US Open – Impeachment, GBP sinks, IFO shows less pessimism, Oil falls on API build, Gold flutters

US stocks remain near record high territory on lackluster trade as investors brace for a six-hour debate and House vote on Capitol Hill over impeaching President Trump.  Trump is being charged with abuse of power and obstruction of Congress.  Trump is widely expected to become the third US president to be impeached but will likely be acquitted next month with the Republican led Senate.  Republicans are certain to stay loyal to the President and the impeachment process is not expected to yield any major market reactions. 

FX

PM Johnson took the wind out of the pound’s election rally when he announced his proposed bill to rule out a Brexit extension.  The British pound is the weakest currency this morning as investor skepticism grows that Boris Johnson will not have enough time to meet his trade deadline, thus bringing back no-deal Brexit risks to the end of next year.  The political risks for a no-deal Brexit have gone up but Parliament could pass another act to help prevent a no-deal Brexit like they did before. 

The euro remained slightly lower on the session despite a stronger than expected German IFO business climate survey as currency flows begin to soften ahead of the holidays. 

The dollar has been quickly giving most of its 2019 gains over the last quarter of the year.  A Fed on hold and muted inflation will likely remain the playbook for investors call for a softer dollar in 2020. 

IFO

The IFO business climate survey showed German’s are becoming less pessimistic over the domestic economy.  The survey data confirms the overall view that Germany’s manufacturing sector, the weakest part of the economy will improve over the next six months.  The euro came off the session lows following the IFO survey, but refrained from a meaningful rally as German economy is still likely to have contracted in the fourth quarter. 

Oil

Oil prices dropped overnight after yesterday’s API report showed crude stockpiles posted a large increase in US crude and gasoline stockpiles.  Oil prices are off their 3-month highs but remain above key technical levels ahead of the EIA crude oil inventory report.  Brent and WTI are above the $65 and $60 a barrel level respectively.  Later this morning, the EIA report is expected to show inventories fell 2.2 million barrels and if we see any drawdown, oil prices could reassert its recent short-term bullish outlook.  The macro picture changed to bullish for oil with the recent trade de-escalation, improving outlooks from Germany, and the deeper than expected production cuts from the OPEC + alliance.

Gold

Gold prices continue to putter around as US stocks continue to post fresh record highs and as dollar weakness has ebbed. Gold may have been the first to enter holiday mode and could see choppy conditions unless we see further delays or hiccups over the phase-one trade deal.  The rest of the trading week is filled with rate decisions that should not really move the needle with gold prices.  Gold traders might also be waiting until Friday’s release of key data that will look to show a stronger US consumer and muted inflation with the Fed’s favorite inflation gauge.   

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