US Open – US consumer was strong in December, Morgan Stanley delivers, BOE now expected to cut, Treasuries inch higher, Oil stabilizes, gold steady and Bitcoin enthusiasm

Rising doubts about the US consumer got squashed after the December retail sales showed no signs of slowing down.  After a batch of disappointing results from Target, JC Penney, L Brands, Kohls, Wall Street was starting to get nervous the US consumer spending was slowing, but after today’s retail sales beat, that does not seem to be the case. Personal consumption saw the biggest consecutive quarterly gains since 2014, while household spending eased.  This morning’s barrage of US data also saw jobless claims fall more than expected and a strong improvement with the Philadelphia Fed business outlook survey.  The survey was almost completely positive, only inventories declined.  Markets are particularly liking this Philly Fed outlook as  new orders surged and future business conditions index popped to the highest level since May. 

FX

In just over a week, the odds for the Bank of England to cut rates at the end of the month has gone from 5% to over 60%.  With inflation falling to a three-year low, BOE officials are concerned if they don’t act now, they may be forced to deliver a lot more easing.  The British pound is down 1.5% since the start of the year and is tentatively seeing key support from the 1.30 level.  If the BOE does not act, we could see the UK economy at risk at contracting.  The inflation and growth data provides justification for the BOE to cut in January and possible once more before summertime.  The British pound could see weakness towards 1.2850 if we dismal PMI data next week. 

Fixed Income

The phase-one trade deal is not delivering a strong boost to sentiment as investors begin to feel this is a one and done deal.  It is very unlikely we will see a complete removal of tariffs this year and that will weigh heavily on American businesses.  Following the strong swath US retail sales data, US Treasury yields are higher across the curve, with the 10-year trading around 1.8022%.  With trade tensions likely to linger and slower economic growth out of Europe, we could continue to see the low interest environment continue to keep Treasuries in demand with the 10-year trading between 1.70% to 2.10% this year. 

Earnings

Morgan Stanley crushed it with FICC trading more than doubling from year ago.  The earnings report was mostly positive with the some concern coming out of Wealth Management unit’s pretax margin.  With all the big banks done reporting, large financials are outperforming with the exception of Wells Fargo.  The outlooks from JP Morgan, Citigroup, Morgan Stanley and Bank of America all suggest the consumer is strong, credit markets are not a concern right now and that economy will continue to grow.

Oil

Oil prices have done nothing exciting over the last few sessions despite a bearish EIA crude oil inventory report that showed production hit a new record high and as demand weakens. Last week’s oil bloodbath that saw the major de-escalation with the US-Iran conflict erased all the gains from the OPEC + alliance bigger than expected production cut pledge.  Yesterday’s inventory numbers saw huge builds with both gasoline and distillate inventories.  Since West Texas Intermediate crude did not collapse despite a majority of the market seeming to turn bearish, we may have seen a bottom put in place.  The next big move for crude may need to come an improving global outlook that may require further stimulus from Europe.  WTI could remain a choppy trade this week, but we could see the path be easier towards $60 than to the mid-$50s region.   

Gold

Gold prices gave up their earlier gains following a wrath of positive US economic data.  This week has not been good for macro-economic traders looking to make a bullish case for gold prices.  The longer-term bullish trend for gold has been supported on central bank demand, geopolitical risks, trade tensions and a falling dollar.   This week, we saw Russia, the world’s largest purchaser of gold saw a 44% decrease in gold spending throughout the first 11 months of 2019, further calm with the US-Iran conflict, the signing of the phase-one trade deal, and only a modestly weaker dollar. 

Gold prices however may not breakdown much further as global growth risks remain firmly in place in Europe and as trade concerns will continue to linger throughout the year.  As long as $1,540 holds this week, we should see prices continue to stabilize in the coming weeks. 

Bitcoin

Bitcoin enthusiasm is slowly coming back.  Crypto traders are closely watching the bearish trend line that has kept all rallies since last summer in check.  While we have not seen a whole lot of progress with mainstream acceptance, big money is still backing Bitcoin.  With regulatory hurdles taking a backseat for now, we could see Bitcoin trade rangebound between $8,000 and $10,000 over the next month. 

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