MACRO - What’s Driving Overnight Risk?

Overnight Price Action

• Asia: Higher; MSCI Asia Pacific rose 2.4% as chipmakers rebounded and Chinese market-stabilization efforts helped confidence
• Europe: Firmer; Euro Stoxx 50 rose 0.55%, while the FTSE 100 traded flat as tariff risk kept the bid contained
• U.S.: Futures higher; Nasdaq contracts are leading as semis bounce and traders position for Alphabet, Tesla, Intel, Texas Instruments, and ServiceNow
• Rates: Treasury yields softer; last week’s CPI/PPI relief is keeping the 2Y below the recent stress zone, even with crude bid again this morning
• FX: Dollar mixed; the Canadian Dollar is under pressure after the Trump administration announced new 50% tariffs on select Canadian goods
• Commodities: Oil is higher; WTI is up 1.4% and Brent is up 1.3% as another tanker attack and day 10 of U.S.-Iran strikes keep the Gulf risk premium alive

Catalysts

• The U.S. and Iran exchanged strikes for a 10th consecutive day as mediators tried to revive a truce.
• The U.S. targeted Iranian military command centers, while Iran attacked U.S. military sites in Kuwait and Jordan.
• A Kuwaiti tanker was attacked in the Strait of Hormuz, adding to Iran’s recent focus on oil tankers moving through the strait.
• WTI is up 1.4% and Brent is up 1.3% this morning as traders keep pricing shipping, insurance, and escalation risk.
• Defense Secretary Pete Hegseth testifies before Congress today to defend the administration’s request for additional Iran war funding.
• The Trump administration announced 50% tariffs on some Canadian goods, including milk, hockey equipment, beer, and plywood, under Section 338 of the 1930 Tariff Act.
• Major resource imports such as energy, potash, and critical minerals are excluded from the new Canada tariffs.
• The White House announced an incentive program that can lower aluminum tariffs to roughly 25% from 50% for companies investing in U.S. aluminum plants.
• China is pushing one of its broadest stock-market support efforts in years after the tech and semiconductor selloff.
• GM raised its 2026 profit outlook by $500M to $14B-$16B after Q2 core profit rose 30%.

Stat of the Day: Per Factset, Micron Technology and NVIDIA are the top two contributors to (year-over-year) earnings growth for the S&P 500 for Q2 2026. If these two companies were excluded, the blended earnings growth rate for the S&P 500 for Q2 would fall to 16.8% from 24.7%.

Market Implication

The market is trying to rally through two pressure points: oil and tariffs. The chip bounce helps. China leaning against the semiconductor rout helps. Softer yields help. Crude moving higher keeps the inflation discussion alive, and Washington is adding a fresh Canada tariff channel right after CPI and PPI cooled. Earnings can still carry the tape, but the upside now depends on semis holding their rebound while Brent stays below the next stress level.

THEMATIC - Forces Behind the Tape

1. Crude is Bid Again, So the Relief Trade Has a Ceiling

Oil is higher this morning, with WTI up 1.4% and Brent up 1.3%. That changes the tone of the tape. Yesterday’s pullback gave traders some room. Today’s move says the Gulf risk premium is still alive, and the market is going to keep paying attention to every tanker headline, every Houthi threat, and every strike update. The underlying situation remains ugly. The U.S. and Iran exchanged strikes for a 10th straight day. The U.S. hit command centers. Iran attacked U.S. military sites in Kuwait and Jordan. A Kuwaiti tanker was attacked in Hormuz. The Houthis are threatening shipping in the Red Sea, and the Saudi-led coalition is moving to protect vessels in the area.

Hegseth’s testimony adds another layer today. Congress will press him on war funding, the failed ceasefire, the deaths of three service members, and whether the U.S. is escalating deeper into the conflict. For traders, the line is Brent near $90. Below that level, equities can keep working. Above it, energy starts pulling yields, inflation expectations, and consumer-margin stress back into the center of the tape.

