US Close- Stocks end mixed, FX Intervention risks, Oil steady as Gold and Bitcoin Fall

US stocks painted a mix picture that saw the Fed rate cut rally stall after the focus quickly shifted back to the US-China trade war.  President Trump’s morning tweet focused on China’s lack of new purchases of US farm goods, reminding markets not much has been accomplished since the Xi-Trump G20 sideline meeting.  China is reshuffling their trade team and while many phone calls have happened, we still don’t have a firm date for the next round of talks.  The Trump tweet combined with better than expected US inflation and labor data gave good reason for equities traders to close up shop for the day.  US core CPI rose delivered its biggest gain in 1 ½ years and jobless claims fell to a 12-week low.   

Powell’s testimony on Thursday was mostly a reiteration and we could be in store for lackluster moves heading into Asia.  The Dow Jones Industrial Average outperformed rising 0.85%, as healthcare stocks surged on Trump’s decision to abandon a drug rebate rule.  The S&P 500 Index close 0.2% higher, while the Nasdaq fell 0.1%. 

US FX Intervention

President Trump has been a constant critic of other countries unfair FX practices. With that in mind, it should only be a matter of time before the US intervenes in the FX markets.  Trump could be trying to time an intervention along the onset of the Fed’s easing cycle which would warrant dollar weakness.  Goldman Sachs along with other top research analysts, ING and Canadian Imperial Bank of Commerce are calling for the US to join in on the big currency manipulation game.  With the ECB poised to deliver fresh stimulus in September, traders should not be surprised if we see something from Trump before the end of summer. 

Oil

Oil price gains from the geopolitical and hurricane risks are battling the constant struggle of falling demand concerns.  The OPEC oil monthly report highlighted that demand for OPEC’s oil in 2020 is 1.3mb/d lower than the 2019 level, another strong sign that supply risks will not be enough for oil to maintain a sustained rally.  Gasoline inventories in Europe are rising, another reminder of how bad demand is dropping. 

WTI struggled for gains as the tropical storm in the Gulf of Mexico shifted more to the east and will miss the Houston ship channel.  While crude oil production in the Gulf of Mexico was cut by 53%, it seems gas lines will be at greater risk.  The initial bump for oil market might be short-lived once we start to see production return back to normal.   

A good amount of focus for oil is the increasing tension in the Persian Gulf.  While a full-scale military conflict remains the least likely scenario, the strong increases for cost of insurance will make for a most costly transportation of crude and see new routes explored, delaying crude arrivals. 

Summer doldrums will see oil react to the geopolitical and hurricane risks, but any major rallies will likely be faded until we see optimism for global demand to improve. 

Gold

Gold prices have definitely formed a top as financial markets have fully priced in a wrath of rate cuts from key central banks as global growth concerns show no signs of improving.  Today’s weakness can be attributed to the better than expected US labor and inflation data that put ice on some forecasts that were calling for the Fed to cut by 50-basis point at the end of month meeting.  The backdrop for higher bullion prices is intact, but the summer doldrums could see choppy conditions until we get the US advance second quarter GDP reading on July 26th. 

Bitcoin

Fed Chair Jerome Powell’s serious concerns about Facebook’s planned digital currency Libra are weighing down the entire crypto space.  Libra was expected to be the springboard for other cryptocurrencies to emerge, but it seems they just made the path much harder for future digital coins.  The problem with Facebook is that they are too big and it seems it will be years before we get to see clarity on what will need to be done for them to go live.  Powell’s concern on Libra’s financial stability, privacy, money laundering, and consumer protection is nothing new to the crypto world and eventually we should see Bitcoin stabilize. 

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