US Open – Fed decision looms, Earnings galore, Oil rises, Gold rally resumes

US stocks are slightly positive as investors anticipate a very dovish Fed and process a wrath of earnings.  This morning’s earnings results from GE, Boeing, and GM should keep risk appetite steady going into this afternoon’s Fed policy meeting. 

The Fed is expected to remind financial markets that they are ready to do more.  The Fed is unlikely to announce any new policy actions and reiterate they are not ready to commit to yield curve control or locking in future rate hikes to overshooting their inflation target.  The economy is worse off since the last meeting and the Fed should signal they will do more until the uncertainties to the outlook improve. 

The good:

General Electric posted better than expected revenue and noted “early signs of improvement” in GECAS, its aviation and aircraft-leasing operation.  Boston Scientific reported a beat in both the top and bottom line but did show sales declined from a year ago in each reportable segment.  GM posted mixed results, with a surprising smaller earnings loss, but still a massive 53% fall in revenue.  GM’s cash burn was $9 billion, and the US vehicle sales fell 34%.  New full-size pickup trucks  saw improved demand as selling prices rose $1,526 verse the first quarter. 

The bad:

Boeing posted softer-than-expected earnings and revenue and announced they will cut the 787 production to six per month in 2021, which is significantly lower than the 10 per month done this year.  Boeing shares jumped around as some investors bought the initial dip believing the company will turn things around when the 737 MAX is ungrounded hopefully in October. Spotify shares sunk after failing to impress as monthly active users and revenue came in roughly in-line with their consensus estimates.

Oil

Oil climbed higher after dollar weakness returned ahead of the Fed policy meeting and on expectations US crude stockpiles declined last week.  Yesterday’s API report delivered a surprise draw of 6.8 million barrels, the consensus estimate was for a 357,000 barrel build.  Today’s EIA crude energy report is expected to deliver a 171,000 draw. 

Oil is also benefiting from optimism that hospitalizations are peaking in the US, despite strong rises in new cases across many states.  Coronavirus deaths are expected to peak by mid-August and that could suggest reopening of the economy will continue as summer winds down.  Virus fears in the fall will remain, but crude demand should continue its road to recovery as broader parts of the economy reopen. 

Today’s main event for oil might not be the oil inventory numbers but the Fed.  Commodities across the board could take a queue from a falling dollar if the Fed delivers enough dovishness. 

Gold

Gold prices marched on higher after lawmakers remained at odds over virus aid.  President Trump does not support parts of the GOP’s stimulus plan and any delay in relief will provide unnecessary pressure to the economic recovery.  If gold does not break the $2000 level after the dust settles from the Fed policy meeting, bullion traders may tentatively want to run for the sidelines.  The Fed has done everything right over the past six months and the expectations are high that Powell will signal the recovery looks shakier and that their commitment to supporting the economy is stronger than ever. 

Coronavirus cases are still rising in many US states, fiscal relief aid uncertainty is already weighing down the economy, and the Fed at the very least will deliver assurances their stimulus efforts will last longer. 

Gold’s bullish trend is firmly intact but a Fed-induced pullback could trigger profit-taking towards the $1940 region.

This article is for general information purposes only. It is not investment advice or a solution to buy or sell securities. Opinions are the authors; not necessarily that of OANDA Corporation or any of its affiliates, subsidiaries, officers or directors. Leveraged trading is high risk and not suitable for all. You could lose all of your deposited funds.

Ed Moya

Ed Moya

Senior Market Analyst - The Americas at OANDA
With more than 20 years’ trading experience, Ed Moya is a market analyst with OANDA, producing up-to-the-minute fundamental analysis of geopolitical events and monetary policies around the world. Over the course of his career, he has worked with some of the world’s leading forex brokerages and research departments including Global Forex Trading, FX Solutions and Trading Advantage. Most recently he worked with TradeTheNews.com, where he provided market analysis on economic data and corporate news. Based in New York, Ed is a regular guest on several major financial television networks including BNN, CNBC and Bloomberg, and is often quoted in leading publications including the Wall Street Journal and the Washington Post. He holds a BA in Economics from Rutgers University.
Ed Moya