US Open – Soft second day of earnings, Trade tariffs are here to stay, Oil remains vulnerable and gold’s bright outlook

US stocks are treading water as investors contemplate the “buy the trade calm and sell the signing” strategy.  Earlier in Europe, investors showed little reaction to Germany GDP data that showed the slowest growth in six years and cooler than expected inflation data from the UK, another sign that the British economy remains vulnerable. European equities should see some support on growing calls for both the ECB and BOE to deliver more accommodation in 2020.  

Today is mostly all about the signing of the phase-one trade deal later this morning.  The world’s two largest economies are still not near resolving the hard issues.  It is unlikely that we will get a phase-two deal before the election.  China is taking their time because they are in no rush to deliver changes on both technology transfers and intellectual property protection.  They would probably prefer dealing with President Trump but have no problem in stretching out talks.  The Trump administration is using the strategy that China will be incentivized to comply with their promises and could see further tariff rollbacks with the phase-two deal. 

Earnings

Target delivered lackluster results last quarter as toy and electronic sales disappointed.  Comparable sales guidance for the fourth quarter also came in soft at 1.4%, missing the average analyst estimate of 3.8%.  Target maintained their annual guidance as they are still preserving their margins.  If the US consumer is supposed to be strong, we are not really see signs of that so far from Target and Kohls.  Kohls delivered dismal holiday results last month.  We may not see much weakness in the retail sector as Wall Street will likely be confident for strong results from Walmart, Amazon and Best Buy.  The consumer spent their money somewhere and right now expectations are they went with one of the more friendly online giants. 

Bank of America delivered a mostly positive earnings result as FICC trading and Investment banking revenue.  Expenses edged higher, but that follows a strong round of cost reductions that were implemented last year.  The second-biggest US lender did not match JP Morgan’s blockbuster results, but stronger than expected profit was enough to help shares initially rise.  BOA CEO noted “In a steadily growing economy marked by solid client activity, our teammates produced another strong quarter and year. 

Goldman Sachs shares are slumping after delivering a fourth-quarter earnings miss, surging litigation costs and rising expenses.  Goldman did post improved FICC sales & trading revenues and equity sales & trading revenues. 

Oil

Oil prices started to give back earlier gains after the OPEC monthly report targeted a stronger rise in non-OPEC supply growth, outshining the bump up in improved global oil demand.  The OPEC report saw global oil demand for 2020 increase by 140,000 bpd, but the 180,000 bpd increase in non-OPEC supplies made the report slightly bearish.  Non-OPEC production was widely expected to see increases from Norway and Guyana, so the report should be considered housekeeping and not eye-opening revelation. 

West Texas Intermediate crude remains vulnerable the longer it stays below the $60 a barrel level.  Initial support  lies at the $57.80 level, followed by the $55.50 level. 

Gold

Gold investors got the greenlight to jump back on lingering trade concerns and a softer second day of earnings results.  Significant tariff relief does not seem to be happening this side of the election and that should be very bullish for gold.  Gold was boosted earlier in the session on confirmation of the slowest economic growth from Germany in six years and softer UK inflation data that opens the door for the BOE to ease a lot sooner than many were expecting. 

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