2. Tariffs are Back Inside the Inflation Story

The Trump administration is reopening the tariff channel right after CPI and PPI gave the market inflation relief. The new 50% tariffs on select Canadian goods cover milk, hockey equipment, beer, and plywood. Energy, potash, and critical minerals are carved out, which limits some of the macro damage, but the signal is still inflationary at the margin. The use of Section 338 of the 1930 Tariff Act also changes how markets read the policy (because this is a 96-year-old law that’s never been used due to being superseded by Section 301). This is being framed as retaliation for unfair treatment of American alcohol, cars, and dairy. That makes the tariff risk harder to isolate because it can spread through negotiation, retaliation, and supply-chain repricing.

The aluminum announcement cuts in the other direction. The White House is offering a path to lower aluminum tariffs to about 25% from 50% for companies that build, expand, or refurbish aluminum plants in the U.S. That is a pressure valve for manufacturers after the 50% tariff pushed U.S. raw material costs to the highest in the world. It also turns tariff policy into a capital-spending lever. Companies that invest domestically get relief; those that rely on imports pay more. That helps some industrial capex plans and complicates margins in the near term. Isn’t state capitalism fun?

3. AI Gets Help from China, While Earnings Take Control

The chip rebound is the biggest help for the tape this morning. China is mounting a broad effort to steady its stock market, with regulators, state-backed buyers, insurers, and asset managers trying to stop the AI and semiconductor selloff from turning into a wider rout. The official fingerprints matter. If Beijing is leaning against forced selling, the global AI trade gets a short-term stabilizer.

The bounce still must survive earnings. Alphabet reports Wednesday. Tesla reports Wednesday. Intel reports Thursday. Texas Instruments and ServiceNow are also on deck. TSMC and ASML already confirmed the AI hardware cycle, while Korea showed how fragile the market structure had become. The market wants cloud demand, capex discipline, margin protection, power availability, and proof that AI spending is creating returns. Tech needs to take the baton from banks, which did their part last week.

MICRO - Today’s Catalysts

Economic Calendar (CT)

• 7:15 – ADP Weekly Employment Change
• 15:30 – API Crude Oil Stock Change
• Today - Hegseth testimony on Iran war funding
• Wednesday - State Job Openings and Labor Turnover
• Thursday – Weekly Jobless Claims, Chicago National Activity Index
• Friday – Building Permits, New Home Sales, PMIs

TRENDING – Reddit Retail Radar

KEY LEVELS TO WATCH

• S&P 500 (/ESU6) – Support/Resistance: 7452/7648
• Nasdaq 100 (/NQU6) – Support/Resistance: 28408/30094
• Crude Oil (/CLQ6) – Support/Resistance: 81.22/84.60
• U.S. 10Y Yield – 4.599%, would be high close YTD
• VIX – 17.74 pre-market, 14.96-19.50 range this month

Trade Setup Bias

Tactical and cautious even with the equity bounce. Semis are getting help from China support and positioning relief, but crude is bid again and the tariff channel is reopening. I would avoid chasing the first AI bounce into Alphabet and Tesla without defined risk. Banks and asset managers remain the cleanest earnings-confirmation group. GM helps industrial confidence, while the new Canada tariffs make auto and consumer margins harder to underwrite. Energy remains headline-driven. If Brent retakes $90 or the 30Y pushes higher again, index upside gets capped quickly.

Bottom Line

Turnaround Tuesday is a risk bounce with crude moving the wrong way. Semis are rebounding, China is leaning against the tech rout, and the banks have already given the market a solid earnings floor. The problems are still obvious. The U.S.-Iran war is on day 10, a Kuwaiti tanker was hit, Hegseth has to defend more war funding, WTI and Brent are higher, and Trump is adding Canadian tariffs back into the inflation mix. Alphabet, Tesla, Intel, Texas Instruments, and ServiceNow now have to prove that the AI trade can earn through higher capex and tougher scrutiny. The tape can extend only if Brent stays below $90 and yields stay contained.

Christopher Vecchio, CFA, tastylive’s head of futures and forex, has been trading for over 20 years. He has consulted with multinational firms on FX hedging and lectured at Duke Law School on FX derivatives. Vecchio searches for high-convexity opportunities at the crossroads of macroeconomics and global politics. He hosts Futures Power Hour Monday-Friday and Let Me Explain on Tuesdays, and co-hosts Overtime, Monday-Thursday. @cvecchiofx