World markets slipped into a holding pattern on Tuesday as investors tried to make sense of the noisy U.S. economic warfare that has dominated the start of the week ahead of the big macro events in the coming days. "Economic D-Day" in Iran underwhelmed, while Donald Trump's administration threatened even more levies on Canadian goods.
Treasury Secretary Scott Bessent’s plan to squeeze Iran’s economy via sanctions on countries and entities financing Tehran was shorter on detail than many had expected and essentially amounted to a warning shot to those still engaged with the country. The timeline for action also seems uncertain, but Iran said it would not be cowed and would retaliate against any measures.
Meantime, U.S.-Canada trade tensions ratcheted up further after 50% tariffs on $20 billion worth of Canadian goods came into effect. President Trump responded to Canadian retaliation with a threat to slap 50% levies on Canadian-made cars, trucks and automotive parts.
Both sets of headlines had little impact on markets, although Canada’s dollar did slip and Wall Street did end lower on Monday. A softer oil price kept a lid on Treasury yields.
Chart of the day and events to watch
China, which may find itself in the cross-hairs of U.S. sanctions on countries still trading with Iran, has become a key swing player in global oil markets as it has been critical to how oil prices have reacted to the Iran conflict. The drop in Chinese demand for crude imports over the past six months, reflecting a pullback in refining and exports of refined products, has been a significant factor in offsetting the supply crunch from the Gulf.
Today's events to watch
U.S. August consumer confidence, July new home sales, June house prices, Richmond Fed's August business surveys
Richmond Fed President Thomas Barkin speaks
U.S. Treasury sells $69 billion of 2-year notes
U.S. corporate earnings: Intuit
Druckenmiller criticizes bond market management
Speaking of the bond market, Secretary Bessent's recent announcement of increased bond-buying got another negative review, this time from billionaire investor Stanley Druckenmiller, a former colleague of Bessent's at Soros Fund Management.
In a Wall Street Journal opinion piece, Druckenmiller said debt management calculated to cosset the bond market around the midterm elections "spends the one asset that took two centuries to accumulate: the credibility of the Treasury market."
Tech weakness before Nvidia and China follow-through
Back to equities, the U.S. stock retreat was led by weakness in tech, ahead of Nvidia’s results tomorrow. Tech ructions were felt in Asia as well, after a $10 billion share sale by China’s Alibaba to fund its AI plans knocked its stock down by 10%. Recent spectacular IPOs in China also backtracked, with robot maker Unitree’s shares losing almost half of the 600% rise clocked on its first day of trading earlier this month.
Wednesday is the first big macro day of the week, with Nvidia’s update preceded by U.S. PCE data for July. Today, investors get the August U.S. Consumer Confidence survey from the Conference Board, and 2-year Treasury notes come under the hammer.
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