Morning Bid: Mixing economic wars, trade wars and actual wars

The markets have experienced a tense start to the week in Europe and globally, with oil prices dropping by 1.5% as investors eagerly await details of President Trump's economic war on Iran. Treasury Secretary Scott Bessent is scheduled to hold a press conference at 2 p.m. EDT to reveal additional severe measures against Iran, which has been under economic sanctions for near two decades since the 1979 Islamic Revolution.

Trump's sanctions would also impact any country aiding Iran, but notably excludes Russia and China, making the apparent credibility of the steps questionable. If China and India do not face any action, oil prices may rebound. Analysts are also concerned that Tehran may retaliate by attacking energy infrastructure in the Gulf, should the economic war persist. Iran has threatened to cease all oil exports from the Gulf if the economic war continues.

The White House's shift towards sanctions appears to be an acknowledgment that military action has failed, and the conflict may drag on indefinitely. Bessent may face inquiries about his plan to repurchase bonds, which have thus far failed to calm the Treasury market, as yields on 30-year bonds hover around 5.25%, close to last week's 19-year peak of 5.3371%.

Bessent's move to ease financial conditions appears to contradict the Federal Reserve Chair's reliance on the bond market to tighten policy to avoid raising interest rates and angering Trump.

Meanwhile, Canada is facing the heightened risk of an all-out trade war, which initially pushed the loonie down but has since recuperated most of its loss, resting at 1.3791. The greenback is near its three-month low of 1.3729. Governor Carney may believe that incorporating a trade war into an actual war, just weeks before the midterms, will not endear Trump to consumers grappling with high living costs.

Tech-focused markets in Japan, South Korea, and Taiwan are also on edge ahead of Nvidia's results on Wednesday. Nvidia's earnings are expected to surpass high expectations, yet the options market implies a 5.0% to 6.5% swing in either direction following the announcement.