US Open – Trade deal now set for Jan, Boeing’s woes continue, No-deal risks return, Oil and Gold looking bullish, Bitcoin’s slide

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US stocks could start feeling trade optimism fatigue as we near the holidays.  Expectations are now for the US and China to finalize the phase-one deal in the first week of January.  As lawyers review the text, it seems this deadline could get pushed even further as not all the terms have been agreed upon.  The US is still pushing for China to ease up on subsidies to state-owned firms. President Trump wants talks to begin for the phase-two deal, but that does not seem on anyone’s radar.     

While trade optimism fatigue could see some pressure on equities, a significant pullback seems unlikely as the majority of Wall Street is targeting anywhere from a 2% to 8% gain with their 2020 S&P 500 targets. 

Boeing

Boeing’s woes continue to get worse.  The giant plane maker decided to suspend 737 MAX production indefinitely in January.  The latest developments will also deliver a blow to the US economy as Boeing is the largest US manufacturing exporter.  The 737 MAX problems may have taken off 0.4 percent off the entire US GDP for a period this year.  In 2019, it is estimated that 400 MAX planes were undelivered. 

If the Federal Aviation Administration does not reauthorize the grounded planes by the second quarter, Boeing will be forced to deliver job cuts.  Boeing slid even further in the pre-market after Southwest, a huge Boeing partner has decided to pull the Boeing Max 737 through April 13th.   Markets were overly optimistic that Boeing would have had everything back to normal by year end.   

GBP

The British pound gave up all of its general election rally on weaker than expected labor and wage data and on expectations that PM Johnson will change the law to prevent ministers from extending the transition phase and thus resurfacing no-deal Brexit risks to the end of 2020.

Pound optimism is quickly fading as Boris Johnson’s free trade deal goal with the EU seems very unrealistic.  Johnson wants to wrap a trade deal in 11 months following a January 31st exit, following the path set by the CETA agreement which took Canada and the EU seven years to negotiate.  Johnson’s historic victory is giving him confidence that he can be aggressive in negotiations with the EU and trying to push his agenda through Parliament. 

Pound will likely trade rangebound but could start to see further pressure as a wrath of softer economic indicators are raising the bar for the BOE to ease.  The British pound took out the 1.3250 and could see downward pressure target the 1.3000 but could eventually look to retests last week’s highs around 1.3500 more so on a weaker dollar. 

Oil

Oil prices continue to hover near 3-month highs as bearish bets gets pulled after key thresholds are taken out and on expectations this week’s EIA crude oil inventory report will see a 2.2-million-barrel draw.  Trade optimism and hopes for a global economic recovery in 2020 have many analysts upgrading their demand forecasts for crude and we could still see this rally continue. 

Oil demand should see further improvements with all the major central banks maintaining accommodative stances and as President Trump will try to make sure the economy is at its strongest when voters go to the polls in November. Trump can stomach slightly higher oil prices now, but if WTI nears $70 a barrel, then you may hear him try to talk down oil prices.    

Gold

Gold could be on the verge of breaking higher as no-deal Brexit risks have returned and delays to the phase-one trade deal seem likely.  Despite last week’s euphoric risk appetite that stemmed from the UK General Election and the phase-one trade deal, gold has not broken, mainly thanks to a weaker dollar at the time.  Today, gold is mounting a small rising even as the dollar rebounds modestly.  Initial resistance remains the $1,495 region, with geopolitical and trade risks possibly being the catalysts for gold to finish the year above the $1,500 an ounce level. 

Bitcoin

Bitcoin’s collapse below the $7,000 level appears to have found support around the $6,831 level.  This last collapse for Bitcoin had no specific catalyst, but many are attributing to the recent steady negative news flow.  The problem for Bitcoin is that the majority of mining is now coming from China and with Beijing’s new hard stance towards digital coins, it is hard to be optimistically bullish.

Bitcoin is no stranger to wild swings and we could very well see momentum traders take it up to $7,500 or down to $6,500 over the next couple weeks.