US Open – Risk Rally Continues on Trade Optimism, another strong Earnings morning, Germany’s Factory Slump, Oil turns negative and Gold steadies

Financial markets were in rally mode after China signaled they are halving half of the tariffs on $75 billion in US imports.  China’s tariff decision shows they are going to try to play nice with the US on the trade front. This tariff action will likely pave the way for them asking for some leniency on delivering on their phase-one purchase commitments.  Throughout China’s dealing with the coronavirus, the US has maintained the stance that they expect them to live up to their end of the phase-one trade deal.  Today’s news was unexpected and could help push risk appetite much higher in the short-term.

The quick turnaround markets had over the past few days regarding the coronavirus economic impact is likely to be questioned and volatility could remain high.  

Earnings

With much of the focus falling on China’s tariff decision and constant coverage with the coronavirus, many investors are forgetting we are still in earnings season.  Bristol-Meyers Squibb, Estee Lauder and Twitter all reported before the opening bell and all are seeing their respective shares rise higher.

Bristol Meyers Squibb had a strong fourth quarter with an eye-opening revenue beat which may have been clouded with some of the sales that came through with the Celgene merger.  Bristol’s results were good, but might not be good enough to see shares continue to outperform the way it has over the past year.  Sales of their key immunotherapy drug Opdivo fell 2% on a quarterly basis.

Twitter shares are popping following strong revenue and user growth numbers.  The social network is likely to see strong demand in 2020 as geopolitical events will keep users heavily engaged.  The US Presidential election is likely to be fought on Twitter and that could provide a strong support of steady user growth. 

Estee Lauder cut guidance again on as they will take a big hit with lost demand in China.  The Asia Pacific region is the key area Estee Lauder was seeing most of its growth, so the guidance cut was not a surprise for anyone. 

Germany

The German factory order reading for the last month of the year showed a surprise contraction.  Factory orders fell 2.1% in December, much worse that the prior decline of 1.3% and missing the forecast of an expected 0.6% increase.  The big miss was attributed to the eurozone’s steep drop in demand of 13.9%. 

Optimism was growing that the bottom was already put in place for Germany, but this factory orders  data could suggest the industrial outlook might remain bleak a little longer. 

Oil

Oil rallies are continuing to be met by sellers. Oil prices were initially boosted on optimism that OPEC + was getting closer on delivering an additional 600,000 barrel per day production cut through June and after China announced they will halve tariffs on US crude to 2.5%. 

The OPEC + recommendation for deeper cuts has consistently been met with resistance from the Russians.  Today’s goal for OPEC + is to secure an emergency meeting next week. 

Oil prices have turned negative as energy traders question whether an additional 600K barrel per day cut for a few months will really move the needle for oil prices. The Saudis set the bar high with over delivering on production cut expectations and this potential seems destined to fail unless we see a 1 million barrels per day taken off. The problem for this potential rounds of additional cuts is that it will impact April delivery, which some members might feel we could see a return of normalcy in Chinese crude demand.

Gold  

Gold prices are steady as Wall Street seems set for a fourth consecutive day of gains.  Another positive risk-on session day was buoyed on optimism that China will be forced into playing nice with the US on the trade front.  China will need some slack on some of their phase-one commitments due to the unknown impact from the coronavirus. 

Gold is steadying as a investors remain skeptical that the coronavirus impact fears are retreating.  Gold prices should remain supported since the coronavirus has not shown any signs of peaking as the death toll and number of infected cases continue to post steady daily increases.  

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