USD – Falls on concerns US economy may have already peaked
GBP – May suffers another defeat
Amazon – Recession fears spark on terrible sales data
GOLD – Remains stuck in key range
OIL – Stronger economic data needed to push oil higher
BITCOIN – JPMorgan joins crypto craze
Risk appetite struggled as a terrible miss with US retail sales raised concerns the world’s largest economy is on soft footing. Stocks also chose to focus more on the uncertainty that trade talks may be deadlocked over the news that President Trump will sign the spending deal and end government shutdown worries. Treasuries were bought heavily, the 10-year yield fell 5.0 basis points to 2.652%. The dollar traded mixed against its major trading partners, falling 0.3% against the euro and rising 0.4% against sterling.
The conundrum for dollar traders is that while the Fed has clearly signaled rates are going nowhere anytime soon, softer economic data normally supports the argument that the Fed should consider a more accommodative stance, which is normally dollar bearish, but since the US appears to be the best of the worst, dollar weakness has been limited. The difficult part for traders is that normally you would want to pair the dollar against a major trading partner that has economy heading in the right direction, which we currently really don’t have. Most of the advance economies are fragile right now, the euro zone just saw Germany barely miss a recession, no one really is touching cable until we have clarity on Brexit, Canada continues to see inflation fall and their growth outlook is deteriorating, and Australia’s weakness follows China and markets are convinced the next move from the RBA will be a cut.
The risk of a second government shutdown appears gone since the President is expected to sign the government funding bill and to declare a national emergency to build a border wall. This will leave us with just the trade war, which despite multiple conflicting reports appears to be ending no time soon.
Prime Minister May suffered another humiliating defeat as Parliament voted against her amendment to seek reaffirmation of support to see changes to her Brexit deal. The symbolic vote was 303 to 258, but cable had limited weakness as it really does not change the Prime Minister’s plan to wind down the clock. May has until the end of the month to convince moderate members that she is able to get a deal done in Parliament. Today’s vote only slightly raised the the risk of a no-deal Brexit, but the base case still remains Article 50 will need to be extended.
Amazon gave up on building a second headquarter in Queens, NY as political pressures and opposition grew. Amazon shares initially did not react to the news, but it should be viewed as positive for the stock since it appears they will avoid mounting pressure from politicians to deliver more financial support on transportation and housing. Amazon may have also dodged a bullet, since opening HQ2 was most likely going to see New York employees form a union, something they have managed to avoid so far.
President Trump appears set on alleviating market fears that we will see an escalation in the trade war and a 60-day extension will allow for more negotiations to tackle key differences on intellectual property theft, forced technology transfer and further opening up their markets to US companies. Conflicting reports this morning circulated that the both sides were close to a deal, while the Wall Street Journal noted talks remain deadlocked and that China is attempting to persuade the US by committing to large purchases of semiconductors and other goods. Markets appear convinced we will not see an escalation in tariffs and that trade talks will continue for some time.
Gold prices reversed earlier losses following the huge retail sales miss number. The precious metal has been stuck in a range as progress continues to develop on the trade front. Continued softer data from the US is what the precious metal needs in order to resume its medium-term trend.
Crude prices are struggling to breakout higher on concerns the US economy is weaker that expected and that oversupply concerns driven by the US shale industry will pick up in the summer. OPEC’s production cuts did stabilize oil, but further production cut promises from Saudi Arabia are unlikely to yield significant rallies with oil prices.
JPM Coin – Bitcoin
J.P. Morgan announced that they became the first U.S. bank to create and successfully test a digital coin representing a fiat currency. This is quite the pivot, as many will recall the CEO Dimon’s comments that bitcoin is a fraud and any employee trading it would be fired for being stupid. JPM Coin will run on the JP Morgan’s own blockchain, called Quoroum. This is the very early stages for JP Morgan’s digital coin and initial goal is to accelerate corporate payments. While cryptocurrency fans may love the announcement, this does not necessarily bode well for Bitcoin, as JPM Coin could be the beginning of severe competition to take aim at Bitcoin.