US Close – Stocks rally on Trade Optimism and Earnings; Dollar surges on debt deal; Oil higher on trade and API

Earnings results came in better than expected as Coca-Cola, United Technologies, Visa, Snap Inc, and Texas Instruments delivered strong beats and solid outlooks.  With the bar set so low for this earnings season, better than expected results are seeing limited gains as markets await clarity on how much easier monetary policy will get globally.  The announcement of a US debt ceiling agreement gave a bid for risk appetite, but it also removed a risky event that could have given the Fed more justification for stronger easing signals.  When the debt deal is ratified, the Treasury will create short-term paper to rebuild the cash balance, which will provide some tightening and support the greenback as excess reserves will likely decline.

Asian equities should see a strong start following the momentum from a wrath of strong earnings results from a wide range of sectors.  After-hours, Chipotle shares rose on a strong comparable sales performance and Snap posted strong increases with daily active users and delivered a handily revenue beat.  Some large tech giants saw some weakness after reports that the Department of Justice is opening up a broad, new antitrust review on unfair competitive practices. The probe would target Facebook, Amazon and Apple. The dollar’s broad gain was mainly follow through on the debt ceiling deal that will see boost in spending.

Trade

The US trade team is headed to Shanghai on Monday for a few days of talks.  Markets have been eagerly awaiting this next step in the US-China trade war and optimism will grow that this meeting could signal a key turning point in securing a final deal.  Next week will be huge as investors process both the Fed rate decision and whether we see China deliver some structural reform promises and if the US removes any of the current tariffs on Chinese goods and softens its hardline on Huawei.  US stocks surged on the news US trade representative Lighthizer and a small team were headed to China.  While US and China had a positive day regarding the trade front, the EU decided to step up their retaliatory threat as the US seeks to limit the European shipments of automotive products.  The European Trade Commissioner Malmstrom raised the EU tariff threat 75% to 35 billion euros on US goods, a reminder that we are at the beginning of the transatlantic trade war.  The euro fell to the session low following Malmstrom’s threat.

Boris

The next Prime Minister for the UK will be Boris Johnson.  He was the favorite and survived a six-week leadership race.  Following the announcement, Johnson told his base what they wanted to hear following his victory: The UK will leave the EU on October 31st and that there will not be a general election.  The Brexit scenarios, still remain plentiful as an election still seems likely as Johnson will try to break the parliamentary deadlock.  Johnson will have just over three months to deliver Brexit and negotiations with the EU are likely to go down to the wire.  No-deal risks remain high, but we should see markets start to get immune to what is expected to be another wave of political posturing from both sides.

Oil

Crude prices reversed an early decline after the US announced trade representative Lighthizer and a small team would head to Shanghai for a face-to-face meeting with Chinese representatives.  The possible nearing of a trade deal provided a strong bid for risky assets, lifting oil to its third consecutive gain.  Oil prices also received some support from news that Britain was reportedly seeking EU support in creating a naval mission for securing safe shipping through the Strait of Hormuz.

The API weekly crude report posted a strong draw of 11 million barrels last week.  Crude initially spiked higher following the release, but technical WTI sellers emerged just ahead of the $58.00 a barrel level.

Gold

Gold prices are down modestly when you consider all the positive risk-on headlines.  Gold was ripe for a pullback, but strong demand is keeping weakness limited.  Gold could be poised for a strong rally as today’s price action only saw limited weakness after US leaders reached a debt ceiling agreement, positive trade progress as a US trade team is set to head to China and Monday and a very good day for corporate earnings.  The prospects of another tsunami of global easing and inexorably high debt levels globally will support gold in the medium-term.

Bitcoin

Bitcoin remains stuck in a range that will likely see it continue to dance around the $10,000 level.  Crypto investors are still digesting the newly increased regulatory environment that will hit the crypto space thanks to Facebook’s Libra currency project.  The largest cryptocurrency did get a some good news earlier this week after receiving legal recognition by a second Chinese court, in what is a very positive development for what might be the largest market for Bitcoin.

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