US Open – Phase 2 doubts, Fed/BOJ aftermath, Oil, Gold

US stocks are coming off yesterday’s record highs after Chinese officials threw shade on President Trump’s impulsive nature, also voicing skepticism over reaching a broader deal that will tackle structural issues.  Future negotiations are likely to see an uphill battle that will depend more on the strength of the US economy.  President Trump will want to avoid any economic weakness on the campaign trail when election time nears.  With sub-100K job growth and GDP coming in below 2%, a Fed that will remain on hold until possibly March, we could see President Trump refrain from a hardline approach in the coming months. A big part of the economy that is struggling is business investment and that will not get any favors if Trump decides to ramp up the trade war.

Fed/BOJ

The Fed cut rates for a third consecutive time, possibly signaling they will be on hold for now.  With risks to the economic outlook drastically improving over the past six weeks, Powell was very methodical in signaling that they are nowhere near contemplating rate hikes.  It is still likely the Fed will need to deliver at least a couple more rate cuts next year as risks to the global outlook will remain in place. 

The BOJ tweaked their forward guidance, signaling rates will be on hold beyond their prior pledge through the Spring of 2020.  Both central banks have signaled rates are on hold, removing any risks of tightening for the foreseeable future. 

Oil

Oil prices fell from their session highs after Chinese officials voiced pessimism that a broader trade deal will be reached.  While the phase-one trade deal progress helped deliver optimism we could be seeing a major macro risk removed off the table, China is reminding us we may not see structural issues tackled until after the 2020 election. 

Earlier in London, oil prices were rising higher after an important pipeline that sends crude from Canada to the US was closed after the 590,000 barrel-a-day pipeline ruptured in North Dakota.  Cushing, a key storage hub will see reduced shipments of oil and if this shutdown is considerable, West Texas Intermediate should be supported despite the initial selloff that stemmed from the China’s doubts of reaching a longer-term deal.   

Gold

Gold is rallying on expectations the US-China trade war will not be ending anytime soon.  Chinese officials have voiced skepticism that a broader deal will prove to be very difficult to reach due to the unpredictability of President Trump.  China basically said what everyone was already thinking, that this trade war will likely drag beyond the 2020 US Presidential election and this big macro risk will keep gold supported.