US Core PCE data cements rate cuts this summer; Oil Report next; Bitcoin eyes $10K

US stocks are poised to open slightly higher as the global bond market rout takes a break, despite the latest escalation from China and a wrath of US data that cements a Fed rate cut should be coming this summer.

China, the biggest soybean buyer in the world, reportedly decided to hold off on soy purchases, which is most likely another negotiating tactic in the escalating trade war.  China is not canceling the orders, just waiting for trade negotiations to improve.  Global bond yields improved overnight, but the 10-year Treasury yield resumed its slide after the US data, falling 0.7 basis points to 2.253%, while the Italian 10-year remains volatile, surging after Deputy Premier Salvini noted he is ready to end Italy coalition with Five Star if the don’t work with him.  The dollar is mixed against its major trading partners, while gold prices softened but still stuck in its recent trading range.

USD – Fed’s favorite inflation measure falls to 1.0%

Lira  – Off the highs after Turkey considers putting S-400s on Mediterrean

Oil – EIA report expecting a draw of 1.1 million barrels

Gold – Struggles despite rate cut bets

Bitcoin – Eyes $10,000

USD

The writing is on the wall, the Fed now has data that warrants rate cuts.  There could be no point in debating rate hikes anymore, yes believe it or not, there is a camp of economists calling for a rate hike as the next move.  The Fed’s favorite inflation measure, Core PCE’s second reading for the first quarter showed inflation fell to 1.0%, well below the 2% target.

The first quarter GDP reading was also revised lower from 3.1% to 3.0%.  First quarter profits also declined 2.8%, much worse than the 0.4% drop seen in the prior quarter.  The weekly jobless claims came in-line with expectations, with the 4-week moving average at 216.75K in the week ending May 25^th.

The Fed can capitulate this summer, officials may want to see a final Core PCE reading, but with the 10-year Treasury yield trading so far below the Fed’s target range, the FOMC will have an easy decision.

Lira

The Turkish lira is 1.7% higher against the dollar, off its strongest levels after news they are contemplating placement of a Russian missile-defense system along the country’s southern coast.  Tensions are high with Cyprus over gas exploration and this could escalate this situation.

The US has already been putting pressure on Turkey for acquiring the Russian missile system and this will likely raise tensions, despite the Turkey’s release of the US NASA scientist after years in prison.  US sanctions appear inevitable for Turkey.

Oil

Oil prices have given back most of their overnight gains as markets await the next development in the trade war and whether the EIA report shows crude inventories posted another multi-million-barrel build.  Current expectations are for a draw of 1.1 million barrels, with a range of estimates from a 3.5 million draw to a 1.5 million build.  So far in 2019, forecasters have not been to accurate in predicting the volatile report.  Yesterday’s API inventory report showed a draw of 5.3 million barrels.  If we also see a million plus draw with today’s EIA numbers, that should help oil stabilize here

Gold

Gold remains stuck in a tight range, failing to capitulate on the trade war escalation and Fed rate cut bets.  The market is pricing three rate cuts between now and next year.  Gold needs the dollar fall, but right now US duration appears to be heavily supported in the bond markets.

Bitcoin

Bitcoin is up 0.9% in early trade, poised for the longest monthly winning streak since 2017.  Bullish momentum appears to have eyes set for $10,000 and that could become a reality.  No negative news is good news for crypto fans.

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