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Briefing.com Summary:
*There is a risk-off trading tone after the U.S. and Israel launched a joint strike on Iran over the weekend.
*Energy costs have spiked on supply disruption worries.
*Treasuries are contending with inflation worries, while stocks are tangling with stagflation angst.
Risk-off is the prevailing disposition at the moment, as market participants react instinctively to the events over the weekend that featured a joint U.S.-Israeli strike on Iran, the killing of Ayatollah Ali Khamenei, and counterstrikes by Iran on several other Middle Eastern countries.
This combat operation will continue. Its duration is unknown, yet President Trump suggested it could last four to five weeks while urging Iranian citizens to rise up and take control of their government.
A natural consequence of this armed conflict has been a spike in energy prices. Oil tankers are reportedly scared of traversing the Strait of Hormuz, and rightfully so, raising concerns about supply disruptions; meanwhile, Qatar has announced that it is stopping LNG production at the world's largest plant, according to CNBC.
WTI crude futures are up 7.6% to $72.12/bbl, Brent crude futures are up 8.4% to $79.02/bbl; and natural gas futures are up 5.7% to $3.02/mmbtu. Equity futures, however, are noticeably lower.
The S&P 500 futures are down 79 points and are trading 1.1% below fair value, the Nasdaq 100 futures are down 380 points and are trading 1.5% below fair value, and the Dow Jones Industrial Average futures are down 532 points and are trading 1.1% below fair value.
Not surprisingly, gold futures are up ($5408.60/toz, +162.50, +3.1%), and the dollar is exhibiting strength in a safe-haven bid. The U.S. Dollar Index is up 0.9% to 98.44.
The safe-haven bid, though, has not found its way to the Treasury market, which is being steered more at the moment by inflation worries stemming from the jump in energy costs. The 2-yr note yield is up eight basis points to 3.46%, and the 10-yr note yield is up five basis points to 4.01%.
Inflation is the watchword for Treasuries, whereas stocks this morning are tangling with stagflation concerns tied to the rise in energy prices.
The latter are undercutting airline and transportation stocks, including cruise lines, but they are lifting energy stocks. As you might expect, defense stocks and gold mining stocks are also higher in pre-market trading.
Most stocks, though, have taken a dip, including each of the Magnificent 7. That is applying most of the weight on the equity futures market, which, all things considered, isn't unraveling on the combat news. Yes, it is down noticeably, but more to the point, it isn't down jarringly.
What happened over the weekend and what continues now has created added uncertainty. Frankly, though, the state of the equity futures market has not risen to the occasion to meet the tenor of the headlines.
The major indices will open lower, but they won't open lower in proportion to the weight of the combat news, because participants are not convinced yet the military action will fuel disarray for the global economy.
