US Open – China soothes markets, Yields in focus, Euro-Area Surveys improve, Oil’s demand concerns, Gold buyers to emerge

Global equities turned positive after China’s Ministry of Commerce spokesman Gao Feng soothed trade war concerns after signaling both sides are in effective contact and that China wouldn’t immediately respond to President Trump’s latest tariff threat.  Optimism is brewing that the September meetings could still happen and that we could see the removal of some of the new tariff threats. 

With recession concerns remaining elevated and investors fleeing to Treasuries for capital appreciation, the one-way trade sending yields tumbling appears to have overwhelming support from investors seeking protection trade tensions, currency wars and geopolitical risks that especially include Brexit and the protests Hong Kong. The general consensus is not will we see fresh record lows on the 10-year Treasury yield, but how soon will it happen.  The all-time low of 1.318% could be breached if we see the Fed refuse to commit to an easing cycle or if we see China become overly aggressive in supporting their domestic economy. 

Euro-Area Confidence

Euro-area survey data for August came in better than expected as markets prepare for a fresh wave of stimulus from the ECB.  Industrial confidence improved but remains near six-year lows, while services confidence hovers around four-year lows.  The August readings do not dissuade recession concerns but shows markets are pricing heavy easing from the ECB which will include a clear signal additional to come in the following months. 

Oil

Lingering demand concerns are disrupting oil’s rally that stemmed from a bullish EIA report that saw US stockpiles fall to a 10-month low.  The strong drop with American inventories reminded markets that OPEC and allies are still seeing their production cuts continue to tighten the oil market. 

Hurricane season is heating up and we could see Dorian strengthen to a Category 3 hurricane by the time it reaches Florida’s east coast.  Dorian could still turn but right now it seems the Gulf of Mexico and all its production will not see significant disruptions and halts to oil production. 

Gold

Gold is seeing some softness following assuaging comments from China’s commerce ministry.  On the trade front, we are bound to see constructive comments leading up to an expected face-to-face meeting in September.  However, with the risks of everything falling apart with a single tweet, we will likely see any gold selloffs be bought up.  US stock market volatility, negative global rates falling further into the abyss and geopolitical risks are going to keep both gold and silver firmly supported in the short-term. 

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