NAFTA breakthrough lifts markets. The breakthrough in the NAFTA renegotiations lifted stocks on the first day of the fourth quarter, removing at least one of the major downside risks to global equities. Meanwhile, oil supply concerns pushed up oil prices, with Iran sanctions set to take effect in just a few weeks.
- Gold prices in euros are at their lowest level since early 2016 and gold has strung together six consecutive monthly price declines, the longest streak since 1997.
- Commerzbank says that investors are complacent and are “embracing the negative gold trend while ignoring the very obvious risks.”
- “We see no real fundamental reason why the gold price should be having a hard time,” Commerzbank wrote in a note, citing several factors that should be pushing up gold prices, including the possibility of a “disorderly Brexit,” the U.S.-China trade war, ongoing problems in the Eurozone and potential price inflation in the U.S.
Markets
U.S. and Canada reach NAFTA deal at eleventh hour. Late Sunday night, the U.S. and Canada reached a deal on the NAFTA renegotiations, just as the September 30 deadline expired. This means Canada will join the deal that the U.S. and Mexico reached in August. They will drop the “NAFTA” name and instead call it the “U.S.-Mexico-Canada Agreement,” or USMCA. The largest affected sector will be automobiles and the agreement requires a greater percentage of cars to be made in high-wage areas of U.S. and Canada. Meanwhile, Canada made concessions on protections on its dairy industry, while the U.S. dropped demands to scrap the courts that allow member states to sue each other over trade restrictions. Related: The “Agency Of Robots” Behind Burger King’s Latest Ad Campaign
Stocks up on NAFTA deal. U.S. stocks posted strong gains Monday morning on the back of the breakthrough in NAFTA talks. The Canadian dollar and the Mexican peso also moved up. “Despite all the handwringing over trade, the bark is proving far worse than the bite for U.S. stocks. Although the trade outlook with China remains uncertain, overall trade uncertainty has been receding for months helping propel stocks to record highs,” Alec Young, managing director of global markets research for FTSE Russell, said in an email to Bloomberg.
U.S. stocks take huge lead over international shares. U.S. stocks are trading at the largest premium relative to international stocks in years, according to the Wall Street Journal. The S&P 500 gained more than 7 percent in the third quarter, the largest gain since 2013. The flip side is that U.S. equities now appear overly expensive compared to other indices, “something that some analysts worry could leave the market vulnerable to a snapback heading into the final months of the year,” according to the WSJ report.
Commodities
Will commodity slump continue? Commodity prices are in the longest slump in more than three years, closing out the third quarter down sharply. The Bloomberg Commodity Index fell 2.5 percent in the third quarter, with numerous of factors contributing to the decline, including tighter interest rates, a stronger dollar, various trade disputes, and a softening of demand in China. Still, some investment banks including Goldman Sachs and JPMorgan Chase are bullish on a rebound.
Chinese demand not as soft as market thinks. Physical supply and demand data suggests that commodity demand in China is still going strong, despite market concerns about a slowdown. “Chinese physical copper premiums have reached 3-year highs despite weaker global copper contracts, indicating that global bearishness concerning Chinese demand has likely run ahead of any actual slowdown in physical purchases,” Scotiabank said in a note. The bank said that “a good deal of next year’s commodity demand fundamentals will be determined by the form and intensity of policy assistance coming out of Beijing.”
Dollar weakness coming? A late September mini-rally in commodity prices, including for copper and crude oil, could be a sign that commodities are set for a rebound. Higher commodity prices could then “play a key role in reinforcing the convergence theme, drive further dollar weakness and further EM strength,” Michael Purves, the chief global strategist at Weeden & Co., wrote in a note. If the dollar begins to weaken, that would bolster both commodity prices and emerging market currencies.
Energy
Brent nears fresh four-year high. In early trading on Monday, Brent moved above $83 per barrel, closing in on a fresh four-year high. U.S. sanctions on Iran are only a month away and Iranian oil exports continue to fall. “Saudi Arabia are signaling that they do not have a lot of prompt spare capacity available, or that they don’t have the will to really use it on a proactive basis,” Petromatrix strategist Olivier Jakob told Reuters. “There’s nothing right now that gives a strong incentive to be a strong seller of the market.”
OPEC increases output only slightly in September. A Reuters survey estimates that OPEC production rose to 32.85 million barrels per day in September, up only 90,000 bpd from August. Libya was responsible for the largest month-on-month increase, with output rising above 1 mb/d. Saudi output rose to 10.53 mb/d, an increase of 50,000b bpd. Meanwhile, the increases were offset by the 100,000-bpd decline in Iran, as well as more losses from Venezuela.
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Saudi Arabia and Kuwait hold talks on 500,000 bpd of potential production. The oil fields in the neutral zone between Saudi Arabia and Kuwait have been idle for several years, but the two sides are holding talks to resolve some outstanding differences in order to bring the fields back online. As the oil market continues to tighten, the 500,000 bpd of potential capacity from the fields could be crucial, and would provide a sizable increase in capacity if they can resume operations.
Cryptocurrencies
It will take months to repair technical damage to cryptocurrencies. Bitcoin is back above $6,500, but it could take months to pull out of the bear market. “Given the technical damage that has developed in 2018, we expect most cryptocurrencies will likely require months of repair before a new bullish trend can develop,” Rob Sluymer, technical analyst at Fundstrat Global Advisors, wrote in a recent note to clients. “This is consistent with post-bear-market behavior that has developed in other asset classes following bear markets.”
Chinese tech magazine offers payment in Bitcoin. Beijing Sci-Tech Report (BSTR), China’s oldest media publication focusing on the tech industry, announced plans to allow subscribers to pay in Bitcoin in an effort to support the development of cryptocurrencies and blockchain development. The move is notable given the Chinese government’s crackdown on cryptocurrencies.
Malta’s PM says cryptocurrencies “inevitable future of money.” Joseph Muscat, the Prime Minister of Malta used his address at the UN General Assembly to hail blockchain and cryptocurrencies as the “inevitable future of money,” while listing the array of benefits from blockchain technology. Malta has become a “Blockchain Island,” he said, and noted that Malta is the “first jurisdiction worldwide” to regulate the technology that “previously existed in a legal vacuum.”
By Josh Owens for Safehaven.com
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