Morning Kickstart: Stocks fall as oil rises on Iran risks

Morning Kickstart

Stocks are pointing to a sharply lower opening, crude oil is higher and Treasury yields are moving lower as traders prepare for the North American session. Renewed concerns about military action against Iran are keeping energy risks elevated, while corporate earnings are producing mixed results—and some unforgiving share-price reactions.

The dollar is mixed. The yen and Swiss franc are advancing against the greenback, while the euro, pound, Australian dollar and New Zealand dollar are lower. The Canadian dollar is holding a modest gain as crude oil moves back toward $100.

In the morning video above, I take a look at the three major currency pairs—EURUSD, USDJPY and GBPUSD—from a technical perspective. For each pair, I outline the bias, the risk-defining levels and the targets that would give either the buyers or sellers more control.

Middle East: Strike concerns return to the forefront

The overnight news has shifted attention back toward the possibility of renewed military escalation. InvestingLive’s Asia-Pacific coverage highlighted reports of US and Israeli preparations for further strikes on Iran. Separate coverage cited a New York Times report that military planners had prepared options for a short, intense round of strikes after the US midterm elections. Preparations do not establish that an operation has been approved, but they keep the threat in focus. investinglive.com

Adding to that concern, an Al Arabiya headline reported that Israeli Prime Minister Benjamin Netanyahu would inform President Trump of Israel’s intentions but would not seek his permission to strike Iran.

For markets, the uncertainty remains the problem. Hopes for a diplomatic breakthrough have repeatedly competed with threats of further attacks. Traders are left weighing what another escalation could mean for regional energy supplies and shipping.

InvestingLive’s overnight coverage captures that shift: Oil rises as hopes for a deal fade amid growing prospects of another US attack on Iran. investinglive.com

Crude oil moves back toward $100

Crude oil is trading at $99.25, up $2.08 or 2.12%.

The rise puts the $100 level back within reach and keeps energy costs in the inflation discussion. It also adds another concern for equity traders already digesting a busy earnings calendar.

The headline risk remains two-sided. Concrete diplomatic progress could remove some of the geopolitical premium, while further escalation could add to it. That makes following the price action—and defining risk against the technical levels—particularly important.

US stock futures point to a sharply lower opening

The major US stock-index futures are lower:

• Dow futures: Down 317 points.
• S&P 500 futures: Down 76 points.
• Nasdaq futures: Down 500 points.

The earnings reactions show that beating the published estimates is only part of the story. Traders also judge guidance, the quality of the results and how much good news was already priced into the shares. The geopolitical tension is also another reason for the reversal for some of them.  

Meta, IBM and Lam Research are examples this morning. Each delivered beats on the measures outlined below, but their shares are lower.

Earnings released after yesterday’s close

• Meta (META): EPS BEAT excluding the litigation charge; reported EPS MISSED. Revenue BEAT. EPS excluding the charge would have been $7.40—$3.83 reported plus the $3.57 charge—versus $6.67 expected. Reported EPS of $3.83 missed that estimate. Revenue of $64.6 billion topped $63.31 billion expected. Shares are down 2.65% this morning.

• IBM (IBM): Operating EPS BEAT; revenue BEAT. Operating EPS of $2.95 exceeded $2.86 expected. Revenue of $17.1 billion topped $16.81 billion expected. IBM reaffirmed its full-year revenue guidance and raised its free-cash-flow outlook. The share reaction was down 5.11%.

• Lam Research (LRCX): Adjusted EPS BEAT; revenue BEAT. Adjusted EPS of $2.20 exceeded $2.18 expected, while revenue of $8.22 billion topped $8.13 billion expected. Despite the beats, shares are down 7.25%.

• SAP (SAP): Revenue BEAT; adjusted operating profit BEAT. Revenue of €10.3 billion exceeded €10.1 billion expected. Adjusted operating profit of €3.0 billion topped €2.93 billion expected. Full-year adjusted operating profit guidance of €11.8–€12.2 billion exceeded €11.7 billion expected. Shares are up 0.38%. The profit measure here is operating profit rather than EPS.

• CSX (CSX): EPS BEAT; revenue BEAT. EPS of $0.57 exceeded $0.53 expected, while revenue of $4.02 billion topped $3.96 billion expected.

• Tesla (TSLA): Adjusted EPS BEAT; revenue MISSED. Adjusted EPS of $0.48 exceeded $0.45 expected, but revenue of $28.0 billion fell short of $28.1 billion expected. The after-hours share reaction provided was up 3.46%.

• Texas Instruments (TXN): EPS BEAT; revenue BEAT. EPS of $2.62 exceeded $2.42 expected. Revenue of $6.06 billion topped $5.92 billion expected. Next-quarter revenue guidance of $5.8–$6.3 billion exceeded the $5.75 billion consensus, even at the low end. Shares are down 0.76%.

Earnings released this morning

• Blackstone (BX): Distributable EPS BEAT. Distributable earnings of $1.32 per share exceeded the $1.26 LSEG consensus. Investment exits remained under pressure, although quarterly inflows exceeded $63 billion. Reported total revenue was $3.06 billion. Shares are down 2.90%.

