The geopolitical landscape is now changing rapidly as the US and UK have challenged Iran in the Strait of Hormuz, resulting in new claims of drones being shot down by the US, which Iran rejects, and two British being captured by the Republican Guard. This takes place as the S&P 500 trades firm on the back of solid earnings – this week Boeing, Amazon, and Alphabet report. And of course the Federal Reserve is expected to cut between 25 and 50 bps at its next meeting. Finally, GDP will be reported in the US for Q2 and is forecast to fall to 1.8% from its 3.1% pace in the first quarter. What is important next week?
1. Currently the US, UK, France and Germany are increasing their military hardware in the Gulf, with a clear challenge to Iran on the table. Japan has also said it will work with this coalition of countries that for the most part, rely on Middle East oil. After the UK secured an Iranian oil tanker, Iran responded by taking control of 2 British tankers.
2. The US S&P 500 is now being impacted by both an expected US rate cut at the end of July and the continued reports of stronger US corporate earnings.
3. The US economy, now in a less robust trajectory, could fade to 1.8% expansion due to the US-China trade war that seems to have no end and the US 10 year expansion, which is clearly extending well beyond the normal length of a cycle. This is the longest expansion in history. A stronger set of economic releases could trigger an aggressive stance by the Trump White House on trade talks with China.
4. The Federal Reserve meets on July 30-31. A rate cut, an “insurance cut” would be a boost of confidence for the economy, investors and the White House.