Mid-Day Update: Trade optimism bubble, Oil rallies on a somewhat bullish EIA report, Gold hovers, Bitcoin remains vulnerable

US stocks are barely drifting lower as the trade optimism bubble seems like it could be ready to burst.  The US house is expected to vote on a bill supporting Hong Kong protesters, making President Trump need to decide if he will turn the bill into law or exercise his veto power.  The problem for Trump is that both chambers have strong support that could see an override to any veto.  Supporting Hong Kong protesters is a big risk that could derail the heavily priced-in US-China phase-one trade deal. 

The Trump impeachment hearing also entered high gear after the American ambassador to the E.U. Gordon Sondland appeared before the House Intelligence Committee.  Sondland stated that Rudy Giuliani request a ‘quid pro quo’ over the Ukraine.  Adding that they followed the president’s orders.   Trump quickly addressed the media and repeated that Sondland is “not a man I know well”.  Despite all impeachment developments, markets are unfazed and completely focused with the developments in Hong Kong and the trade war. 

If it weren’t for trade worries, we would probably have seen fresh record highs today after strong earnings from Target and Kohls countered yesterday’s poor results from Home Depot and Kohls.  The consumer is not as strong as they were a few months ago, but they should be healthy enough to deliver a strong holiday season, and support for a Santa rally. 

Oil

Oil prices are rising after the EIA crude oil inventory report showed a much smaller build than yesterday’s API build.  US crude oil inventories came in at 1.38 million barrels, lower than the forecast of 1.5 million and yesterday’s API build that almost topped 6 million. 

The EIA report highlighted another strong total drop of almost 7 million barrels with US oil inventories when you calculate the draws from the other products and the amount of crude released by the SPR. 

The report was mostly bullish despite US crude production staying at the record level of 12.8 million barrels a day for a second consecutive week.  The US is also once again a net-exporter of crude and refined products. 

Oil extended its gains after Yemen’s Houthis claimed they shot down a Saudi-led coalition warplane near their border.  The Saudi-led intervention in Yemen has been going on for four years and is another reminder of the many geopolitical risks that are in the Middle East.  

Bitcoin

Bitcoin remains vulnerable after weeks of negative headlines erased the end of October surge that came from news that China would support blockchain technology.  Earlier this week, the entire crypto-space was hit with bad news after President Xi maintained his perilous stance that cryptocurrencies are financial fraud.  Shanghai regulators also took aim at shutting down two giant-crypto players, Binance Holdings LTD and Tron. 

President Xi is no longer the “crypto dad” and digital currencies could see further pressure as China cleans up the crypto-space as they make room for the eventual launch of the PBOC’s digital currency. 

The whole digital currency market has not had a positive breakthrough this month and we could see continued pressure on Bitcoin.  Bitcoin traders should not be surprised if we see a retest and break of the $8,000 level.  Bitcoin volatility is likely to intensify, and we could see bearish momentum target the $7,500 region, with major support coming from the $7,230 level. 

Eventually Bitcoin will start to see major support once we get closer to the Bitcoin halving date of May 12, 2020, but for now the sellers appear to be firmly in control. 

Gold

Gold traders are in limbo amid trade uncertainty.  The risks of a collapse for a phase-one trade deal are rising and gold can’t muster up a rally.  A firm bottom was put in place last week for gold, but traders are largely skeptical that pullback has run its course.  If gold does not recapture the $1485 an ounce level by the end of the week, we could sellers take control. 

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