Tariff Concessions, Stable Jobless Claims, BOE nearer to easing, Oil rallies, Gold struggles

What trade promise fatigue?  Financial markets remain determined to climb higher as global equities were boosted after China’s Commerce Ministry spokesman Gao Feng noted that both sides had agreed to simultaneously cancel some existing tariffs on one another’s goods.  Optimism is sky high for this phase-one trade deal as the yuan is back below the 7 level and as US stocks that are impacted by Chinese trade are back near the highs that we saw back in May. 

A phase-one trade deal is almost fully priced in, though the timing could end up taking us deeper into December as the finer details will likely be hard to come by.  US stocks will resume their bullish breakout if the US economy continues to shine.  US weekly jobless claims once again came in better than expected with 211,000 first-time claims for state unemployment benefits, slightly better than the forecast of 215,000 and still showing no major impact from the GM strike.  Equities will continue to rise if we see a strong US consumer and so far a strong labor market is paving the way. 

BOE

The British pound fell after the BOE signaled they are more worried about Brexit and the global economy.  BOE Governor Carney noted risks to the UK outlook are skewed to the downside.  The vote to keep policy unchanged was expected to be unanimous, but Saunders and Haskel voted for a 25 basis-point cut.  Money markets raised the odds that the BOE will deliver a rate cut next year.  No change is widely expected for a rate cut at the December meeting, but the January 30th meeting sees a one in three chance. 

The heavily anticipated monetary reports showed the BOE is expecting an orderly Brexit transition to a deep free trade agreement over a shorter horizon.  Economic growth forecasts for 2020 and 2021 were cut to 1.2% and 1.8% respectively. 

The FTSE 100 is higher by 0.4% with mid-sized companies outperforming their small and large peers. 

Oil

Oil prices have recovered most of yesterday’s decline following the optimistic trade comments from China’s Commerce Ministry.  While the overall risk-on mood of the market is taking oil higher this morning, gains could be capped as oil markets are still repricing in slightly pessimistic expectations for the upcoming December OPEC + meetings.  Prior to this week, energy traders were starting to price in the possibility of deeper production cuts.  This week, comments from Russian Energy Minister Novak noted that market is rather well balance and that a Brent price of more than $60 showed the situation is stable. 

West Texas Intermediate is currently testing some key technical levels and even if we see one last push higher, sellers are likely to defend the $60 a barrel level. 

Gold

Gold is in danger of breaking below its key recent range as trade optimism continues to drive a global risk-on rally move that is driving both global bond yields and the major indexes sharply higher.  Gold’s longer-term bullish outlook should still be reassert itself, but that might not happen until we see a major selloff that targets the $1,450 an ounce level.  Central bank buying provided underlying support for gold during the 2018-2019 bull run, but with the news the PBOC is taking a break in purchasing the yellow metal, we could some extended softness in the short-term.