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Stocks Mixed On Italy Turmoil, China Rebound

Italy

Monday, October 22, 2018

Stocks continue to slide. The Italian Prime Minister tried to reassure the markets, vowing not to leave the Eurozone. Italy is in a standoff with Brussels over its budget, which is not in line with European fiscal rules. Italy expects the European Commission to reject the proposed budget on Tuesday, which would be the first time such a confrontation has ever occurred. On Monday, Moody’s downgraded Italy’s debt to one notch above junk status. Meanwhile, China’s Shanghai Composite Index rebounded sharply, easing concerns about the global fallout of a Chinese slowdown.

(Click to enlarge)

- Gold prices rallied over the past few weeks, rising from under $1,190 to over $1,220 per ounce.

- Investors liquidated their short positions on gold this month, which helped fuel the price increases. Net short positions more than halved in the week ending on October 16.

- “Gold is trading at just shy of $1,230 per troy ounce as the new week begins, which puts it above the technically important 100-day moving average. This could give rise to technical follow-up buying,” Commerzbank said in a note. “That said, given the extent of the position squaring, we would have expected the gold price to rise even more sharply.”

Markets

Saudi Arabia sees capital flight. The international reputational damage to Saudi Arabia continues, with Riyadh admitting to the death of journalist Jamal Khashoggi. Saudi Arabia is now seeing investors flee the country. Saudi saw investors sell $1.1 billion in stocks last week. “The record amount of the sell-off really shows the gravity of the situation,” Naeem Aslam, chief market analyst at Think Markets UK, told Bloomberg. “The Saudis have suffered a major setback, and it is going to take a very long time and hard work for them to gain the same kind of confidence.” On Monday, Saudi Arabia’s main stock exchange, the Tadawul All Share Index, fell more than 2 percent.

Related: Chinese E-Commerce Giant Eyes Aggressive Expansion

Disappointing corporate profits. U.S. corporate profits in the third quarter are looking a little disappointing, raising fears that the economic boom is coming to an end. Cautious consumer spending, rising costs and a strong dollar are a few of the reasons that the corporate sector is reporting smaller profits. According to the Wall Street Journal, an estimated 35 percent of the 85 companies in the S&P 500 that have announced earnings have missed analysts’ expectations.

France says EU financing vehicle could be expanded. The European Union is setting up a “special purpose vehicle” to help European companies continue to trade with Iran even as U.S. sanctions take effect. The vehicle would help companies evade U.S. sanctions. France’s foreign minister said last week that instead of merely focusing on the narrow issue of Iran sanctions, the financing vehicle could be expanded to help Europe more broadly free itself of the constraints placed on it by the U.S. Treasury. “It aims to create an economic sovereignty tool for the European Union beyond this one case. It is therefore a long-term plan that will protect European companies in the future from the effect of illegal extraterritorial sanctions,” a spokeswoman for the French foreign minister said.

Commodities                 

Metals prices up. The rebound in Chinese stocks is helping to fuel price increase for commodities. “Metals prices are getting off to a good start to the new week and are gaining by as much as 2%,” Commerzbank said in a note. The Chinese government is preparing a package of tax cuts, which amounts to a shift in “political focus away from deleveraging and towards a growth-oriented approach,” Commerzbank said.

Low water levels disrupt trade on Rhine. Historically low water levels on the Rhine River is curtailing shipments of key materials in Europe. “Further shipping restrictions are expected on inland barge routes along the Rhine corridor,” as the water subsides, wrote JBC Energy. Heating oil prices in Northwest Europe “will be vulnerable to spikes over the next couple of months.” The Rhine is a critical artery supplying Europe and beyond with coal, fuel, chemicals and raw materials.

Canadian cannabis prices need two years to stabilize. Canada legalized cannabis this month, establishing a nationwide legal market. Prices could fluctuate for two years before the market reaches some sort of stability, according to Calgary-based Cann Standard, which collects public price listings for cannabis and aggregates the numbers. “Of course, new product types are coming in within that two-year window so it will be hard to tell,” Brad Martin, director of Cann Standard, told Global News.

Energy 

Saudi-Russia cooperation open-ended. Saudi oil minister Khalid al-Falih said that the Saudi-Russian cooperation on steering the oil market could be “open-ended.” In an interview with TASS, al-Falih said that the cooperation will not be based on a specific period of time or a production target, but will be ongoing for “regular coordination.” He also said that they want to establish an OPEC+ Secretariat to formalize the institution in Vienna, with a proposed agreement potentially revealed in December. Al-Falih also said that Riyadh has no wish to repeat the 1973 oil crisis by engineering a price spike.

OPEC struggles to add capacity. An internal OPEC document seen by Reuters finds that the cartel is struggling to add supply. After promising 1 million barrels per day of additional output in June, the group has only managed to increase net production by 428,000 bpd since May. “It is a work in progress,” OPEC Secretary General Mohammad Barkindo said earlier this week.

Related: CME Bitcoin Futures Surge As Bullish Sentiment Grows Louder

U.S. shale industry facing problems. Schlumberger’s (NYSE: SLB) Paal Kibsgaard said that U.S. shale growth could disappoint forecasts because of operational and supply chain problems. Kibsgaard said that growth was becoming more difficult because old wells are maturing and new wells are focused on less desirable acreage. “The well-established market consensus that the Permian can continue to provide 1.5 million barrels per day of annual production growth for the foreseeable future is starting to be called into question,” he said.

Cryptocurrencies

EU advises regulating cryptocurrencies under existing financial rules. A group that advises the European Securities and Markets Authority has recommended regulating cryptocurrencies and initial coin offerings (ICOs) just like financial securities, using existing financial tools available to regulators. The report said that the risks related to cryptocurrencies are similar to those of traditional financial markets.

Bitcoin trapped in limbo. Bitcoin prices are trapped in a relatively narrow range between $6,400 and $6,600. A technical analysis suggests there are supports at these price thresholds. Price volatility has been low as of late, but in the past such periods have often preceded more dramatic price movements.

Only 20 percent of stolen cryptocurrencies recovered. A series of high-profile hacks and attacks on cryptocurrencies sullied the image of the industry over the past year. Worse, a low percentage of stolen funds from cryptocurrencies is ever recovered. Sometimes victims decline to report the theft because they have little confidence in the ability to recover stolen funds. According to CipherTrace, only 20 percent of stolen cryptocurrencies are recovered.

By Josh Owens for Safehaven.com

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