Trade Talks get Ugly

Just your typical risk aversion Monday, trade talks see both the US and China ramp up punitive measures and Middle East tensions rise. Stocks are down, oil is up, while gold’s safe-haven bid is diminished on global deflationary conditions. Treasuries are in demand as the retaliatory tariffs prompt a flight to safety. Since China possesses $1.1 trillion of US government debt, many will wait to see if any dumping of Treasuries occur. Talks are getting uglier by the day, but it seems markets still are pricing in a deal, by June 1st or by the end of the G20 summit on June 28-29th. No dates have been set for further negotiations. The dollar is softer on the day, while the Japanese yen and Swiss franc are benefiting from safe-haven flows.

Stocks – Boeing and Apple fall roughly 3%

Oil – Higher after Saudi oil tankers attacked

Gold – Rallies as trade war worsens

Bitcoin – Market matures as Fidelity offers cryptos to institutions

Stocks

Bellwether stocks are getting punished this morning as the intensification of the trade war is seeing the market once again reprice a total collapse in talks.  The Global Times story that China may reduce Boeing orders led shares to slide 3.0% at the open.  Apple fell 4.4% as they will be one of the greater causalities from the trade war.

Oil

Rising production levels will take a backseat this week for oil traders, the focus is completely on geopolitical risks.  Brent crude surged over 2% after reports that two Saudi Arabian tankers were damaged from a sabotage attack as they were approaching the Persian Gulf.   Supply disruptions are likely to continue and that could lead to a tighter oil market.  Another catalyst for oil was last week’s outage that occurred in the Norwegian North Sea that could impact roughly 6% of Norway’s oil output.

If we see continued violence in the Strait of Hormuz, that could be a game changer that would mean West Texas Intermediate crude at $70 and Brent above $80 a barrel.  During prolonged military conflict between Iran and Iraq during the 1980s, the Strait of Hormuz was left alone for Saudi shipments.

Gold

Gold prices are finally catching a notable safe-haven bid as trade.  The yellow metal rallied 0.9% and touched $1,300.70 an ounce.  Trade war optimism and deflationary conditions globally were the main reasons gold could not deliver a significant bullish move in April.  With the base case scenario of trade deal being reached in early June as the latest scenario being erased, markets are repricing risks and gold is finally getting a bid.  Deflationary concerns however are likely to persist and gold may see this rally capped on the announcement of a new date for further trade negotiations.

The base metals are all sharply lower and will likely need a trade optimism return to reverse course.

Bitcoin 
Last week, Bitcoin made huge progress in become legitimate offering for some investors.  Fidelity announced plans to offer cryptocurrency to their institutional clients, joining the likes of Etrade and Robinhood who are looking for retail offerings.  Bitcoin is up over 17% at $7,384 on the day and has reinvigorated many crypto fans.

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