• Meanwhile in markets: weak, weak, weak. That refers to President Trump’s pre-announced slap on the wrist in retaliation for the Iranians downing a nowadays ancient Apache helicopter. Remember, a couple of months ago the President threatened Iran with megadeaths through thermo-nuclear annihilation;

• The US’ choreographed response to the downing of the Apache were strikes on Iran air defense systems, ground control, and radar sites near the Strait of Hormuz. While the US dubbed the retaliation a “proportional response”, the Iranians appear to think otherwise. State-run Iranian media reported a drone strike on the US fifth fleet in Bahrain this morning, damaging some minor infrastructure. In any case, the cease fire is holding in the sense that this is clearly no war. In wartime, basically no holds are barred. In reality, we’re still talking about pinpoint, choreographed attacks. We call them love taps here. Fittingly, Brent crude futures prices are trading at a relatively reasonable $91.5 a barrel, which is only modestly above yesterday’s low;

• In other Iran war news, US Vice President Vance was quoted as saying that a deal with Tehran could happen anytime: next week, next month, and “absolutely” before the November midterms. Which, unfortunately, would give Tehran the incentive to drag out talks till later this year. Furthermore, the NYT reported that talks on the nuclear stuff remain difficult (obviously), but that four paths have been outlined. They range from a lengthy moratorium on enrichment to down blending of Iran’s heavily enriched uranium stockpile;

• Turning to some market commentary, US Treasury yields are loitering a whiff above Tuesday’s lows. Asian equities are in the red on the back of another tech puke. I clock the Nikkei down more than two percent while Chinse markets are more than a percent lower. The Kospi is suffering again greatly, shedding no less than six percent. SK Hynix, my proxy for the latest tech bull rush and now bear rush is down a phat ten percent from yesterday’s close;

• Finding the trigger for the latest bout of tech weakness is a fool’s game. Just a week ago, it was tech stocks to the moon. Which proves the age-old adage that what goes up must come down. Especially when prices have gone parabolic. But more practically speaking, if I must assign blame, my money would be on the SpaceX Ipo. Which is so heavily oversubscribed that it must be inevitable that longs are being paired back to fund what is probably the most anticipated Ipo in many, many, many years;

• It’s not all doom and gloom for equities. S&P 500 futures have retraced half of their overnight losses. We’re now only down a percent and a half from yesterday’s high;

• Elsewhere, ESTR OIS are positioned for a hawkish ECB meeting tomorrow. Forward price in more than three hikes at pixel time. That compares with sell-side consensus and my own forecast of just two quarter point hikes. In any case, expect President Lagarde to stay cool tomorrow, and not validate market pricing. She will stick to the line that interest rates aren’t on a preset path;

• FX is a relatively quiet affair this morning, with the broad dollar down marginally. USDJPY remains pinned at the 160 handle. The big move is in EURCHF, which is extending recent gains and at 0.922 is testing stiff resistance at the 200-dma. Yuan strength remains notable, with the broad trade-weighted yuan at its highest level in more than a year;

• USD OIS are giving a warm welcome the Fed Chairman Warsh by pricing in two hikes over the coming twelve months. With US real yields having risen notably as of late, the Warsh fellow is already boxed in. If he doesn’t validate market pricing, he will trigger a bear-steepening revolt of the UST yield curve, with long end yields rising on higher inflation expectations;

• Looking ahead, eyes will be on US CPI figures, which should print hotter at a 2.9% annual rate for core. The Bank of Canade is expected to hold rates steady at 2.25%.

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