US Open – Friday rally on Lagarde’s push for fiscal stimulus and China pledge to US, Commodities rally

European stocks and US equity futures are climbing higher on ECB President Lagarde’s warning to EU leaders of market risks if the EU can’t quickly agree upon the EU recovery fund and after China pledged to follow through with the remaining $30 billion plus worth of American agriculture products under the phase one deal.  Financial markets are possibly getting a double dose of good news on the fiscal front from the EU and a confirmation that the US-China relationship is not falling apart. 

European leaders seem to have enough pressure to sway the fiscally hawkish nations into agreeing on the proposed 750-billion-euro recovery fund.  The southern periphery needs critical support for their economic recovery and if negotiations do not have a relatively smooth path, the euro could quickly erase a majority of its June gains.

US-China relations are not entering a period of calm by any means, but this latest breakthrough suggests both sides don’t want to mess with their respective fragile economic recoveries.  US Secretary of State Michael Pompeo noted China’s top foreign policy official Yang Jiechi committed to honor all of their commitments under the trade deal.  China has only purchased $4.7 billion of US goods throughout the first four months of the year, leaving over $30 billion of American agricultural products to make them whole. President Trump will likely remain relentless with his attacks on China at his campaign rallies, but Wall Street won’t care if American firms can do business with Chinese tech giants and if trade relations improve.  

Oil 

Crude prices are rising on optimism EU leaders are nearing a much need fiscal stimulus plan and on optimism that the US and China will likely play nice throughout their coronavirus pandemic battered economic recoveries.  The EU 750-billion-euro recovery fund will support the economic recovery in Europe and help the prospects for stronger crude demand later this summer.  Globalization is also important for crude demand and if the US and China can continue a healthy trade relationship that should also be positive for oil prices.

WTI crude is testing the $40 level as demand prospects continue to improve.  The oil market may not rebalancing as quickly, but it seems tank tops are no longer a concern, and mounting optimism could keep prices nears the highs of its recent trading range.  A sustained move above the $40 level will be difficult for WTI crude given the persistent virus surges globally.  Restrictions are not going away anytime soon, so oil prices at best might have another dollar or two to climb higher.  

Gold 

Gold prices are benefiting from the stimulus talks in Europe and on constructive Chinese promises to fulfill their pledge to buy US agricultural goods.  Gold remains supported on virus worries, surging government debts, and as unbalanced economic recoveries globally will keep the stimulus coming from all directions.    

Gold is still in a consolidation phase, but that could be over if prices have a clean break of the $1750 level next week.  Volatility in the equity markets will be huge as the S&P and Russell indexes rebalance next week.  Many catalysts are brewing for gold bulls and its seems like only a matter of time before the rally can accelerate.

Bitcoin

Bitcoin continues to consolidate in what many crypto-fans are calling the typical accumulation phase that occurs after a halving event. Bitcoin has struggled to despite an overall resilient appetite for risky assets. The world’s largest cryptocurrency has started to see some traders focus more so on Ether’s network as demand grows for decentralized finance (DeFi) applications. Bitcoin may struggle as their rival continues to gain momentum.

In the short-term, Ether’s growing interest is somewhat negative for Bitcoin, but ultimately anything that drums up interest for cryptos is positive long-term.

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