Monday, January 28, 2019
Markets down at start of big week. U.S. stocks opened up in the red on Monday due to investor anxiety over a range of issues. There are a lot of data releases and key events coming up this week, including another round of U.S.-China trade talks, guidance from both the U.S. Federal Reserve and the European Central Bank, jobs figures from the U.S., a key Brexit vote and manufacturing data from China. “Politics is an important driver for markets right now,” Ann-Katrin Petersen, investment strategist at Allianz Global investors, told the Wall Street Journal. “More volatility is in store for markets especially given the slower growth outlook for the global economy.”
Chart of the Week
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- Gold jumped above the psychologically important $1,300 price level on Friday, for the first time since June 2018.
- Political uncertainty could help gold further: the U.S. government reopening may only last three weeks, while the UK’s Brexit package faces more votes in the coming days.
- “We believe that the US Fed will not raise interest rates any further on Wednesday because economic concerns have increased,” Commerzbank wrote in a note. “Though this should have a positive impact on gold, the publication of a robust labour market report in the US could have a dampening effect again on Friday.”
Markets
U.S. manufacturing hit by China slowdown. A growing number of U.S. manufacturing companies are seeing poor earnings, and China is one of the main drivers. “China is weaker than normal, weaker than seasonal,” Keith Jackson, chief executive of ON Semiconductor Corp., said earlier this month, according to the WSJ. Caterpillar (NYSE: CAT) and 3M (NYSE: MMM) report Monday and Tuesday, and are often closely watched as a barometer for U.S. industrials.
Markets welcome reopening of U.S. government, for now. Some of the damage from the U.S. government shutdown – from science, to national parks, to disaster preparedness – could be irreparable. Still, the markets welcomed the reopening of the government. Bank of America estimated that the 35-day shutdown could reduce U.S. first-quarter GDP growth by 0.2 percentage points. The deal to reopen the government only lasts until mid-February. “We will continue to slice the forecast for 1Q the longer the government is shut,” the Bank of America economists wrote before the government reopened. “Indeed, our calculations show that the negative impact will magnify the longer the shutdown runs.” Related: Temporary Shutdown Deal Comes Just In Time To Pay Taxes
Investors worry about slowdown in Europe. Investors are “backing away from European assets,” the Wall Street Journal reports. An economic slowdown could force the ECB to rethink rate tightening, dampening the attractiveness of the euro and other currencies. IHS Markit reported last week that manufacturing activity in the Eurozone fell to its lowest level in more than five years.
Commodities
China launches three new commodity options. On Monday, the world’s largest consumer of raw materials launched three new options contracts for commodities traders. New contracts for corn, cotton and rubber in China will double the amount of options listed on the three major Chinese exchanges. As Bloomberg reports, the new options illustrate China’s effort to attract new hedgers and more liquidity.
Germany calls for exit from coal. Germany announced a plan to shut down all 84 of its coal-fired power plants by 2038, with plans to spend tens of billions of dollars on renewables as a replacement. The plan also includes 40 billion euros as compensation for affected coal communities. It is one of the largest and most significant coal phase-out plans ever announced.
U.S. lifts sanctions on Rusal, affecting the aluminum market. The Trump administration has lifted sanctions on Russian aluminum giant United Co. Rusal. The sanctions had targeted Oleg Deripaska, an ally of Russian President Vladimir Putin. Deripaska will continue to be sanctioned by the U.S., but the company will be freed from the measures. Rusal’s shares rose nearly 10 percent on the news. More importantly, the lifting of sanctions will provide relief for the global aluminum market. Aluminum prices spiked last April when the U.S. first announced restrictions on Rusal.
Energy
White House considering pipeline push. The Trump administration is considering taking executive action that would weaken roadblocks that stand in the way of oil and gas pipeline construction. For instance, the orders could block the ability of individual states to hold up pipeline projects. Politico reported last week that the action would be justified as a national security concern.
Rig count jumps. Baker Hughes reported a surprise jump in the rig count last week, with 10 new oil rigs added back into the field. The additions end several weeks of contraction, and were unwelcome news for oil traders hoping for higher prices. Still, it is only one week’s worth of data, and may not be the beginning of a trend. Oil prices fell on the news.
U.S. could target Venezuelan oil. The U.S. government is expected to unveil harsh sanctions on Venezuela’s oil sector in the coming days as part of its regime change campaign. The details are still unclear, and it is not inevitable that the Trump administration will impose a full embargo on Venezuela’s oil exports, which would likely deepen the humanitarian crisis in the country. Analysts view the conflict as bullish for oil in the short run (higher likelihood of supply outages) but bearish in the long run (a new regime could restore lost oil production in the years ahead).
Cryptocurrencies
Georgia still in Bitcoin mania. The former Soviet Republic of Georgia is still home to Bitcoin mania, despite the collapse of prices, as the government has supported the industry. Bitfury, a bitcoin technology company, is “churning out millions of dollars’ worth of the digital money,” according to a profile by the New York Times. Bitfury was helped by a state giveaway of land, tax-free zones, and energy prices at half the rate found in the U.S. or Europe. Georgia is now considered one of the most active cryptocurrency sites in the world.
Related: Private Firms Spent Record $93 Billion On Natural Resources
Bitcoin falls below $3,500. Bitcoin fell to its lowest level since mid-December on Monday, hovering just above $3,400. The crypto market lost around $6 billion in a matter of hours after the recent selloff. There are no obvious reasons for the latest decline, and some analysts chalk up the selloff to technical factors rather than some fundamental weakness. Still, some see Bitcoin dropping to a new 12-month low in the near future.
Iran could launch state-backed cryptocurrency. Because of financial sanctions from the U.S., and the vast influence that the American government has over the international financial system, Iran is looking at launching a cryptocurrency as a workaround. Perhaps as soon as this week Iran could announce a state-backed cryptocurrency. Al Jazeera reports that the roll out could come in phases, with the first phase to include a rial-backed digital token that would facilitate payments between Iranian banks and other Iranian institutions.
By Josh Owens for Safehaven.com
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