The US stocks are going to struggle despite last week’s US-China trade détente since we will not see a roll back on the September tariffs that will hurt the US consumer. With the bond market closed for a US holiday, we could see smaller volumes across all markets on the day.
The start of the week will focus on how investors digest the US-China mini deal. Despite the warranted criticism or disappointment in last week’s deal, markets should be optimistic that China ultimately will move forward on agricultural purchases and market access, while the US will likely remove any tariffs that will hurt their consumer. China is still battling a protein shortage that stemmed from the African swine fever and with foreign direct investment continuing to drop off, they will welcome US investment.
While many investors’ appetite for risk is encouraged with the fresh trade truce, the next round of talks will need to provide a major de-escalation with the overall tariffs. Earnings outlook will not see any major revisions following this band-aid trade solution. Despite fresh rate cuts still expected from the Fed, US stocks may struggle here as we approach earnings season.
Oil seems to be locked in a ping-pong match between skeptical demand-side outlooks from last week’s mini-trade deal and geopolitical risks that could threaten global oil production. The headlines on Monday seem to be focusing on doubts on Friday’s China-US trade agreement. With fresh trade talks already on the calendar, markets will remain nervous if we see a complete collapse at any moment over the next couple weeks. In order for global demand for oil to improve, we will need to see a roll back of the September tariffs that will hurt the US consumer.
Geopolitical risks from Turkey’s Syria offensive is drawing scrutiny from everywhere. Instability in the region could start to put Iraqi production at risk and with limited spare capacity available from Saudi Arabia, we are one missile strike, drone attack or tanker seizure away from a sudden surge with oil prices.
As market participants digest last week’s trade deal, uncertainty in the details and hopes for a broader deal should keep the gold supported. Gold has a bullish backdrop that sees support from safe-haven demand from the trade woes, military conflict risks in the Middle East, global monetary and fiscal stimulus and Brexit uncertainty. As earnings seasons begins later this week, we will likely see deteriorating outlooks also provide support for safe-havens, such as gold.
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