US Open – China eases, EZ PMI’s deliver hope, Oil rises on demand hopes, Gold surges on falling dollar

Financial markets are off to a great start in the New Year after the PBOC delivered a fresh round of stimulus and Europe’s manufacturing data indicated some signs of stabilization.  The news flow was not all positive for Asia after Kim Jong Un expressed frustration with the US lack of easing any sanctions.  The North Korean leader have brought back tensions to the forefront and the world could see the testing of a new strategic weapon. 

The dollar’s rebound from a five-month low could prove to be temporary as investors begin to unwind their safe-haven bets that stemmed from trade uncertainty and global economic weakness. 

PBOC

The PBOC delivered another round of stimulus in what is likely to be the beginning of a new trend in efforts of delivering better than 6% economic growth in China this year.  The decision to reduce the amount of cash banks must hold on reserve shows the central bank is expected to bring down borrowing costs for businesses. 

The aggressive action by the PBOC shows they may be confident that the macro-prudential risks (balance sheets have improved) are not an issue and they can deliver further stimulus.  Chinese stimulus will assure 6% growth and the bull case for the global equity rebound should remain firmly in place. 

EZ

The manufacturing contraction for the eurozone entered the 11-month, but key readings from Germany and euro-area region are showing signs of stabilizing.  Germany saw new orders improve in December, but the region showed a slight monthly decrease.  Some investors had hoped for better data following last month’s consistent positive trade headlines, but we may need to wait another month before we strong signs of a recovery. 

Oil

Oil prices continue to consolidate as investors wait-and-see if the latest Middle East tensions will produce another shock disruption to production and whether further signs of a global reacceleration will emerge.  Oil prices are struggling for significant direction despite several key headlines.  Russia’s oil production rose to a 33-year high (post-Soviet) as compliance towards the OPEC + alliance agreement seems to consistently escape the key non-OPEC producing member.  The OPEC + agreement will likely end this year, since the Russians are clearly showing they will not be giving up market share and will unlikely comply, because markets are convinced the Saudis will be doing whatever it takes to make sure oil prices are stable so that the ARAMCO stock offering has a successful first year.   

The 2020 story for oil will be less about the OPEC + production cuts and more about the pickup in demand we will see from the global growth rebound. 

Gold

The dollar is softening and that was just what was needed for gold to get its groove back. Gold’s bullish trend has reasserted itself despite fresh record highs with US stocks, a calm on the trade front, and no hints of recession concerns.  If gold easily takes out the 2019 high of $1,566.20 over the next couple weeks, we could see prices initially target $1,640 this quarter.  The breakout could easily $1,750 by year end if the dollar continues to stumble.    

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