Stocks & Treasury Yields Rally on Strong Earnings and US Data

Back-to-back robust earnings results from Cisco and Walmart delivered a nice dose of risk appetite for global equities, which saw Treasuries slide, while the dollar delivered broad gains against all of their major trading partner.  Oil prices remained supported on geopolitical risks, while gold sold off alongside other safe-haven assets.

Earlier in NY, US housing data impressed and if you follow the bond markets, you are not surprised.  The average 30-year fixed rate is now at 4.40%, down 77 basis points from the high seen in early November.  As much as the market is trying to find out the timing of a rate cut by the Fed, the bond market has been driving yields sharply lower and stimulating the economy.  A flat yield curve will eventually disincentivize credit creation, so we should see eventually a re-steepening of the yield curve.

Stocks – Walmart impresses; Nvidia delivers

GBP – Markets begin pricing in life without PM May

Oil – Geopolitical risks keep the rally going

Gold –  Down on Strong US data and Earnings

Bitcoin – Thar she blows

Stocks

Asian equity markets are poised to open higher following a strong rally in the Americas and better than expected after-hours results from Nvidia.  Nvidia guidance is driving optimism that makers of gaming computers are resuming purchases.  Nvidia’s strong beat on both the top and bottom line and solid guidance helped take shares over 5% higher in after-hours trading.  CEO Jensen Huang highlighted they were able to work their way through inventories that now opens the door for new production.

Earlier in the NY morning, US stocks were bolstered by Cisco’s better than expected outlook and Walmart’s impressive earnings and news they will pass on increased tariffs onto the customer.  Both earnings highlight the strength of the US consumer, but that could very well change in the coming weeks.  Macro headwinds will continue to dictate the fate of earnings growth, which increases the importance of a trade agreement between China and US being reached over the next few weeks.  The consumer will feel more pain the longer trade talks drag on and the end result might mean widespread surges with prices, which will drive up inflation.

GBP

A new PM is coming.  PM May finally agreed to outlining a timetable for abandoning the head post, after she was given one last attempt to push through a Brexit deal in Parliament.  She is expected to fail in delivering Brexit and markets are now repricing a longer delay in seeing any substantial progress.

The British pound is getting slaughtered, with the worst slide since 2000 against the euro.  A new leader is not going to have an easy path for success as sides remain divided and we may end up needing to see an election before anything gets done.

The FX markets are not convinced Former Foreign Secretary Boris Johnson, who announced his interest in the job, would be able to break Parliament’s stalemate.  His desire to change the Irish backstop will return the heated debate back to the EU and we could ultimately see risks for a no-deal Brexit grow during this extended period of uncertainty.

Oil

Crude prices continue to rally as Persian Gulf tensions remain elevated and as uncertainty clouds this weekend’s OPEC and its allies meeting on how to adjust production due to the Iranian sanctions.  Right now, OPEC’s spare capacity appears to be falling short of covering the amount of oil output that is at risk.  The bullish argument for oil in the short-term remains elevated as traders continue to price in a big draw down with oil inventories after the summer.  Brent futures are also showing the biggest backwardation in almost 5 years.

Further actions from Iran or escalated tensions in Venezuela or Libya could be the catalyst to take oil back to the 2019 highs.  While US production is widely expected to resume fresh record production levels, the markets may have overpriced the velocity in which that will occur.

Gold

Gold prices got punished after strong US economic data was accompanied with better than expected earnings from Walmart and Nvidia.  Trade war escalation headlines took a breather today, but one should not confuse that for optimism with talks.  Earlier reports, that the US representatives will be returning to Beijing for a new round of talks, but that was refuted by a Chinese ministry spokesman.  Gold remains vulnerable as deflationary conditions along with the markets remaining confident a trade deal will be reached within a few weeks.

Bitcoin

Bitcoin drops 4.2% on profit taking and as investors remain cautious as capital outflows appear to be larger than inflows on some of the more sizable exchanges.  TokenAnalyst, a UK provider of blockchain data noted Bitfinex, BitMEX, Binance and Kraken withdrawals may have exceeded $622 million this week.  Cryptocurrencies will likely see volatility remain high here.   In the short-term, $7,000 remains key support while $10,000 provides resistance.

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