Iran Deal Enters Troubled Waters, Warsh to Get Grilled, Transports Fly

Pres. Trump on Monday afternoon affirmed that the ceasefire between the U.S. and Iran expires on Wednesday evening (on the East Coast of North America) and that the Strait of Hormuz would remain under a U.S. naval blockade for now. The president stated, “I’m not opening it until a deal is signed.” He added that he was “not going to be rushed into making a bad deal.”

Tehran has not publicly confirmed that the Iranian side would be sending representatives to a second round of peace talks. However, the Wall Street Journal is reporting that Iran has informed the Pakistanis, who are hosting the talks, that their team will arrive on Tuesday (later today).

The U.S. team, led by Vice Pres. JD Vance, I believe is still set to arrive on Wednesday morning. This is why equity index futures have edged high overnight and oil prices have come off of their overnight highs. Adjacently, the U.S. will host peace talks between Israel and Lebanon in D.C. this Thursday.

Safe Passage?

Bloomberg News is reporting that three vessels transited the Strait of Hormuz overnight despite the U.S. naval blockade and threats posed by Iran's armed forces. One is an Iranian-flagged cargo ship, the Shoja 2. That ship is now in the Gulf of Oman in the waters off of Khor Fakkan. The U.S. Navy is known to be closely watching this ship after the USS Spruance blew a hole in the Iranian-flagged Touska over the weekend and that ship was seized by U.S. Marines.

The other two ships have no known links to Iran. The Lian Star is a Gambia-flagged cargo vessel now in the Gulf of Oman and the Ean Spir, a medium-sized oil tanker, is moving south into the Gulf of Oman. The story at Bloomberg did not identify the Ean Spir by its owner or national flag but it is not known to have ever been under sanction by the U.S. or any other jurisdiction.

Skyscraper

Float like a butterfly
Acrobatic
Sting like a B-52
Dramatic
And the radar locks on you
No static

- Roth, Via (David Lee Roth), 1988

Confirmation Hearing

Finally, story key to economic and financial market performance not tied closely to the war in Iran. Kevin Warsh, who is Pres. Trump's nominee to replace Jerome Powell as Chair at the Federal Reserve bank in May at the conclusion of Powell's term (as Chair, Powell could remain as a Governor) will be busy today. Warsh will sit before the Senate Banking Committee for a confirmation hearing at 10 a.m. ET on Tuesday.

Warsh could have a rugged path toward confirmation as Sen. Thom Tillis, a Republican, has vowed to block Warsh until the DOJ drops its criminal inquiry into current Chair Powell related to the Fed's overspend on the refurbishments of its property in the nation's capital. Warsh, on Monday, released prepared remarks that will be delivered this morning during his hearing.

On central banking independence, Warsh stated, "Fed independence is up to the Fed." He added, "The Fed must stay in its lane. Fed independence is placed at greatest risk when it strays into fiscal and social policies where it has neither authority nor expertise." It would be difficult for any politically unbiased economist to argue with logic like that. Where there will be disagreement comes next. Warsh also wrote, "I do not believe the operational independence of monetary policy is particularly threatened when elected officials -- presidents, senators, or members of the House -- state their views on interest rates." I happen to agree with this statement. I recognize that there is room for intelligent debate on that point.

On inflation, Barron's is reporting that Warsh refers to rising prices as "a choice" that the Fed must own. He is expected to echo his recent criticisms of the Powell-led Fed for missing the persistence of post-pandemic inflation. Though, in hindsight, this seems obvious, in honest reflection, as an economist in real-time, I saw consumer-level inflation during the post-pandemic era as less "transitory" than it turned out to be.

Hence, I can personally throw stones at Powell over that particular item. I will say that no economist at the time could have anticipated the extent of the abusive fiscal policies embraced by the federal government through those post-pandemic years. I do think that Powell has exerted more political influence on policy as Fed Chair than should be considered acceptable. He's certainly not off the hook, reputationally, for that.

That's All You've Got?

