US Close – Earnings, Netflix, IBM, Oil slumps, Gold shines and Bitcoin’s resilience

US stocks finished lower on soft earnings and as trade talks between the world’s two largest economies hit a roadblock on how to ease restrictions on Huawei.  Asia markets are likely to see a soft open as better than expected earnings from the first batch of S&P 500 companies is not providing a strong enough catalyst to keep the climb towards uncharted territory.

Netflix, the first FAANG stock to report delivered poor second quarter results as their Q2 subscriber growth roughly came in half of what was expected.  Netflix fell over 10% in afterhours trade, dragging down both the E-mini S&P500 and Nasdaq future contracts.  The streaming service giant’s third quarter guidance was slightly better than expected, but shares focused on the big miss in subscriber growth.

After hours reports were not all bad, both IBM and Ebay delivered strong beats on the top and bottom line.  The Red Hat acquisition will help IBM’s cloud revenue next quarter, so markets seem to be giving them a pass as their posted falling sales from their biggest business unit.

Oil

Oil’s selloff that stemmed from a very bearish EIA crude report could slow down even as key technical levels are breached.  Energy traders are focusing on the total stock build of 11.7 million barrels and not the headline 3.1 million draw.   Seasonal gasoline demand also hit a five-year low and with most of the draw coming from the Midwest, we will likely feel further effects of Barry in next week’s release.

Markets also may have overreacted on Iran news that they could be ready to negotiate.  They want sanction relief and it is hard to see the Trump administration playing ball unless Iran delivers on addressing its missile program.  Geopolitical risks are not going away anytime soon.

US crude oil inventories should decline over the next couple of months and that should help oil stabilize.  With the big four central banks set to refill the punchbowl with fresh stimulus we should see 2020 demand forecasts improve.  Even if we see a few more months of weaker manufacturing data, an improved 2020 is what West Texas Intermediate crude needs to remain in the mid $60s.

Gold

Gold appears poised to breakout higher as US stocks struggle to make fresh record highs despite over 80% of early S&P 500 earnings results delivered better than expected results.  Bullion is likely to see strong support after the Fed’s Beige Book emphasized policymakers concern on negative impact of trade uncertainty.  With today’s trade update highlighting talks are stalling over how the Huawei restrictions will be eased, investors are growing skeptical we won’t see any meaningful progress anytime soon.

Bitcoin

Facebook’s Libra seems to have survived two days of grilling from congressional leaders.  The current laws in place do not give control over Facebook’s planned stable coin offering.  It will be a long battle for Facebook to get their Libra tokens through an upcoming wrath of regulatory hurdles, but the good news is that their plan is not dead on arrival.  Their planned launch timeframe of about a year will likely get pushed back much further, prompting investors to keep their crypto exposure with Bitcoin.

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