Iran, China, G20 - Will Drive the Action

What You Need to Know Today

• Iran makes more noise and Trump set to announce major sanctions

• Oil continues to move up on the tension

• Mkts pricing in perfection – and that is a sort term risk considering all of the geo-political noise

Good morning America!  Good afternoon to our friends in Europe and good evening to our friends in Asia – well it was a magical two weeks – Croatia is really beautiful and if you’ve never considered going, I would suggest you change your mind and go……Dubrovnik, Hvar, Trogir are all beautiful places – not overdone – but definitely places to go, places to see.  This history is amazing (like most of Europe) and considering that there was a major civil war there only 30 yrs ago – you’d never know it by touring around.  Weather was spot on and the Adriatic is spectacular….the islands are lush and green  and emerge from the water like a painting……the assortment of green and the deep blues and aquamarines come together with such beauty and ease that you feel like one with Mother Earth……Villages (Cities) to visit -  Dubrovnik, Sebenic, Hvar, Trigor, Mjet, Kochula, Split and Solta – all have their own history and story……and so many of the locals are happy to share those stories of hardship and triumph…..

So, so much happened in the two weeks that I was away….. – Hints that the FED and the ECB are going to cut rates/add stimulus created lots of excitement, then word that Trump and Xi Xi are having tea at the G20 meeting in Osaka Japan this weekend – gave more fuel to the fire….then the Iranians started to make trouble, blowing up oil tankers in the Gulf of Oman – which helped to give energy a boost and then they blew up an unmanned US drone on Thursday -raising the temperature in the room.  Trump immediately responds with veiled threats to retaliate and then quickly pulls back – choosing instead to impose ‘major sanctions’ to be announced today….and then to add even more heat – the Iranians are about to breach their nuclear restrictions (Thursday)  imposed on them in the accord reached back in 2015 with world powers….the one that Donny withdrew from, so now the temperature is turned up even higher….and the media is already using words like ‘perilous’, ‘dangerous’ and ‘crisis’…..when they present the news – and all of this has the option to cause mkts to back off…remember – geo-political events do not price stocks in  the long term, but they do create havoc in the short term and the Iranian noise is the very definition of ‘havoc’….so do not be surprised to see mkts churn until they we hear what those sanctions might be and what the Iranian response is….

So with the possibility of interest rate cuts – we saw the 10 yr treasury fall below 2% - if only briefly….before closing just on the north side of 2%...30 yr mortgage rates are now below 4% and are approaching the GFC (Great Financial Crisis)  level of rates….current 30 yr money is running about 3.8%.....and that has caused investors around the world to go all into the equity mkts….valuations are now 17.5 x 12 month forward earnings…and the is a very healthy valuation……growth stocks being the biggest beneficiaries of the latest move – as the value names are not ‘sexy’ enough…..or not yet…..but could be if the tone changes….the growth stocks (Nasdaq up 21% ytd) will be the first ones to take it on the chin…..if the Iranian situation spins out of control or if we get a big fat ‘nothing done’ on US/China trade. 

Now look – the mkt has priced in perfection…..they priced in a deal with China, a de-escalation of tensions  with Iran, at least one rate cut – although talk of 3 is all the rage – I guess it just depends on the extent of the cut….will we get a 50 bps cut in July?  If so – then that might be it…..Look – Donny has been taking shots at Fed Chair Powell – going so  far as suggesting that he will not reappoint him for another term – so that leaves us to wonder – what will Jay do?  Will he do what’s right for the country or will he do what Donny is pressuring him to do to try and keep his job?  My sense is that jay has not interest in appeasing Trump – but did you see how Richmond Fed Pres Jimmy Bullard and Minneapolis’s Fed Pres Neely Khashkari  - stood up?  Do they smell blood in the water?  Are they vying for position?  Bullard a nice guy, but Khashkari is a former GS employee – Capisce? 

Oil -which had been thrashing about in the $52/$55 range did get a boost after the Iranians blew up the tanker and started making more noise…then OPEC chimes in about more production cuts and boom…..oil jumped 12% and is now trading at $57.80/barrel…  Talk of the summer driving season, draw downs in supply, disruption out of the mid-east etc all adding to that story -  all 3 of the moving averages (50, 100 & 200) are all converging at $59.50 ish…..give or take a few cts….expect to see them push oil up to test resistance…fi we bust up and thru – then look for oil to immediately go to $65/barrel before looking back…..if it fails (unlikely) then it will test $55 again…..Currently oil is up 34 cts as CNBC highlights the major refinery explosion that happened over the weekend on the east coast that is sure to give oil more support….

Gold – major flight to safety…..look – gold had been stuck in the $1275/$1300 range for 3 months….then on May 31st, it test resistance at $1309 and blew thru – taking it to the February highs of $1350 and then the Iranian noise caused investors to take it even higher an by Friday it had pierced $1400/oz….putting us in territory not seen since January 2018.  I suspect that it should settle in a bit as the mkt awaits the G20 meeting and word that Trump and Xi Xi are moving ahead. 

Overnight – Asian mkts moved a bit higher while Euro mkts are under a bit of pressure as they are more cautious…European mkts are lower as the tension lingers…US futs are up -although I think it’s a head fake….What will the mkts do once Donny announces his sanctions on Iran – if they are brutal enough – then look for the Iranians to push back hard – causing geo-po9litcal risk to rise -a and that could cause a ‘risk off’ mentality today – after the mkt surged more than 7% this month alone. 

Remember – Friday is the end of the qtr, end of the 1st half of the year and the bi annual Russell Rebalance which will cause a lot of window dressing and action.  Eco data this week is chock full of data – housing, retail sales, durable goods, and the final revision to 1st qtr GDP -exp of 3.2% is the assumption.  Earning season is about to kick off in 2 weeks, we have seen estimates come down – but now will once again await the conference calls to see what CEO’s and CFO’s say about the extended trade war and what that has done to the guidance going forward. 

The S&P closed a new all time high, the Dow and the Nasdaq are kissing their prior highs – so will we see the mkts surge today and create new highs across the board or will we see her back off a bit….remember – the mkt is pricing in perfection at the moment – so anything slightly negative could see the algo’s throw a temper tantrum – and we all know what that looks like…The upside is all about drawing a trendline as we are new highs – so you need to extrapolate where you think it could go….. while the downside will find initial support at 2880 – or a 2.3% move lower – which is nothing really consider the 7% move since June 1.   A real failure – due to another breakdown in trade talks, or no rate cut could see the mkt test the 200 dma at 2775….which is still only a 6% move from here….well within what is considered a normal trading range.

So much to talk about – stay tuned.

 

Croatian Style Baked Chicken Legs & Thighs

So this is so simple…you need:  Legs and Thighs, Olive oil, garlic, s&p, oregano, chicken broth and fresh lemon juice. 

Wash the chicken and pat dry – then salt and set aside.

Preheat the oven to 350.

Next – in a blender – add the garlic and all the seasonings, broth and lemon juice.  Blend well. Now – pour over the chicken pieces and let it marinate for 20 mins.

Now cover tightly and place in the oven. Bake for 75 – 90 mins. Then uncover and turn on the broiler – allow the chicken to turn nice and golden brown – like a nice tan.  Remove and serve with a classic Greek salad.