A very busy week in Davos was kicked off by President Trump’s opening remarks that reiterated his “America First” motto, while making some positive strokes to this year’s overall green theme. President Trump’s impeachment is also beginning today in what will likely deliver a ton of headlines but yield little impact as markets remain fairly confident the President will be acquitted of all charges.
Risk appetite saw some early weakness stem from bad news in Asia that saw the coronavirus spread in Wuhan. Officials in China have reported six people have died from the virus and almost 300 have been infected. The initial selloff however was just another buying opportunity as optimism remains that China will contain the spread and you don’t want to fight the Fed. US stocks are off the lows as investors remain optimistic this earnings season will surprise to the upside and that President Trump will not follow through on some tough talk with Europe. At Davos Trump noted he is “serious about tariffs on European autos if there is no deal with Europe.”
Global bond yields are mostly lower following the flight-to-safety that kicked off in Asia. Investors remain cautious that the recent runup with stocks will continue uninterrupted. Treasuries rose across the curve with the 10-year yield dropping 4 basis points to 1.781%.
Germany’s DAX tentatively breached the record close that was put in place in January 2018. Optimism is growing that the bottom is firmly in place for Germany and that an industrial rebound right around the corner. The German ZEW survey showed the outlook has improved and that the negative impact from trade tensions is less pronounced.
Oil prices shrugged off Libyan oil disruption concerns as expectations remain high that the non-OPEC supply will keep the market oversupplied in the first half of the year. Brent can’t break pass the $66 a barrel level and WTI seems capped by the $60 price barrier. Crude seems to also be weighed down on analysts’ expectations for another solid rise with both gasoline and distillate inventories. Oil prices should get some relief on an improving outlook for global manufacturing, but until we see a positive data prints, oil will have trouble rallying here.
Gold gave up all of its earlier gains that stemmed from the Wuhan virus concerns after Chinese officials signaled they have the situation under control. Gold prices are also softer after the ZEW survey showed Germany will have sunny days soon. While the global manufacturing outlook could prove initially negative for gold, a Fed on hold will keep the dollar vulnerable and thus supportive for gold prices. Gold needs to consolidate before it can resume its longer-term bullish trend. Gold could be trapped by the $1,550 to $1,570 range this week.
Bitcoin weakened after BIS and major central banks formed a group to monitor digital currencies, potentially another short-term hurdle for the crypto-space. The BOC, BOE, BOJ, ECB, Riksbank, and SNB have partnered with the BIS in what ultimately will lead to greater regulation for Bitcoin. The world is committed to digital currencies and Bitcoin should thrive as the formation of the CBDC think tank will likely help lead to a further consolidation in the crypto space.
As regulation picks up, many alt-coins will go down and that should be longer-term bullish for Bitcoin. The $9,000 resistance level may need to a couple more tests before Bitcoin breaks out higher.
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