Monday, December 10, 2018
Market turmoil continues. Global stocks were hit hard at the end of last week, and the selloff continued on Monday. The S&P 500 fell to an eight-month low, made worse by negative economic data from China. The dollar rose and the British pound fell on Brexit uncertainty. Political pitfalls for President Trump loom, while France is dealing with unrest. Much of the world’s stocks are already in a bear market.
Chart Of The Week
(Click to enlarge)
* China’s copper imports decline by four percent in November, further evidence that the world’s second largest economy is slowing down.
* Imports have been trending negative for the last few months, as U.S. tariffs take their toll.
* Copper imports are still up 15 percent so far in 2018.
Markets
Brexit vote delayed. Facing the prospect of a humiliating defeat in parliament, British Prime Minister Theresa May postponed the vote on her Brexit package. At the time of this writing, it is not known for how long the vote will be delayed, but the decision is an admission that May does not have the votes. The next steps are highly uncertain, but her government looks shakier than at any point during her tenure as Prime Minister. The British pound tumbled on the news, falling to the lowest level in 18 months.
Disappointing job figures fuel speculation of slowdown. The U.S. added 155,000 jobs in November, below consensus estimates. Ongoing job growth and a very low unemployment rate suggest economic strength, but many investors see the figures as evidence that the job market is starting to cool. An uptick in unemployment claims could be a leading indicator of a broader economic slowdown.
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Inverted yield curve points to recession. The U.S. Treasury yield curve just inverted for the first time in a decade, a crucial metric that has historically pointed to a forthcoming economic recession. The difference between three- and five-year treasuries flipped into negative territory. The development may seem like arcane financial jargon, but economists say an inverted yield curve is one of the most reliable indicators of an approaching economic recession.
Commodities
China’s metals imports slow. For November, China’s imports of copper ore and iron ore fell 4 and 9 percent year-on-year, respectively. Coal imports declined by 13 percent. Crude oil and natural gas imports increased, however. The seeming slowdown in commodity demand has weighed on the sector. Commodities are largely at the mercy of the U.S.-China trade talks. “A sustained de-escalation in the trade war with the US would be positive for China’s economy and commodity imports for next year, in our view,” Barclays wrote in a note.
Gold prices hit 5-month high. Gold prices rose to a five-month high at around $1,250 per troy ounce. Stocks are volatile and bond yields continue to fall, while the markets are now increasingly calculating that the U.S. Fed may take a softer line on interest rates. “[O]nly 1.5 rate hikes of 25 basis points each are priced in by the end of 2019,” Commerzbank said of shifting market expectations of Fed actions. “A week ago two rate hikes were priced in, and a month ago three.” These trends could benefit gold.
Wells Fargo bullish on commodities. Commodities have been hit by the trade war and a slowing global economy, but Wells Fargo is bullish heading into 2019. “Metals are the one real positive we like above and beyond everything else, particularly silver, particularly platinum. So we like commodities, but we especially like the metals,” John LaForge, head of Real Asset Strategy at Wells Fargo, told Kitco News. The investment bank says gold could rise to $1,300 per ounce.
Energy
OPEC+ cuts 1.2 mb/d, oil prices volatile. OPEC+ sealed the deal on Friday, deciding to cut output by 1.2 mb/d from October levels. Oil prices jumped on the news, although the gains only offset the losses in the days leading up to the meeting. In fact, oil was down in early trading on Monday. Nevertheless, the cuts, which begin in January, are expected to dramatically narrow the supply surplus in the first half of 2019.
U.S. net oil exporter, for now. The U.S. recently exported more oil and refined products than it imported, for the first time in nearly 75 years. The U.S. exported an average of 211,000 bpd of oil and refined products two weeks ago, on a net basis. The positive export/import balance may not last, but the U.S. has been trending in that direction for years due to relatively flat demand and soaring production.
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Oil prices at mercy of global economy. Oil prices are not firming up despite the OPEC+ agreement. A broader problem could be global financial volatility. Renewed worries about the U.S.-China trade war have dampened sentiment. The Dow dropped 300 points when the market opened on Monday. Sinking oil prices suggest that investors are concerned with sagging demand even as OPEC+ is looking to curb supply.
Cryptocurrencies
Bitcoin prices plunge. The Bitcoin selloff continued over the last week, with prices down to $3,440 in early trading on Monday, which is off about 10 percent from a week ago. In fact, Bitcoin fell 11 percent in a single day last week. The entire cryptocurrency market has been dragged down. “The market is in a general bearish trend that doesn't seem to be letting up driven by what seems to be a general negative sentiment towards crypto,” Zennon Kapron, director at financial technology consultancy Kapronasia, told CNBC on Friday after the crash. “As the market is heavily retail driven, it's very much at the mercy of group sentiment which causes huge swings.”
Bitcoin gaining market share. Bitcoin’s control of the crypto market has climbed to a three-month high. The growing share suggests that as digital tokens get hit by the downturn, investors are pivoting into the relatively more reliable Bitcoin. As of December 6, Bitcoin had 55 percent of the market, up from a low at the start of 2018 at just 32 percent, a period in which the sector was still riding high.
Regulatory crackdown won’t be all bad. Many crypto analysts see more governments stepping up regulatory oversight on Bitcoin and other cryptocurrencies in 2019. The prospect of more scrutiny has been negative for the sector in 2018, but there are upsides to clearer rules. For the good actors in the sector, clear regulations could help the industry mature and attract investors.
By Josh Owens for Safehaven.com
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