US Open – An Uneventful Start to the Week

US/China talks on hold

A subdued start to trading on Monday, with stocks in Europe relatively flat and US futures marginally in the green ahead of the open.

So far it’s been relatively light on the data side of things, with Japanese GDP the only real highlight. Worst ever contractions don’t really carry the shock factor they once did, though. It’s just tier two and three data for the rest of the day , the entire week has a lot of that though with central bank meetings the only real highlight and even those are a little outdated in this rapidly moving world we’re living in.

The phase one trade deal review between US and Chinese officials, which was meant to take place on Saturday, has been pushed back due to apparent scheduling issues. The delay also gives China time to increase purchases of US goods in line with the terms of the agreement, something that will be important to Trump heading into the election. It’s far harder to sell the deal to the public if China isn’t holding up its side of the bargain.

Trump’s determination to make a success of the phase one deal, at least before the election, isn’t stopping him from picking fights with the Chinese leadership though, with the President on Friday ending a waiver that enabled some US companies to continue to sell to Huawei and ordering ByteDance to divest its US TikTok stake within 90 days. Trump also indicated he’s not done there, which will come as a surprise to no one.

It’s been clear for some time that Trump has placed a huge target on China’s back ahead of the election, as he seeks to deflect all blame for the devastated impact of the Pandemic onto Beijing and portray them as the enemy to the American public. That may well win him some votes but it may not be enough to win him a second term when the economy has been battered and bruised, unemployment has doubled and almost 175,000 people have died. The public will need to be convinced that he’s the right person to turn everything around.

Oil off its highs ahead of JMMC meeting

Oil prices are easing off their highs for a third day, although they still remain fairly close to their recent peaks. The OPEC+ review this week will determine how compliant members have been and what action, if any, will be recommended going forward. The group is planning to bring 1.5 million barrels back on line this month as the global economy continues to recover as restrictuions have eased following widespread lockdowns.

There have been setbacks though, with the US seeing a second wave at the moment and parts of Europe also seeing a spike in new cases, forcing the UK to add some countries to its quarantine list. The IEA was forced last week to lower its forecasts for global demand this year and next in response to recent developments, which will necessitate OPEC+ acts with caution when lifting production quotas in the months ahead. The last thing they need right now is another price plunge.

Softer dollar lifts precious metals

Precious metals prices have stabilised in the last couple of sessions, with the softness in the greenback helping to prop them up after last weeks crash. Gold is trading around $1,950 at the moment after breaking $2,000 a couple of weeks ago to hit record highs. Since then US yields have risen which has taken the edge off the bullish case for gold.

The outlook remains bullish though unless the dollar can stage another strong fightback, but that will require real US yields to rally much further. They’re off the lows for now but, despite last weeks occurance, few have changed their views. It seems people are just as bullish as ever about gold, they’ve just been reminded that it is a two way trade and one way is typically far more aggressive than the other.

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