Oil, Iran, and Pressure on Stocks
The U.S. and Iran are trading missile strikes, a return to open conflict not seen in some time. This means escalation, not de-escalation, and it adds more risk premium to crude oil prices. President Trump said a few minutes ago the U.S. will hit Iran hard again. The U.S. already hit Iranian missile launch sites overnight. More strikes are likely based on those comments.
Higher crude is pushing the 10-year Treasury yield up to 4.74%. Both work against stocks. The inverse link between crude oil and stocks may be the strongest correlation seen in months - when oil rises, stocks fall. Despite a strong earnings season, markets are starting the holiday week under pressure from higher crude and higher yields.
Until the last couple of days, crude was lower because U.S. financial pressure on Iran looked like the working strategy. The U.S. is now shifting to more financial pressure, including secondary sanctions on other countries doing business with Iran. Conditions in the region are getting more uncertain. The core message for markets is more uncertainty, more disruption, more escalation, shown in crude prices and 10-year yields.
The China Wild Card and G20
A big open question is China. Many countries are visiting and working with China, and what China does or does not do on Iran remains a wild card. The G20 is underway with finance ministers meeting, so this will likely be part of that conversation. Scott Bessent and Kevin Warsh are both expected to speak or comment at the finance version of the G20. More meetings and developments are expected there.
The 25-Year Venezuela Deal
A 25-year U.S.-Venezuela deal is now in place, and its scope is massive for the oil story - it means more supply. In the 1970s Venezuela produced over 3 million barrels a day, with figures cited between 3.2 and 3.7 million depending on the source. By 2020 output fell below 400,000 barrels. It is now back up to 1.2 million, and it could go significantly higher. The U.S. could gain access to Venezuela's huge reserves, which run into billions of barrels depending on the source. Refilling the U.S. strategic reserve would be a big win and a major long-term deal.
There are complications. Chevron (CVX) already has business operating there. Exxon Mobil (XOM) and ConocoPhillips (COP) used to operate there but had their assets seized. That creates hesitation and uncertainty over short-term versus long-term crude oil. Because futures are short-term by nature, traders are focused on the near term, where prices are higher. If the deal works over the long term, it is very positive for the U.S. and crude supplies. Venezuela is also talking about leaving OPEC, which could raise its production further.
The Week Ahead: Jobs and Earnings
This is a pre-holiday week, but the first week of any month brings heavy labor market data: JOLTS on Tuesday, ADP on Wednesday, jobless claims on Thursday, and payrolls on Friday. Friday's jobs data is very important. Expectations are for 55,000 jobs and unemployment ticking back up to 4.2%. The four-week average of jobless claims is 205,500. Wages matter a lot - the forecast is up 0.3% month-over-month and 3% year-over-year, down from 3.2%. That points to lower inflation and more improvement, which feeds directly into Kevin Warsh's decision-making.
On earnings, three big ones stand out with high quality but lower volume. Dell (DELL) and Palo Alto Networks (PANW) report tomorrow. Broadcom (AVGO) reports Wednesday and will be a big one given Nvidia's (NVDA) earnings. Lululemon (LULU) matters to a lesser extent, relevant alongside Nike (NKE), Dick's (DKS), and On Holding (ONON).
Cybersecurity has been a strong story, growing along with AI. CrowdStrike (CRWD) rose about 13% last week, an unbelievable move. Palo Alto Networks (PANW) hit a 52-week high and is the best performer among cybersecurity stocks, so its results are worth watching closely.
