Wait and see mode is what most market participants are showing this Monday. US major indexes are flirting with positive sessions after optimism grew on the trade front and as US leaders neared a potential US budget deal. With market optimism rising as US and Chinese leaders seem poised to resume face-to-face talks next week in Beijing, investors are hopeful we will not see President Trump return to his alter-ego ‘tariff man’. Fed followers will now enjoy a blackout period and wait for the last major piece of data, Friday’s advance second quarter GDP reading. The market is firmly pricing in a 25-basis point cut at the end of July meeting, but if we see a sub 2.0% GDP reading, we could see the data-dependant Fed have enough of a catalyst to deliver a 50-basis point cut.
All three major US indexes are slightly positive and the dollar is posting small gains to the euro, pound, yen and loonie. The euro could see some tight ranges ahead of Thursday’s rate decision.
Energy traders are buying up oil as geopolitical risks run high and expectations grow that we could see the US begin escorting oil tankers in the Persian Gulf. Global growth concerns may get alleviated this week, if we see some stabilization with global PMI data. US crude inventories have been rather bearish, but this week expectations are for a strong draw and overall bearish report.
Oil could see some support as Libyan crude output dropped to the a five-month low as an unidentified group closed the country’s largest valve. Libyan production is now around 1 million barrels a day after the force maneuvers at Sharara lowest just under 300,000 barrels a day.
Gold’s rally will look for earnings to deliver softer outlooks and for tensions to remain high in the Persian Gulf. The main driver for the recent runup has been dovish Fed expectations and we could see the yellow metal struggle for a sustained move before the end of month FOMC meeting. Possible progress on the trade front has hampered gold’s gain in the past, but markets are starting to become very skeptical for a final deal to emerge anytime soon.