US Open – Markets await Powell, Steady inflation, IEA exemplifies gloomy demand outlook, gold stabilizes

US stocks are drifting lower following yesterday’s Trump speech that delivered no hints for further trade progress and Powell’s testimony to the joint economic committee of Congress.  Powell is the main the event today as investors will look to hear his latest assessment of the economy and on the risks to the outlook.  Powell will probably not give clear clues on how the Fed is planning to launch further measures to get inflation higher.  Markets expect the Fed to remain on hold for a few meetings, but deflationary risks will support further action from policymakers. 

Investors will also monitor the first public hearings in the House’s presidential impeachment inquiry, but it is unlikely to move markets unless we start to see the President lose republican support. 

US Inflation

Steady inflation is likely to do nothing little in motivating the Fed into delivering additional measures in the immediate future.  Inflation remains stable and will continue to support calls for the Fed to remain on hold. The risks for inflation remain to the downside and expectations will remain for the Fed’s next move to be further rate cuts and some extraordinary measures to avoid deflation. 

Oil

Another gloomy outlook for oil demand and another build for American crude inventories dragged crude prices lower.  The EIA delivered the latest outlook that shows a key theme that oil demand is going to plateau at some point over the next 15 years.   A material slowdown is expected to occur after 2025 and this should do everything to inspire the Saudis to deliver a successful Aramco IPO in the coming weeks. 

The Kingdom’s 2030 vision will likely want to keep oil prices higher over the next few years, prompting investors with optimism we should see OPEC + continue with the production cuts at the expense of the Saudis giving up further market share. 

Gold

A modest risk-off day is seeing limited demand for safe-havens.  Gold is stabilizing and bulls are appearing content to deliver the all-clear sign.  While the risks for a further delayed phase-one deal are growing, markets remain doubtful we will see a phase-two deal this side of the 2020 election.  Gold is still likely to remain the favorite safe-haven trade on any trade uncertainty. 

If gold can close above $1,460 an ounce today, we could see gold bugs look to defend this rebound. 

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