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Briefing.com Summary:
*Ceasefire talks between the U.S. and Iran broke down over the weekend without a permanent ceasefire agreement.
*President Trump has ordered a blockade of Iranian ports and the Strait of Hormuz, which has sent oil prices higher.
*Goldman Sachs topped Q1 EPS estimates but came up strikingly short for its fixed-income business.
The talks between the U.S. and Iran in Pakistan over the weekend did not end well. Ultimately, the negotiations were called off, with Vice President Vance reporting that Iran would not concede to the U.S. demands to relinquish its nuclear weapons program and control of the Strait of Hormuz.
The consequence of that recalcitrance is a U.S.-led blockade of Iranian ports and the strait, effective at 10:00 a.m. ET today, and potentially a resumption of targeted strikes on Iran's infrastructure.
Not surprisingly, the oil market hasn't taken a liking to this news. WTI crude futures are up 7.1% to $103.46/bbl, and Brent crude futures are up 6.7% to $101.54/bbl. The equity futures market hasn't taken a liking to the news either, but to be fair, losses in Dow component Goldman Sachs (GS) after its earnings report are doing their share of damage to the early trade.
Currently, the S&P 500 futures are down 33 points and are trading 0.5% below fair value, the Nasdaq 100 futures are down 113 points and are trading 0.4% below fair value, and the Dow Jones Industrial Average futures are down 439 points and are trading 0.9% below fair value.
Shares of GS are down 39 points, or 4.3%, which is responsible for more than half of the losses seen in the Dow Jones Industrial Average futures. Goldman Sachs easily topped the first-quarter consensus EPS estimate, but revenues for its fixed income, currency, and commodities business were approximately $900 million below expectations.
JPMorgan Chase (JPM), Citigroup (C), and Wells Fargo (WFC) will report their results before tomorrow's open, so there will soon be some answers as to whether Goldman's shortcoming here was company-specific or an industry-wide condition.
In general, the broader market's condition is guarded but not forlorn when it comes to the Iran situation. Given what is at stake, the losses in the equity futures market are not proportional to the seriousness of the news, which suggests the market is retaining a sense of hope that a permanent ceasefire will eventually be reached before there is an even more deleterious fallout for the global economy. Interestingly, the 10-yr note yield is unchanged at 4.32%.
Diplomatic efforts are afoot to keep the parties talking, but for now it sounds as if Iran is retreating to its corner to consider its next move, while the U.S. is still standing at the center of the ring, ready to spar.
Accordingly, market participants are waiting to see if there is another round of fighting or simply some shadow boxing.
