US Open – Trade Progress, UK Supreme Court delivers blow to BOJO, IFO’s worse outlook, Oil slips, Gold struggles

US stocks will once again attempt to make a run toward record territory after the US and Chinese were able to outline a schedule for high-level talks in early October.  Markets have been here before, mounting optimism ahead of critical trade talks, but for many, this time feels different.  A complete breakdown in talks this go around will possibly see too much damage in some key demographics for President Trump’s 2020 hopes.  Business investment has stalled and the strain on farmers and manufacturing jobs could see this be a critical juncture for avoiding a recession come next fall. 

UK

Boris Johnson suffered another crushing defeat after the Supreme Court ruled that prorogation was void and of no effect.  The highest court stated that the PM’s advice to the queen was void and unlawful.  It was a unanimous vote and this surprised many who were expecting it to be closer to an 8-3 breakdown.  Now we are expecting House of Commons Speaker Bercow to recall Parliament.  The British pound is slightly higher as some expect this could make it harder for Boris Johnson to deliver a no-deal Brexit.  The Prime Minister will likely miss his October 31st deadline and need to take an extension.  If he does not he could resign. 

The risk of a no-deal Brexit still exists, but for now it seems Brexit will last a lot longer and we could see an election as early as November. 

IFO

The German IFO survey came in mixed but overall highlights Germany remains cemented in a recession.  The expectations index disappointed and is near the 2009 financial crisis lows, which is historically a pretty good indicator.  Business climate posted a slight beat and the current assessment was much better than the analysts’ forecast, but still remains near the lows during the sovereign crisis period.  The IFO economists noted the economy likely shrank further in Q3 and there is an expectation of nothing but stagnation for the rest of the year.  The ECB monetary stimulus did not seem to get a lot of encouragement and calls for greater action will remain. 

The euro is unfazed by the IFO survey because it clearly compliments the abysmal PMI readings we saw the day before. 

Oil

Oil prices are falling after both global demand concerns stemmed from a disappointing German IFO survey and as Saudi Arabia continues to recover lost output.  The energy markets are also closely watching the UN and the growing camp that is blaming Iran for the Saudi attack.  While some leaders are calling for diplomacy and for the US and Iran to revisit nuclear deal talks, it seems unlikely we will see a conciliatory tone from President Trump’s UN address. 

Gold

Gold prices rose from the session lows following a dire German IFO survey.  It seems Germany could be stuck in a deep recession and the IFO economists do not seem to be expecting much good to come from the initial ECB stimulus measures.  Gold however is struggling for a significant gain as the US and China seem to have their dates squared away for higher level talks.  Talks with Vice Premier Liu will pick up on October 7th.  Gold could see a temporary headwind if we see a major breakthrough in October, but the mounting geopolitical risks, too much negative yielding debt, and lingering stresses on the Treasury yield curve will keep gold prices supported. 

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