US Open – Strong Earnings Start, GBP sinks on BOE cut odds, Curve Steepener, Oil and Gold rally

US stocks are rising in what was a very good start to earnings season, which also saw the signing of the phase-one trade deal between the world’s largest two economies.  The banks kicked things off and showed strong results and highlighted a strong US consumer and healthy credit markets.  Next week, the focus will fall on tech as we will see results from Netflix, IBM and Intel. 

Despite all the focus falling on the big banks and Google joining the trillion-dollar market cap club, defensive stocks are having the best week.  The first four days of the week are seeing Utilities rise 3.0%, Real estate stocks up 2.3%, followed by Tech at 2.2%.

Investors are doubtful we will get much of bump higher on easing trade tensions and are starting to grow fearful that the Fed will shortly address the tempering of balance sheet growth.  The Fed is a big part of this last part of the stock market rally and Wall Street will require better than expected guidance next week for stocks to continue the march into uncharted territory. 


The last day of the trading week is seeing the dollar finish on a strong note while the British pound is in freefall after a huge drop in retail sales sealed expectations for many traders that the BOE will cut rates at the end of the month.  The euro is also on soft footing after the German BDI Industry Association remained very pessimistic on German growth. The BDI is calling for corporate tax cuts and infrastructure spending over the next decade, something that government leaders are unlikely to deliver unless the data gets much worse.  The dollar is finishing a rangebound week on a strong note mainly due to the weakness from the European currencies. 


Fixed income traders saw the long end of the yield curve rise after the Treasury announced they will issue 20-year bonds in the first half of the year.  The decision to issue longer-dated debt will help fund the rising deficit. 

The curve steepener trade is back in favor as 20-year bonds will likely attract strong demand when compared to the yields of the other advanced economies.  The U.S. 10-yield rose 0.9 basis points to 1.816%, while the 20-year yield jumped 2.1 basis points to 2.279%.  The 2-and 5-year yields both declined 0.9 basis points. 


Oil prices are stabilizing on improved demand outlooks since the phase-one trade deal has the Chinese penciling in $52.4 billion in additional purchases over the next two years.  If the global manufacturing rebound does take place, we will continue to see further optimism with the upcoming PMI surveys.  West Texas Intermediate crude seems poised to make a run back towards the $60 a barrel level next week. 


Gold prices are climbing higher after the key German industry group (BDI) dire outlook and after more terrible data from the UK signal more easing is coming.  It looks like gold will continue to rise as Europe does not seem to be having economic rebound many were expecting.  Despite the record rally in US stocks, investors are showing hints of turning defensive and the bottom seems to be in place for gold prices.  Gold prices could trade from $1,550 to $1,575 in the short-term. 

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Ed Moya

Ed Moya

Senior Market Analyst, The Americas at OANDA
With more than 20 years’ trading experience, Ed Moya is a senior market analyst with OANDA, producing up-to-the-minute intermarket analysis, coverage of geopolitical events, central bank policies and market reaction to corporate news. His particular expertise lies across a wide range of asset classes including FX, commodities, fixed income, stocks and cryptocurrencies. Over the course of his career, Ed has worked with some of the leading forex brokerages, research teams and news departments on Wall Street including Global Forex Trading, FX Solutions and Trading Advantage. Most recently he worked with, 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 CNBC, Bloomberg TV, Yahoo! Finance Live, Fox Business and Sky TV. His views are trusted by the world’s most renowned global newswires including Reuters, Bloomberg and the Associated Press, and he is regularly quoted in leading publications such as MSN, MarketWatch, Forbes, Breitbart, The New York Times and The Wall Street Journal. Ed holds a BA in Economics from Rutgers University.
Ed Moya