Iran and China: Why investors should be ready for a tumultuous summer

Washington's conflicts with Tehran and Beijing could create a volatile environment for traders should tensions continue to escalate.

The primary concern for investors is that messy geopolitics will exacerbate the slowdown in global economic growth.

"Leading indicators are already turning down," said Abi Oladimeji, chief investment officer at Thomas Miller Investment. "The sensitivity to negative shocks is particularly high."

Last week, a wave of dovish rhetoric from central bankers was enough to push stocks into record territory.

The S&P 500 notched an all-time high after the Federal Reserve left the door open for a move next month to slash rates. A cut in July is now seen by markets as a given.

Also giving a boost: European Central Bank President Mario Draghi, who said the bank is prepared to unleash new stimulus measures if necessary.

Now that the bankers have had their say, attention is turning to other unknowns.

US President Donald Trump and Chinese President Xi Jinping are working toward a high stakes meeting at the G20 summit in Osaka, which kicks off Friday.

Trade negotiations have resumed ahead of their conversation. But there's plenty of uncertainty about whether the meeting will actually produce a truce that helps reduce tensions.

"It goes beyond what you can reasonably analyze," Oladimeji said.

Analysts at Bank of America Merrill Lynch said that while they don't expect Trump and Xi to strike a deal at G20, Trump may hold off on additional tariffs for now.

"We only expect a deal after further weakness in the equity markets, more damage to the economy and some pushback from US consumers," the analysts said in a note.

Meanwhile, oil prices are moving higher as the situation between Iran and the United States remains hot, sparking concerns about potential supply disruptions. US oil prices gained 9% last week, according to Refinitiv. Brent crude prices increased 5%.

The conflict flared earlier this month when two tankers were attacked near the Strait of Hormuz, an incident that US authorities blamed on Tehran. It ratcheted up again Thursday when Iran shot down a US military drone.

Trump said he was prepared to complete military strikes against the country but called them off due to concerns about casualties.

Investors will need to stay alert. It wasn't long ago that oil plunged into a bear market as economic fears coincided with evidence of a supply glut.

OPEC will meet at the beginning of July. Its members and allies including Russia will need to decide whether to extend production cuts that expire at the end of June.

2. Nike earnings: Nike (NKE), which reports earnings on Thursday, has been one of the strongest performers in retail in recent years.

The sportswear company's sales grew 7% last quarter, including a 7% rise in its key North America market.

Nike has been focusing on growing its women's sneaker business and its online sales.

"We see women embracing the sneaker culture more and more every day," Nike CEO Mark Parker said in March.

The company is also considered a global bellwether of consumer strength. Analysts will look to see if Nike has noticed any signs of a slowdown in the United States or China because of trade tensions.

3. Econ roundup: Investors keeping an eye on global growth metrics will have an array of data to watch this week.

In the United States, the Census Bureau will release new home sales for May on Tuesday. It will follow with data on international trade and durable goods orders on Wednesday, and its 2018 survey of public pensions on Thursday.

The US Commerce Department will release its third estimate of first-quarter GDP on Thursday.

4. Coming next week:

Tuesday — S&P Case-Shiller Home Price Index; US new home sales; Micron (MICR) and FedEx (FDX) earnings
Wednesday — US crude oil inventories; General Mills (GIS) earnings
Thursday — Nike and Walgreens (WBA) earnings; US GDP third estimate
Friday — US personal income and spending data; Constellation Brands earnings

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