptocurrency markets, Bitcoin continued its volatile ride as prices tumbled more than 2% to below $7,000/BTC once again.  Over the past month, the price of a Bitcoin has risen to as high as $8,440 and touched as low as $6,150.  In what has grown to be a regular occurrence in the crypto market, analysts are unable to decipher the root cause of the recent drop in prices, outside of a softening in speculative demand.

 

 

Iran Sanctions Reinstated Tonight

As the clock strikes midnight tonight, Iran will again be subject to the sanctions that were lifted after the 2015 agreement on the Joint Comprehensive Plan of Action, more commonly known as “The Iran Deal”.  Most significant of these sanctions is the prohibition of dealing in US dollars, the currency of record for most oil transactions.  Any business that does not comply with these sanctions will be subject to legal action.  The majority of European governments, who are still participants in the Iran Deal, have vowed to protect their companies from legal reprisals due to the reinstatement of US sanctions.

 

 

On the diplomatic front, National Security Advisor John Bolton suggested the move to reimpose sanctions was not designed to push for regime change, but meant to force the regime in Iran to change their behavior and “come to the negotiating table”.  Bolton also commented that the door is open for the unconditional meeting between the US and Iran proposed by President Trump, saying “if the ayatollahs want to get out from under the squeeze, they should come and sit down.” 
 
This follows an eventful weekend in Iran that saw civil unrest and military exercises meant to gain attention from the US and their allies in the region.  Iranian naval exercises were conducted along the important shipping route through the Strait of Hormuz in the Persian Gulf on Friday.  In addition, on the home front the Iranian regime was faced with protests on the streets in several cities over the state of the Iranian economy.  The return of these sanctions could be crippling to the already struggling Iranian economy, where inflation has run rampant. 

 

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