GOOD MORNING! Factory Orders were strong when reported on Monday morning and Durable Goods Orders were in line with initial reports, but it was news of a wave attacks on tankers and critical infrastructure in the Middle East that captured most of the attention of the markets through the morning. Later reports had the US and Iran exchanging fire in the Persian Gulf, with the US fighting off attacks from Iranian drones, missiles and small armed boats. The news had oil prices spiking higher, gold sharply lower, stocks down, Treasury yields decidedly higher and the four week old ceasefire looking shaky. NY Fed President John Williams said the Fed’s current stance on monetary policy is well positioned, but interest rates should come down “at some point” if inflations returns to target (which he expects). On the other hand, fed funds futures are now showing odds on for a quarter point increase in the first half of 2027.

     As we start the day on Tuesday, the fragile ceasefire in the Middle East seems to be holding after a day of clashes. Oil prices are off of yesterday’s highs but still circling in the outer atmosphere. Stock futures are pointing to a higher opening and Treasury yields have retreated slightly from yesterday’s close. We will get PMIs, New Home Sales and JOLTS this morning. Vice Chair for Supervision Michelle Bowman and Fed Governor Michael Barr are on the speaking calendar. Middle East News and Corporate earnings are again likely to drive the financial markets today.