Daily Comment (May 14, 2019)
by Bill O’Grady and Thomas Wash
[Posted: 9:30 AM EDT] Markets were mixed this morning as rising tensions in the Middle East have caused oil prices to increase, while a softening of rhetoric by the president has restored optimism for a possible trade deal between the U.S. and China. Here are the stories we are following this morning:
War in the Middle East? Earlier this morning, Saudi Arabia reported drone attacks on Saudi Aramco pumping stations, representing more escalation of tensions in the Middle East. Over the weekend, Saudi Arabia and United Arab Emirates vessels were attacked. No one has come forward to take responsibility for the attacks, but the U.S. has indicated it believes Iran was likely responsible for the latter. There are also rising tensions surrounding the Strait of Hormuz, the body of water located between the Persian Gulf and the Gulf of Oman. The strait is crucial for oil and natural gas shipments, and Iran is strategically in place to control the body of water. Last month, Iran threatened to restrict trade within the strait following the White House’s decision to not renew sanction waivers for countries that still depend on Iranian oil. Tensions between the two countries appear to have reached a boiling point. Although the U.S. has not fully concluded Iran was responsible, it appears the U.S. is already preparing its military for a possible response. And, the Pentagon has already drawn up a military plan in case American troops are attacked. At this point, it is unclear whether war is imminent but Iran and the U.S. are walking a very delicate line and neither side wants to look weak. We will continue to monitor this situation.
Double trouble for Big Tech? Yesterday, big tech made headlines after the Supreme Court agreed to rule on a case involving Apple (AAPL, $185.72) and as more democrats are advocating for increased regulation. The Supreme Court ruled that it would allow a lawsuit about whether the App Store violated anti-trust laws by banning iPhone users from purchasing apps outside of its store. The ruling overturned a 1977 ruling which argued that consumers could sue the owner, in this case the developer, if its prices were considered inflated. This move by the Supreme Court suggests they believe big tech firms have too much control over their platforms. This comes in light of online retailers like Amazon (AMZN, $1,822.68) being scrutinized for their anti-competitive practices.
The increased politicization of tech firms is further evidence that the country is shifting from an efficiency cycle back to an equality cycle. Although we don’t expect a change to happen overnight, we expect capital to lose some of its control over the political system as candidates find it harder to garner support without appealing to the extremes of the political spectrum. So far, three high-profile democratic candidates, Kamala Harris, Joe Biden and Elizabeth Warren, have stated they would support increased regulation of big tech. An escalation of rhetoric regarding big tech would likely weigh on equities., , 
Carrot and stick: Following the release of a list of $300 billion of Chinese goods that could potentially be hit with a 25% tariff if trade negotiations continue to be prolonged, the White House gave markets a glimmer of hope by confirming that President Trump will meet with Chinese President Xi Jinping at the G-20 meeting next month. Markets have come under pressure as the U.S. and China continue their tit-for-tat tariff exchange. In addition, President Trump is likely feeling pressure from members of his own party as farmers continue to bear the brunt of this trade war.