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Briefing.com Summary:
*SK Hynix posted Q2 results that were relatively disappointing.
*Oil prices and bond yields are up as the conflict between the U.S. and Iran heats up.
*The FOMC decision is at 2:00 p.m. ET and carries the risk of surprising the market.
The U.S. and Iran had a few days without any military strikes. During that time, President Trump indicated talks between the two were going better and that there could possibly be a deal soon. Iran, apparently, didn't see things the same way and launched a surprise ballistic missile attack overnight on U.S. targets in the Middle East.
Those missiles were reportedly intercepted by missile defense systems, but the act itself is the real problem. It has triggered a renewed jump in oil prices, which are elevating to a new level after President Trump told a Fox News reporter on the phone that the U.S. "will be hitting Iran hard" in response to the surprise attack. WTI crude futures are up 6.6% to $84.48/bbl, while Brent crude futures are up 6.0% to $86.98/bbl.
Treasury yields are following the vapor trail. The 2-yr note yield is up three basis points to 4.31%, and the 10-yr note yield is up three basis points to 4.63%.
The knock-on effect of higher oil prices and rising Treasury yields can be seen in the equity futures market, which is also feeling a pinch from SK Hynix's (SKHY) and Procter & Gamble's (PG) relatively disappointing Q2 results.
Currently, the S&P 500 futures are down two points and are trading 0.2% below fair value, the Nasdaq 100 futures are down 13 points and are trading 0.4% below fair value, and the Dow Jones Industrial Average futures are down 363 points and are trading 0.7% below fair value.
It is a touchy tape, which is also staring at earnings reports from Microsoft (MSFT), Meta Platforms (META), Qualcomm (QCOM), Lam Research (LRCX), Chipotle Mexican Grill (CMG), and Starbucks (SBUX) after the close.
Before the market gets there, however, it must pass go at the FOMC decision today at 2:00 p.m. ET. The FOMC is expected to leave the target range for the fed funds rate unchanged at 3.50-3.75%, but it is fair to say that view isn't as widely held as prior decisions were.
According to the CME FedWatch Tool, there is a 35.8% probability of a 25-basis point hike today, and there has been some added attention on a Citadel report suggesting a rate hike today would go a long way toward the Fed regaining inflation-fighting credibility and showing its independence.
That is a reasonable argument, which is why there is some tension on the line. A rate hike would be a surprise. How the stock market reacts is the great unknown.
Presumably, the shock of a surprise hike would send prices lower initially, yet there could also be an allowance after any knee-jerk selling for the idea that the surprise hike is aimed at getting inflation under control, which would be a good thing knowing that it would ultimately invite lower interest rates.
Today, then, has the makings of being an interesting day. It already is with the geopolitical situation.
