Asia Open – Markets remain focused on Trade, Fed, Brexit, Oil, Gold, and Bitcoin

Much of the focus over the weekend focused on twin mass shootings in the US that left 29 dead in just 13 hours.  The Saturday shooting in El Paso, Texas is being treated as a case of domestic terrorism and as a hate crime.  The motive for the shooter in Ohio shooting remained unclear.  The tragic events over the weekend are seeing Democrats resume the call for stricter gun laws.  Gun control and anti-immigrant views will likely be the focal point for the third set of Democratic debates which will take place in the second week of September.

Financial markets are likely to remain jittery this week awaiting incremental updates on China’s response to Trump’s latest trade escalation and for further clarity from Fed officials on the how many more rate cuts are on the table.  The punchbowl is getting refilled but last week’s FOMC decision dampened expectations for an easing cycle.  Corporate earnings are also starting to come in softer than expected and we could see investors run to the sidelines.

China will be on top of everyone searches this week.  China is likely to drag out their response and retaliate in many ways against the US trade measures.  In the middle of the week, investors will pay close attention to China’s trade report, which is expected to see continued declines with both exports and imports.  China is weakening and if the data comes in much worse than expected, we should not be surprised to see the PBOC act by the end of the week.

Fed’s Brainard will speak on the Payment System on Monday, while Bullard discusses the US economy on Tuesday and Evan’s talks the following day.  The Fed may choose to announce a definitive shift to an easing cycle at the Jackson Hole Symposium later in the month.

Global equities will struggle to rally here on trade jitters and even with see some upside surprises with earnings as expectations have already been severely lowered.

Brexit

Boris Johnson’s parliament is hanging on a thread and we will likely see a lot happen before the October 31st deadline.  Speculation is growing that we could see a general election and the risks for a no-deal Brexit remain high, as well as a possible Jeremy Corbyn Labour government.  Hard Brexit fears will weigh on the British pound and if we see growth in the UK turn negative this Friday, we could see the BOE join the rate cutting club in September.

Oil

Geopolitical risks will try to counter the overwhelming impact of the latest escalation in the trade war between the world’s two largest economies.  Financial markets are still working on pricing in a complete collapse of trade talks amongst the Chinese and Americans.  The base case still remains for a deal to get done, but talks are likely to get a lot messier before we see anything close that resembles a deal.

The Persian Gulf remains the second act for oil and continued tanker seizures will eventually put a bid with oil prices.  Iran’s Revolutionary Guards captured a small foreign oil tanker at the end of last month and we will likely see joint efforts from the US and European nations in delivering safe travels for their respective oil vessels.

OPEC and allies are getting nervous that we could see negative trade rhetoric combined with thin conditions completely wipe out the crude price gains they were able to deliver this year.  Last week’s trade escalation saw the worst day for crude in four years and until we see last’s week’s low tested once more, we could see oil prices struggle to muster up a significant rebound.

Gold

Gold would probably be trading close to $1,500 an ounce if the Fed’s Powell did not say last week’s cut was more of a mid-cycle adjustment, destroying expectations that this was the beginning of an easing cycle.  The path to $1,500 still is intact as volatility surges on heightened trade angst and dismal economic growth statistics globally, except for the US.  While the US remains relatively strong, the latest tariff threat from President Trump will weigh on the US consumer and will start to see the pain felt domestically.  With too much uncertainty with global equities and bonds that yield negative results, gold is likely to shine bright for some time.

Bitcoin

Bitcoin continues to stabilize as the US government appears unable to ban the largest cryptocurrency in the world. The financial regulatory environment will make life harder, but for now, we should see Bitcoin outperform the other smaller coins such as Litecoin and Ethereum. Bitcoin did see some negative news that Apple’s new credit card will not allow the purchase of the cryptos, but that will likely do little to weigh on the digital coin.

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