Soft start for Asia on G20 uncertainty and Middle East Tensions

The situation in the Middle East remains fluid and market uneasiness is likely to persist at the start of the trading week.  President Trump tweeted on Saturday that “We are putting major additional sanctions on Iran Monday.”  At the end of last week Trump called off retaliatory attack for the downing of a $130 million US drone.  Trump’s advisors seem set on delivering the attacks, but Trump did not want to kill 150 Iranians, as the response would have been disproportionate.  Trump however is willing to hold talks with Iran, so we could see the recent pattern of escalation ease up at the start of the week.  Asian equities are having a slow start to the week, but the losses are limited.

GBP

The race to become Britain’s next prime minister just got a little closer over the weekend as Boris Johnson refuses to engage with the media over an alleged late-night altercation at his home.  Johnson refused to answer Iain Dale’s interview questions about a police visit to his home.  Johnson’s neighbor called police about a late-night altercation between Boris Johnson, and his partner, Carrie Symonds.

Johnson’s lead in a poll after Friday’s alleged altercation was more than halved from 27 points to just 11.  The momentum is growing for Jeremy Hunt, the foreign secretary and if we see him become the eventual odds on favorite, the British pound could rally significant as fears for the hardest Brexit will be alleviated.  Hunt campaigned to stay in the EU before announcing a pivot.

Oil

The Middle East clashes should support oil prices at the start of the week as crude markets will wait to see Iran’s response to the threat of additional sanctions by President Trump.

Throughout the rest of summer, crude is likely to remain supported on the growing risks of military conflict in the Persian Gulf, an expected upgrade in demand forecasts as Fed rate cut expectations grow rapidly, and for the G-20 summit to deliver a temporary truce in the trade war and not a major breakthrough between China and the US.  The risks remain tilted to the upside for oil prices.

Hedge fund managers appear to be rushing to go long according to the latest CFTC data on futures and options positions.  Money managers raised their wagers 13% on West Texas Intermediate crude, it appears that after almost testing a six-year low, crude bets are rushing back as tensions in the Middle East remain fluid.

Gold

Gold bulls are back in control after last week’s price action saw a six-year high.  The yellow metal remains supported as rate cut bet expectations are growing for the July Fed meeting to see a 50 basis point rate cut.  The question is no longer will the Fed ease, but by how much? The Fed historically likes to kick on an easing cycle with a bang and a 50 basis point cut should become the base case.  On Friday, Minneapolis Fed Kashkari, a non-voter, noted that he called for a 50 bps cut at the FOMC meeting this week.

Bitcoin

Facebook’s launch of their own cryptocurrency is driving move behind Bitcoin’s rally.  Libra, the social media giant’s entrance to the stablecoin world could become Bitcoin’s biggest competitor, but now it is validating the crypto space and sending all the major digital coins higher.  Libra will now have to deal with a ton of regulatory scrutiny, but that won’t matter in the bigger picture for crypto traders of other coins.  Libra will be backed by fiat currencies, which ultimately allows it to be more stable than Bitcoin.  Bitcoin volatility is likely to persist, with $12,000 and $15,000 as the next two critical resistance levels.

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