  Lockheed Martin (LMT): EPS BEAT; revenue BEAT. EPS of $7.97 exceeded $7.52 expected, while revenue of $20.71 billion topped $20.48 billion expected. The company raised its full-year sales and EPS outlook. Shares are up 4.17%.

• Spotify (SPOT): EPS MISSED; revenue narrowly MISSED. EPS of €2.48 fell short of €2.80 expected, while revenue of €4.97 billion was just below €4.98 billion expected. Fourth-quarter operating income guidance of €820 million, however, exceeded €813.4 million expected. Shares are up 4.88%, with the stronger profit outlook helping the reaction.

• Honeywell (HON): Adjusted EPS BEAT; revenue MISSED. Adjusted EPS of $2.27 exceeded $2.17 expected, while revenue of $4.99 billion fell just short of $5.01 billion expected. Shares are up 0.13%.

The dollar is mixed, with the yen outperforming

The dollar’s performance against the major currencies shows a divided market:

• EURUSD: 1.1196, down 0.32% — USD higher.
• USDJPY: 157.05, down 0.68% — USD lower.
• GBPUSD: 1.3366, down 0.21% — USD higher.
• USDCHF: 0.8223, down 0.25% — USD lower.
• USDCAD: 1.4037, down 0.06% — USD marginally lower.
• AUDUSD: 0.7005, down 0.31% — USD higher.
• NZDUSD: 0.5676, down 0.42% — USD higher.

The yen has the largest gain against the greenback, while the New Zealand dollar has the largest decline. The Canadian dollar is little changed despite the rise in oil.

Currency ranges and room to roam

Using the displayed session highs and lows against the supplied ATR(22) averages:

• EURUSD: 1.1195–1.1256 — 61 pips, or approximately 92% of its 66-pip average.
• USDJPY: 156.70–158.25 — 155 pips, or approximately 161% of its 96-pip average.
• GBPUSD: 1.3363–1.3418 — 55 pips, or approximately 72% of its 76-pip average.
• USDCHF: 0.8193–0.8249 — 56 pips, or approximately 156% of its 36-pip average.
• USDCAD: 1.4015–1.4069 — 54 pips, or approximately 102% of its 53-pip average.
• AUDUSD: 0.6995–0.7036 — 41 pips, or approximately 84% of its 49-pip average.
• NZDUSD: 0.5670–0.5710 — 40 pips, or approximately 93% of its 43-pip average.

The GBPUSD has the most room to roam relative to its average daily range, followed by the AUDUSD.

The USDJPY and USDCHF have already moved well beyond their normal daily ranges. That does not prevent further extension, but traders should recognize that those pairs have already had a substantial shove.

An average range provides context. It is not a ceiling, and it does not require a quieter pair to travel farther. The technical levels still define where traders can lean with risk defined and limited.

Treasury yields fall across the curve

US Treasury yields are sharply lower:

• 2-year:4.7334%, down 8.96 basis points.
• 5-year:4.8697%, down 10.03 basis points.
• 10-year:5.0482%, down 9.78 basis points.
• 30-year:5.3599%, down 7.71 basis points.

The roughly 8–10 basis-point declines are meaningful. Higher oil keeps inflation concerns alive, but investors are also buying Treasuries as stocks retreat.

The decline in US yields is consistent with the pressure on USDJPY. For currency traders, the next question is whether the price can sustain its move through the relevant technical levels or whether buyers begin to lean against support.

Gold, silver and Bitcoin move lower

Oil is higher, but the gains are not extending to metals or Bitcoin:

• Gold:$4,064.68, down $76.06 or 1.84%.
• Silver:$55.794, down $2.154 or 3.72%.
• Copper futures:$6.3985, down 2.75%.
• Bitcoin:$81,826, down $2,198 or 2.62%.

The different reactions are a reminder to follow each market’s price action. Geopolitical uncertainty does not guarantee that every perceived defensive asset will move higher.

North American calendar: Jobless claims lead the way

The calendar provides several checkpoints, although earnings and Middle East headlines could continue to dominate. All times below are ET.

• 8:30 AM — US initial jobless claims:200,000 expected, versus 199,000 previously. The prior four-week average was 198,500.
• 8:30 AM — US continuing claims:1.720 million expected, versus 1.710 million previously.
• 8:30 AM — Canadian industrial product prices: Previous readings were +1.3% month over month and +13.5% year over year.
• 8:30 AM — Canadian raw materials prices: Previous readings were +3.1% month over month and +22.8% year over year.
• 9:30 AM — Canadian new housing price index: Previously −0.1% month over month.
• 10:00 AM — Eurozone flash consumer confidence:−17.0 expected, versus −16.5 previously.
• 10:00 AM — US leading economic index:−0.1% expected, versus −0.1% previously.
• 11:00 AM — Kansas City Fed manufacturing survey: The previous manufacturing index was 20, with the composite index at 14.

Jobless claims will provide the first scheduled check on labor-market conditions. A reading close to expectations would suggest layoffs remain contained, while a meaningful surprise could give yields and currencies another reason to move.

For traders, the task is to let the news develop while using the technical levels to judge the reaction. Does a break attract follow-through? Can the price stay beyond the level? That is what would give buyers or sellers more control.

This article was written by Greg Michalowski at investinglive.com.