Risk level: YELLOW - ELEVATED

RED: Severe (+/- 4%) ORANGE: High (+/- 2%)  YELLOW: Elevated (+/- 1%)  BLUE: Guarded (+/- ½%)

THE BOOSTER SHOT

•             A busy week in earnings could offer clues about market direction

•             Pay attention to what Bob Dudley says about the billion dollar spend on shale

•             We're starting to wonder if the Syrian crisis is looking a little bit like pre-WWI Balkans

The chairman of the U.S. Senate Foreign Relations Committee, a Republican, openly questioned whether or not the Trump administration has a clear direction on foreign policy. That shows the fallout from Helsinki continues to influence the U.S. president's determination to do things his way. Meeting with European Commission President Jean-Claude Juncker this week, President Trump took a sharp turn on trade, pushing this time for a zero-barrier trans-Atlantic policy. That coincided with a promise of a $12 billion aid package to a U.S. agricultural sector reeling from Trump's pressure on foreign trade, a telling indication of the real-world consequences of his policies. Meanwhile, earnings season for an energy sector facing its own tariff woes were a disappointment, with U.S. supermajors Chevron and ExxonMobil offering lackluster results. On Tuesday, we'll hear from BP after it plopped down billions of dollars to take U.S. shale assets off the hands of BHP Billiton. BP CEO Bob Dudley is a market mover, but as we move into a typically slow August, we're thinking that volatility may start to cool off. We were more or less on par given our scale with an Orange alert last week as Brent gained about 1.7 percent to close out the week at $74.29 per barrel. That's four weeks in a row for an accurate call.

After Tehran said it was unimpressed with his latest outburst, crude oil prices barely moved in response to President Trump's all-caps warning this week. Stressing the obvious, Iranian President Hassan Rouhani said during a Cabinet session it's been policy to stand up to the United States since the inception of the Islamic republic. Suzanne Maloney of the Brookings Institute said Tehran wasn't biting on Trump's bait, though both sides in their current iteration may be too stubborn to stand down. Meanwhile, U.S. officials have implied support for regime change in Iran by tolerating the Mujahedin-e Khalq, a cultish group once included on the U.S. terrorist list. For now, however, the Iranian issue seems to be at a standstill and the lack of major swings in the price of Brent crude oil is indicative of the emerging risk tolerance. On Friday, the Central Bank of Russia said it was keeping its key lending rate static an annual 7.25 percent, noting inflation was in check and volatility in the price of oil was unchanged from earlier this year.

"These risks remain moderate," it said.

We're coming off a month where Russian leverage remains a headline issue for the United States. On Friday, the U.S. president went on the defensive after CNN reported that his former lawyer and self-professed "fixer" Michael Cohen may tell Robert Mueller's investigative team that Trump knew of a controversial meeting in 2016 at the Trump Tower in New York where Russians offered damning information on Hillary Clinton. The administration postponed a questionable invitation to Russian President Vladimir Putin to the White House, but said Trump would be open to a trip to Moscow at the Russian president's invitation. With the Helsinki double-negative still fresh, these issues could have a lingering impact on investor confidence. While grilling Secretary of State Mike Pompeo this week, U.S. Sen. Bob Corker, R-Tenn., the chairman of the Senate Foreign Relations Committee, said there were serious doubts about U.S. foreign policy and Trump's behavior in general, which if one follows his line of questioning, suggests he's wondering if Trump himself is undermining U.S. confidence.

"Is there a strategy to this?" he asked. "Or is it — what is it that causes the president to purposely, purposely create distrust in these institutions and what we’re doing?"

Forced to search for new foreign policy roles, a nation state struggling with direction will feel threatened and more likely to over-react. Transitions like this are not only inherently risky, but difficult to manage. The notion that diplomacy means keeping your friends close and your enemies closer, meanwhile, applies to Iran as much as it does to Russia.

"You come before a group of senators today who are filled with serious doubts about this White House and its conduct with American foreign policy," Corker told the secretary of state.

A change in a state's status of power influences its ability to extend leadership over the horizon.

As a nation gains in power relative to others, its capacity to exercise leadership grows; as it falls behind, the capacity – or willingness - to influence international politics wanes. On Monday, it will be Russia that hosts a high-level meeting on the simmering conflict in Syria. In attendance will be the deputy foreign ministers of Iran and Turkey, two recent targets of Trump's rage. The Russian Foreign Ministry said Washington hasn't upheld its end of the Syrian bargain by making room for a buffer zone along the Israeli border. This week, Israel launched Patriot missiles at Syrian targets and the situation, dragging on since the Arab Spring movements, could re-emerge as a geopolitical stress point.

Conflict creates tensions in the market by way of supply shocks, inflation triggered by an increase in government spending on fighting wars and leads to a general sense of trepidation. The price for Brent crude oil moved more than 10 percent in the opening salvos of the U.S.-led invasion of Iraq in 2003. While the Syrian crisis may be factored in already, any further escalation will likely unsettle broader markets. Wars are not only major market factors, but as World War II reminds us, they also settle who's in charge.

In the economy, a 4.1 percent increase in U.S. GDP for the second quarter did nothing to support the price of crude oil. President Trump said the growth rate was "very sustainable," but the market indicated that narrative was questionable. Most of the gains could be attributed to one-off factors like financiers moving ahead of tariffs. For consumers watching the price at the pump, disposable personal income in the second quarter increased 4.5 percent, against the 7 percent increase in the first quarter. There were also decelerations in wages and salaries.

It's earnings season, meanwhile. On Friday, U.S. supermajors Chevron and Exxon Mobil disappointed with weaker-than-expected returns for the second quarter. On Tuesday, we hear from BP CEO Bob Dudley, who gave us the lower-for-longer mantra to drive us through the market downturn a few short years ago. BP's second quarter earnings report follow one of the company's biggest spends in history – a multibillion deal for BHP Billiton's U.S. shale portfolio. That bet might be problematic as the U.S. energy sector faces headwinds because of tariffs. Dudley, however, is to energy what E.F. Hutton is to stocks – when he talks, people listen.

There are more factors than just geopolitical and energy issues in the week ahead. On Tuesday, the Bank of Japan issues its outlook report and China publishes its composite PMI. Europe, meanwhile, publishes its figures for second quarter GPD the same day. U.S. rate decisions are expected from the Fed. And pay attention Thursday when Barclays and Goldman Sachs issue their reports for the second quarter. By Friday, we'll get a look at July unemployment in the United States.

It could be another bumpy ride next week, though we do expect the market to look a little range bound and are taking a cue from the Central Bank of Russia. We're issuing a Yellow alert for this week, expecting crude oil prices to move by about 1 percent. Crude oil prices would likely go up should Asian indicators reveal optimism, or lower if there's a sense of lingering economic concern in second quarter earnings.