Not much of a selloff. As it appeared that peace talks between the U.S. and Iran were potentially breaking down, traders and investors were not buying into that story. Check this out. For the regular session on Monday, the S&P 500 gave up just 0.24% as the Nasdaq Composite surrendered just 0.26%. The small- to mid-cap indexes all gained between 0.52% and 0.61% as the Philly Semiconductors and 0.45%. The only clear breakout at the index level was the 4% gain posted by the Dow Transports and that was due to a ridiculously fierce short squeeze at Avis Budget (CAR) that resulted in a 23.3% surge in the share price.

Breadth

Winners beat losers on Monday, at the NYSE by a seven-to-six margin and by just a smidgen at the Nasdaq. That's right. On a supposed "down day" the two key exchanges in New York both saw more winners than losers. On top of that, advancing volume took a 54.4% share of composite NYSE-listed trade and a 50.4% share of composite Nasdaq-listed activity. That's right. On a supposed "red-candle" day, volume at those two exchanges saw a majority share wind up in the "advancing" column as opposed to the "declining" column.

This is the real deal. Trading volume fell off of a cliff on Monday. Aggregate trade was 24.2% lower on a day-over-day basis across NYSE-listings and down 17.5% across Nasdaq-listings. Additionally, trading volume was notably lower across the membership of the S&P 500. What does that mean? It means the "algo-boys" tried to throw a "sell-off" and nobody showed up. Professional portfolio managers took a pass. Three cheers for the humans.

Technically, for the bulls, Monday was a day of beauty. No technical damage done. An Inside Day, which typically signals reduced volatility ahead. Dramatically reduced participation, which serves as a bullish pause after a Day of Reconfirmation of Trend. Overtly bullish indicators. A gnarly headline could easily upset the apple cart, but technically? This party is just getting started.

News

- On Monday evening, Tim Cook announced that he will step down as Apple (AAPL) CEO on Sept. 1 and become executive chair. The 65-year old Cook succeeded co-founder Steve Jobs as CEO around 15 years ago and will be succeeded by John Temus. Temus has been serving as Apple's senior vice president of hardware engineering, is 51-years old and has been with Apple since 2001.

- Amazon (AMZN) announced on Monday that it would invest $5 billion in Anthropic and make plans to invest an additional $20 billion in the years ahead. Amazon had already invested $8 billion in the AI start-up. In return, Anthropic is committing to spending more than $100 billion over the next decade on Amazon Web Services. The partnership will provide AWS customers with access to the full Anthropic-native "Claude" platform while Anthropic will commit to running its large-language models on Amazon's Trainium chips and Graviton cores for a decade.

Just a Thought on Chips

Trainium chips are AI accelerators focused on mathematics and parallelism. Each single chip contains multiple Neuron cores and improves the ability for generative language-based artificial intelligence to make the leap to actual agentic artificial intelligence capable of inference and reasoning. Is this a negative for industry leaders like Nvidia (NVDA) and Advanced Micro Devices (AMD) ? It's certainly not a positive. The mote around the castle is starting to dry up. Graviton is Amazon's most advanced CPU and is said to deliver 40% better price performance than comparable x86 processors. That's a negative for a company like Intel (INTC) for those trying to keep score.

Economics

(All Times Eastern)

08:15 - ADP Employment Change (weekly): Last 39K.

08:30 - Retail Sales (Mar): Expecting 1.3% m/m, Last 0.6% m/m.

08:30 - Core Retail Sales (Mar): Expecting 1.1% m/m, Last 0.5% m/m.

08:55 - Redbook (Weekly): Last 7.0% y/y.

10:00 - Business Inventories (Feb): Expecting 0.2% m/m, Last -0.1% m/m.

10:00 - Pending Home Sales (Mar): Expecting 0.4% m/m, Last 1.8% m/m.

4:30 p.m. - API Oil Inventories (Weekly): Last +6.1M.

The Fed

(All Times Eastern)

Fed Blackout Period.

Today's Earnings Highlights

(Consensus EPS Expectations)

Before the Open: (MMM) (1.98), (DHR) (2.12), (GE) (1.60), (NOC) (6.06), (RTX) (1.52), (UNH) (6.61)

After the Close: (COF) (4.63), (UAL) (1.09)

At the time of publication, Guilfoyle had no position in any security mentioned.