US Close – Waiting Game for Trade updates and FOMC, Gold and Oil rise, while Bitcoin stumbles

Asia is likely to get little direction from Wall Street as investors brace for a trade update between the US and China, Apple’s earnings which will be released Tuesday after the close and Fed’s monetary policy decision on Wednesday.  Risk appetite will take a cue from how dovish the Fed turns.  If the Fed remains data dependent, that would be viewed as hawkish and we could see the dollar surge and US equities fall under tremendous pressure.  While the main even this week is obviously the Fed, several important corporate earnings will be released along with Friday’s nonfarm payroll report.  This week’s big corporate reports will come from the Apple, Exxon, Chevron, several carmakers and consumer discretionary stocks.    

GBP

The EU does not appear to be abandoning a hardline that PM May’s withdrawal agreement is not up for negotiation and Boris Johnson seems convinced he will get the EU to remove the backstop.  The Brexit deadlock is raising the no-deal risks and weighing on the British pound.  It seems that we will likely see an early election and if Johnson wins, we could see him take the UK out with or without an agreement.  With no reason to be optimistic that we will see any Brexit progress in the short-term, it will be hard to see any bullish cases arise for the British pound. Cable fell as much as 1.4% to 1.2211. 

Oil

Oil remains stuck in a tight range ahead of the Fed meeting later this week that is likely to see Fed Chair Powell and company cut rates for the first time since 2008.  The Fed is about to go full-dove as a falling unemployment rate has done little to help create inflation.  The overall global economy remains fragile and as trade uncertainty runs high, the Fed is likely to signal they will do whatever it takes to avoid becoming Japan or Europe.  The risk of negative rates are growing and a complete pledge to easing should support commodities.  The similarities to this month’s rate cut and the non-recessionary Fed rate cut in 1995 are high, Clinton and Trump both had special probes and decided to start trade wars with the second largest economy in the world.  If the Fed matches the intensity of rate cuts, they delivered din the 90s, we could see crude prices heavily supported.    

Gold

Financial markets are seeing commodities and precious metals appreciate on expectations the Fed will commit to a strong easing cycle.  Wall Street is convinced we will see a 25-basis point cut along with a likelihood of more cuts scheduled in the pipeline.  Gold could see another major rally as the fight for inflation could see the Fed deliver over a full percentage point in cuts over the next 12-months as deflationary pressures grow.   The yellow metal could see major support if the Fed’s easing cycle raises concern the largest economy in the world could eventually see negative interest rates. 

Bitcoin

Regulatory scrutiny continues to be a drag on the crypto space.  Bitcoin has fallen below some key technical levels and remains vulnerable to further downward pressure as Senate banking committee prepares a hearing on “Examining Regulatory Frameworks for Digital Currencies and Blockchain.”  An environment that will see digital coins thrives seems to be fading as government leaders will try to create measures that will protect people.  This will also become a talking point for the Presidential Election and it is unlikely to see any candidates run on a platform that is supportive for easier regulation on cryptocurrencies.