US Open – Oil, Iran, China, Germany, Gold, and Bitcoin

President Trump’s strategy this week appears to be of a more appeasing tone that will look to calm markets.  Risk appetite is stable on Trump’s assuaging comments on China and a possible reversal in his hardline with Iran. With no major breakthroughs expected on the trade front today, we could see that momentum fade.

Oil

Oil prices have been battered over the last month as the never-ending trade war intensified and hope for business investment with rig counts falter due to worsening global growth concerns.  Yesterday’s risk-on move also saw oil struggle to significantly rally after Trump showed a willingness to meet with Iranian President Rouhani, a possible olive branch that could possible show the beginning of an easing in tensions in the Persian Gulf.  With Iran’s Parliamentary elections due in February and the economy being so weak, the pressure is on Iran to achieve some breakthrough as public frustration grows.  Rouhani’s rejection of a photo-op with Trump reminds us that the path to any progress remains difficult. 

Oil could see some support from tomorrow’s crude energy report which is expected to show a steady draw of just under 2 million barrels.  After hitting consistent record high production levels earlier in the year, the pace of US output has steadily slowed down, and oil could start to see more support as energy markets continue to tighten.

Germany

Europe’s largest economy appears to have a clear path to a recession.  The final second quarter GDP quarterly reading was confirmed at -0.2% and with the recent batch of dismal manufacturing reports and IFO surveys, the third quarter will probably be much worse.  The transatlantic trade war will keep the German economy under pressure, but Wall Street does not anticipate a lengthy trade war like the one the US is having with China.  German businesses will continue to struggle to navigate through this difficult environment and we should expect the manufacturing weakness to crossover to other industries. 

Gold

In addition to portfolio managers buying up gold as their preferred safe-haven trade, central bank purchases are expected to provide an additional level of support over the next couple of years.  Emerging market demand for gold should provide major support to what is an already very strong bullish trend.  While overbought conditions have been in place for most of the summer, investors awaiting a major pullback might be disappointed.  Short-term support lies at $1,525, followed by $1,475, while upside targets remain $1,650, with longer-term targets around $1,730. 

Bitcoin

Bitcoin volatility is down to an almost two-month low and with no major hurdles stemming from the G7, we could see crypto traders slowly creep back into longer-term bets.  In the short-term, it will be difficult for Bitcoin to breakout from the $9,200 to $12,400 range.