US Open – Trade, Brexit Extension, Argentina, Oil, Gold, Bitcoin

US stocks seem poised to breakout to fresh record highs this week as both Chinese and US officials signal the phase-one deal is close to being done.  With most of the trade text being complete and White House trade advisor Navarro refuting earlier speculation that he is fighting the phase-deal, markets seem convinced the first deal will get done and that negotiations are progressing on the next deal.

Stocks could also be supported on expectations Fed Chair Powell will deliver a third consecutive and remain data dependent if more are warranted.  The Fed can’t afford another market disruption and policy mistake and judging by the steepening of the curve, financial markets are convinced the Fed will remain accommodative.

Brexit

The European Union agreed to give the UK a three-month Brexit delay after France softened its stance that they should offer only a shorter ‘technical’ extension of up to four weeks.  This ends the risk of a no-deal Brexit this Thursday, but uncertainty will persist for business. 

Expectations are growing that PM Boris Johnson will win a general election and eventually get his deal passed through, however the overall outlook for the UK economy will probably be much weaker than investors initially anticipated.  The British pound could remain in no-man’s land as we await election clarity. 

Argentina

The clock is ticking for President-elect Alberto Fernandez to choose his economic team and what they will present to the IMF.  He was widely expected to win this weekend’s election and managed to secure 48% of the vote, enough to avoid a runoff.  Investors seeking immediate clarity on his team could be disappointed as he could wait closer to when he takes office in December.  Fernandez will bring back government spending and will complicate the package he presents to the IMF.  This election does nothing but cement expectations Argentina will default. 

The Argentina central bank has already used over $7 billion in FX reserves used to keep the currency from depreciating.  The central bank announced they would need to tighten limits on the purchase of US dollars from $10,000 to only $200 a month. 

Oil

Oil is giving up some of last week’s 5.4% gain in what some would say is a slow start to the week.  Over the weekend, President Trump announced the US killed the Islamic State’s chief Abu-Bakr al-Baghdadi in Northern Syria.  The news has put many countries on high alert on possible revenge attacks.  It is unclear on who will take over as the leader of ISIS and how they will respond. 

Geopolitical tensions will remain in place the Middle East and we should not be surprised to see see oil prices continue to be supported here. 

Gold

Gold is still above $1,500 an ounce after EU leaders signaled they will grant a three-month Brexit extension.  Gold should remain supported at the start of the week as investors wait for the Fed to signal further weakness in the housing and business investment part of the economy.  The punchbowl of stimulus is soon to be overflowing as the Fed will join the ECB and PBOC and aggressive accommodation. 

Bitcoin

Bitcoin continues to rally on Chinese President Xi’s Friday comment that China should “seize the opportunity” afforded by blockchain technology. China is committed to blockchain and Bitcoin will thrive. Despite the regulatory hurdles that will likely derail Facebook’s Libra, China seems set to grow the development of blockchain technology. It is very possible that we will see China lead the way for investment in the crypto space and until a better digital coin is offered, Bitcoin will blossom.