US equities were supported after soft US inflation data signaled the Fed would likely remain very patient with rate hikes. The Dow Jones Industrial Average was unable to match gains seen with the other indexes as Boeing fell again on fresh news that more countries are closing their air space for the 737 Max plane. The dollar is slightly softer following the inflation data but as we see the US and China struggle to make trade progress, safe-haven flows may keep the dollar bid.
GBP- May’s last stand
Oil – Tail risks are likely to keep gains capped
Gold – Softer US inflation and Brexit spur demand
Stocks – Trade uncertainty should grow as the mid-March meeting gets pushed back
GBP
PM May appears to be poised to suffer another handily defeat. The DUP is joining the hardline Brexiteers and May’s updated Brexit deal appears dead on arrival. After today’s vote, we could get a better understanding if we will we see a second referendum or a possible confidence vote. The base case remains that May will lose today’s vote, tomorrow’s vote on a no-deal Brexit will likely lead to a final vote on Thursday for Article 50 to be extended.
Oil
Crude prices rose today as risk assets got a boost from softer than expected US inflation. The move higher with oil prices remains capped as too many tail risks will likely outweigh an already priced in OPEC production cut extension. The tail risk list is growing with many focused on rising production in the US, eventual lifting of sanctions on Venezuelan crude once we see Maduro finally step down as pressure mounts, and the potential lack of compliance with the OPEC and friends production cuts. Tomorrow’s EIA crude oil inventories report is expected to see US inventories rise by 2.7 million barrels, coming back closer to the 5-year average.
Gold
The precious metal rallied after softer inflation data from the US signalled that the data-dependant Fed will remain on hold and expectations still lean towards a rate cut being the next move. Brexit uncertainty is also providing some support for gold, but will unlikely be a major catalyst unless we see the risks for a no-deal Brexit grow. For now, gold prices remain unable to rally above the $1,300 an ounce level.
Stocks
The last mile in this marathon of a trade war is seeing negotiators hit the enforcement wall. Progress has been made on IP, purchases, but enforcement could be what makes this trade war continue beyond what many initially expected. China needs to show their people that trade deal is not having them cave to all the demands from the US. And if we see the Chinese stall to agree on giving the US ability to hit them with tariffs on violations of the agreement, we could see President Trump end the trade truce and resume a hardline position.
