A market that will not follow its own signals
Crude oil fell nearly 2% to near $85 a barrel. The 10-year Treasury yield came off its highs, sitting just above 4.7%, down nearly three basis points. Falling oil and falling yields normally push stocks higher, yet equity futures were lower in the pre-market. This came after a weak prior week, when all four major indices fell and the S&P 500 and NASDAQ 100 broke three-week win streaks.
Part of the reason for the odd move: markets are waiting on comments from Treasury Secretary Scott Bessent on proposed sanctions against Iran, plus comments from the US trade representative on Canada. The mood is wait-and-see. Investors may be looking past the one-day drop and focusing on the recent trend instead. Crude oil rallied two weeks straight, up 5% last week and 5% the week before. Yields hit near two-decade highs on the 30-year and over 18-month highs on the 10-year.
The week is heavy: the Fed, economic data, and Fed Chair Powell's speech Friday at Jackson Hole.
Iran sanctions and the China angle
The Iran sanctions matter, and not only because of Iran itself. The bigger risk sits with Iran's trade partners. China gets over 50% of its crude oil from Iran and has stayed out of the conflict. If economic sanctions start hitting Iran's partners - Russia and China - the effect grows much larger.
The US is demanding that its allies and the rest of the world stop doing business with Iran. In a Financial Times opinion piece on Sunday, Bessent wrote: "At dawn begins an economic D-Day, the single greatest financial offensive ever marshaled against an adversary." Iran has been hit militarily already - it has almost no navy left, and much of its military infrastructure has been struck. The economic pressure could bite harder, cutting Iran's ability to pay its bills and feed its people. That pressure may push Iran's remaining trading partners to lean on Iran's leadership, restart talks, and work toward a peace deal.
The Canada trade war reopens
From the US side, little capital flows in from Canada besides energy, mainly crude oil. The pain lands harder on Canada. A 50% tariff on over $20 billion worth of Canadian imports would hurt Canada's economy, which is already slowing. The question is whether it flattens GDP growth to zero.
Talks broke down late Friday. Mark Carney said the two sides cannot reach an agreement; the US fired back with the same claim. Looking inside the failed deal, Canada was being offered better terms than almost any other country facing these tariffs and still would not accept. This could turn into an extended trade war. Canada has said it will hit back on a dollar-for-dollar basis starting September 8th. If it does, the US may come back harder, adding more tariffs on more products beyond items like wine. A deal does not look close, and negotiations are off for now. Right now the tension is helping US steelmakers.
Nvidia (NVDA): the heavyweight of the week
Nvidia (NVDA) reports midweek. Over the last couple of quarters, results were blowout beats with raised guidance and large share buybacks - all shareholder-friendly - yet the stock still sold off afterward. Shares rallied over recent weeks before softening last week and pulling back today.
What to watch:
- Margins. Are non-GAAP gross margins still above 75%?
- Data center dominance. This should be the bulk of revenue, projected above $80 billion.
- Product roadmaps. How are Blackwell and Vera Rubin selling?
- CPUs. Does Nvidia have locked-down orders for its new CPU push to compete more directly with AMD (AMD)?
- Financing and sustainability. The outlook on roughly $500 billion of AI infrastructure buildout financing in the pipeline.
The stakes are broad because of Nvidia's (NVDA) index weight: over 7% of the S&P 500, about 12.7% of the NASDAQ 100, and nearly 2.5% of the Dow. Its report will move the whole market.
