With tensions flaring up between the US and Iran, the key focus will be on developments around the Strait of Hormuz.
If the situation continues to escalate, pushing energy prices higher, sentiment across the S&P 500, Nasdaq and Dow Jones could easily weaken, regardless of what Tuesday’s June inflation data shows.
Now, if the US president delivers another TACO, backed by an actual end to the exchange of strikes and a reopening of the Strait of Hormuz, Treasury yields, which spiked last week, could see a correction, while gold could also find support on hopes that the Fed will not turn more hawkish on rates.
As for why the countries returned to exchanging strikes in the first place, the trigger appears to be Iran’s demand that all vessels use the northern corridor of the Strait of Hormuz under its supervision, while most commercial traffic continues to move through the southern corridor along Oman’s coast, protected by the US Navy.
What else to keep an eye on this week?
On the macro side, the data is unlikely to be a major market driver, but it should still offer some clues on where the economy is heading. In the US, pending home sales for June are due on Thursday, followed by housing starts on Friday. In the eurozone, May industrial production comes out on Wednesday, foreign trade data on Thursday, and the ECB’s balance of payments figures on Friday.
In Asia, Japan will release May machinery orders on Wednesday and the Bank of Japan’s consumer confidence survey on Thursday. In China, the focus will be on Q2 GDP and June activity data, with growth expected at 4.5% year-on-year, down from 5.0% in Q1.
On the monetary policy side, the Bank of Canada will announce its rate decision on Wednesday, with a 91% probability of rates remaining unchanged at 2.25%. In the UK, Andrew Bailey and Rachel Reeves will speak at the Mansion House dinner in London on Tuesday.
Finally, the US Q2 earnings season kicks off this week, with JPMorgan and Goldman Sachs leading the way, followed by Netflix, BlackRock, and Johnson & Johnson.
P.S. With S&P 500 earnings expected to grow 23.6% year-on-year, marking the second consecutive quarter of gains above 20%, any negative surprises, particularly around the outlook, could weigh on the market.