Stocks finished higher; Oil slides; Gold steady and Bitcoin shines

US stocks finished positive ahead of the highly anticipated Fed rate decision.  Technology stocks outperformed, with the Nasdaq rising 0.6% as FANG stocks and small-cap stocks rallied.  Homebuilder stocks slumped following disappointing NAHB housing data.  Asia is likely to have little follow through as trading volumes remain light and will likely stay that way until we get passed the FOMC meeting.

The dollar finished little change to its major trading partners, with the biggest gains against the British pound and Australian dollar.  Cable has declined for a fourth consecutive day, reaching a 6-month low.  No-deal Brexit risks are keeping the pound heavy and tomorrow’s next round of leadership voting should see Boris Johnson remain the front-runner to become the next Tory leader.

Empire – Trade War Starting to Cripple US data

Oil – Further into bear market on US weakness

Gold – Rally on pause ahead of Fed

Bitcoin – Legitimacy Grows as Facebook’s Coin Prepares to Launch

Empire

The first regional Federal Reserve Survey in June showed manufacturing had its worst decline on record in the New York State. The trade war and recent tariff escalation is starting to weigh on manufacturers and today’s first regional factory report could be a warning sign for the broader economy. Fed rate cut expectations are likely to grow as broad weakness in all the Empire’s components suggest the economy’s sound footing will evaporate quicker than expected the longer the trade war lasts.

Oil

Oil prices fell further into bear market territory after US factory and housing data showed the world’s largest economy is slowing down faster than expected.  The trade war is starting to ebb away at US data.  Uncertainty on the trade front remains high and markets will remain undecided until we see the events at the G20 summit in Japan unfold.

The oil markets are now not balanced mainly due to falling demand.  After successfully delivering production cuts in the first four months of the year, OPEC and allies are at a critical juncture.  The group of oil producers have been touting the extension of production cuts, but that may prove difficult as they are unable to come to a consensus on when they will meet.

To move the 176th meeting of OPEC members on June 25th and the OPEC and non-OPEC ministerial meeting on the 26th, all OPEC countries and Russia-led allies need to agree unanimously.  The Russians and Iranians met today outlining the expansion of trade ties but did not signal any consensus on when to push the OPEC led conferences.  The difficulty in agreeing on when to move the meeting dates does not bold well for expectations of the oil producing countries to deliver another successful round of production cuts.

Crude remains vulnerable on falling demand expectations from trade uncertainty and OPEC’s inability to solidify its curtailment of future production.

Gold

Gold prices fluctuate ahead of the FOMC meeting, as investors expect the Fed to queue up insurance rate cuts over the recent swath of softer economic data that stemmed from escalations in the US-China trade war.  The US economy is slowing down and expectations for the signal of pre-emptive policy easing has supported higher gold prices.  A recession is still an unlikely scenario in the short-term, if we don’t see a further escalation in the trade war.  The yellow metal’s rally is on pause but could see bullish momentum return as long as the Fed has clear communication in signalling the end of its patient period.  Gold’s rally could be tampered with if expectations become for the Fed to only deliver one rate cut and wait for further deterioration in data to solidify more cuts are on the way.

Bitcoin/Libra

Facebook’s digital coin, Libra is set to launch on Tuesday morning and already has key partnerships with Visa, Mastercard, Paypal and Uber.  This will allow for in-app purchases and deliver a strong boost to mainstream commerce acceptance.  Cryptocurrencies across the board have been supported by Facebook’s decision to enter the crypto space.

Libra, will be pegged to a basket of real currencies, hoping to limit some of the volatility we have seen in the past two years.  It will prove difficult to be a stablecoin, but anything that increases the adoption of digital assets will be welcomed by the crypto world.

Bitcoin appears to have averted any major selloffs, as the core argument that mainstream acceptance and security concerns will derail institutional investors, has been alleviated.

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