US Open – Fed begins 2-day meeting, ZEW rebounds, NFIB impresses, Oil rally capped, Gold rises, Bitcoin weaker on Matic

Risk aversion dominates Tuesday trade as markets grow nervous over the December 15th deadline for a new round of American tariffs on Chinese goods, shrugging off both a rebound in Germany’s ZEW expectations reading and the strongest reading in over a year for small US businesses. 

Germany’s ZEW expectation readings turned sharply positive possibly indicating a bottom is in place.  The current assessment remains deeply in negative territory but did improve and beat expectations.  Risk appetite for European stocks however will wait to see if both the upcoming US-China tariff deadline or the transatlantic trade war take a turn for the worse. 

The US NFIB small business optimism reading completely agrees with last week’s blockbuster nonfarm payroll reading.  Small businesses seem poised for a strong fourth quarter and credit conditions remain favorable.  The report did see declines with plans to increase inventories and for sales expectations. 

Investors are running out of reasons to keep buying US stocks, the Fed appears firmly on hold, President Trump’s strategy of tariffs will likely refrain large cap investments globally and keep US growth stuck just below 2% and the global growth rebound is taking its time getting started. 

Fed

The Fed begins what should be a fairly easy two-day policy meeting.  Following three consecutive rate cuts in July, September and October, monetary policy is firmly on hold as trade risks to the outlook have eased, the yield curve has re-steepened, and the labor market is strengthening. 

This meeting is not live as Fed speak has consistently signaled no policy changes are happening anytime soon.  A big focus will fall on the dot plots which could show that policymakers see the next move being a hike in 2021.  A summer rate cut should still be on the cards, but continued momentum in the labor market could continue to derail those expectations. 

Oil

Relatively quiet start to the week on the energy front as oil prices are unable to break above last week’s surge.  The Saudi surprise for deeper cuts after last week’s OPEC + alliance meeting shows that the market is still concerned about the impact global trade wars are having on demand for crude. 

US crude stockpiles will be released tomorrow and expectations are for a slightly smaller draw of 2.8 million bpd.  Oil prices may struggle to rally here as they are at the top of their recent trading and range and around the 2020 forecast for many analysts.  What also is not helping oil bulls is that Brent crude is currently trading near Saudi Arabia’s 2020 budget targeted average price of $65 a barrel.   

Gold

With central banks turning accommodative in 2019, gold is poised for its best annual advance since 2010.  Much of the credit for gold’s rise needs to go to global trade wars but 2020 could see more demand for safe-havens come from sluggish global growth and rising geopolitical risks.  Calls for $1,600 an ounce are growing and that should not be hard once we start to see the dollar weaken.  If the overvalued greenback finally breaks, we could see gold prices target the $1,650 an ounce level. 

Bitcoin

Bitcoin is under pressure this morning after Matic, a digital token plummeted 70% overnight.  While the cause for the crash is unknown, it reminds investors of the risk in holding cryptos.  If Bitcoin can hold the $7,000 mark, we could finally see it begin to stabilize and ultimately target $7,500 as crypto space will likely to continue to consolidate and as we near the May 2020 Bitcoin halving event. 

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