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Josh Owens

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Josh majored in International Relations at the University of Edinburgh and is currently the Content Director at Oilprice.com. Josh has over 6 years of writing…

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Wall Street Confident In Trade War Breakthrough

Wall Street

Monday, August 20, 2018

Stocks up on positive trade sentiment. Wall Street started the week on an up note with investors feeling a bit less nervous about the trade war. The U.S. and China are set to resume negotiations, raising hopes of a breakthrough, although talks will be held at a lower level than previous rounds. “Low-level trade talks are coming across to the market as China expressing willingness to come to some type of terms with the United States to resolve this trade issue,” Robert Pavlik, chief investment strategist and senior portfolio manager at SlateStone Wealth LLC, told Reuters.

(Click to enlarge)

- The strength of the U.S. dollar this year has come at the expense of gold. Though they often trade in opposite directions, the dollar seems to have taken over as the premier safe haven asset, a role that gold has often played.

- The Turkish lira crisis only magnified the difference, with gold selling off and the dollar gaining yet even more strength over the past 10 days.

- “Gold has not tended to behave like a safe-haven asset in the past during times of stress when the dollar has appreciated at the same time,” Simona Gambarini, an economist at Capital Economics Ltd., said in a note to clients. “During the Asian crisis, investors fleeing developing countries did not seek the safety of gold either.”

Markets

Greece emerges from 8 years of bailouts. Today, Greece ends an eight-year period under international bailouts, propelling into a new era of fragile financial independence. "Today we celebrate the end of a very long and difficult journey," European Commission Vice President Valdis Dombrovskis told CNBC via email. “What matters now is to build on this achievement by sticking to sound fiscal and economic policies.” This means that Greece will be able to return to international financial markets to issue new bonds and raise debt on its own.

U.S. Trade Rep begins six days of hearings. On Monday, the U.S. Trade Representative will begin six days of hearings to consider the proposed $200 billion in tariffs on China. "USTR's proposed tariffs on an additional $200B dramatically expands the harm to American consumers, workers, businesses, and the economy," the U.S. Chamber of Commerce said in written testimony for the hearing Related: Did North Korean Hackers Just Steal $13M From Global ATMs?

Corporate bond sentiment plunges. According to an August survey from JPMorgan Chase & Co., sentiment towards corporate bonds has plunged. The survey of fund managers found that bullish outlooks declined to just 20 percent from 63 percent previously. The number of bearish respondents grew to 26 percent this month, twice the portion from last month. The bearish sentiment could lead to caution and higher risk yields for corporate bonds.

Commodities

EVs without cobalt? By all accounts, the number of electric vehicles plying the world’s roads will skyrocket over the coming decades. McKinsey says around 340 million EVs will be produced by 2030. But the batteries used in EVs depend heavily on cobalt, and demand for the metal is expected to double over the next decade. But some 70 percent of cobalt used in EV batteries comes from the war-torn Democratic Republic of Congo. Scientists and engineers are now racing to develop batteries that do not need cobalt, as the Financial Times reported.

Commodities slammed by Turkish currency crisis. Turkey’s lira has rebounded somewhat in recent days, but the crisis that began a little over a week ago has left a lot of damage in commodities markets. Weaker currencies in emerging markets are expected to result in lower demand. And for some sectors – coffee, sugar, cotton – that is poorly timed because new supplies are coming online and inventories are already high. Moreover, the currency problem hurts commodity prices in one additional way: For producers in emerging markets who earn dollars when selling commodities, the stronger greenback is incentivizing them to unload cargoes, dumping more supply onto the market and depressing prices even further. 

Gold posts strongest one-day gain in a month. Gold was set to post its strongest single-day gain in a month on Monday after being dealt hefty losses last week. Last week, gold prices declined by the most for a single week in a year, damaged by the currency crisis and the strong dollar. The rebound this week is likely a recognition that the selloff went a little far. “Sentiment among financial investors remains very negative, however,” Commerzbank wrote in a note. “According to the CFTC’s statistics, speculative net short positions were expanded by a further 26% to 83,300 contracts in the week to 14 August. As such, speculative financial investors remain the primary factor weighing on the gold price.”               

Energy   

EPA to roll back coal limits. In the coming days, the Trump administration is expected to unveil a plan to replace the Obama-era Clean Power Plan which placed limits on greenhouse gas emissions from power plants. The proposal is designed to assist struggling coal-fired power plants, allowing plants to remain online. It will also grant states leeway to go their own way, not having to adhere to federal standards. The plan would have to go through the rule-making process, which will take time and will be vulnerable to litigation.

ConocoPhillips and PDVSA reach a deal. ConocoPhillips (NYSE: COP) reached a settlement with PDVSA over the international tribunal reward following asset seizures more than a decade ago. PDVSA has agreed to make an initial payment of $500 million within 90 days, followed by quarterly installments to pay off the remaining $1.5 billion over the next four and a half years. In exchange, Conoco would suspend its claims on PDVSA’s assets in the Caribbean, which are crucial for Venezuela’s oil exports.

Related: Switzerland Bans New Audi, Mercedes, Porsche Imports

Oil prices firm up after weeks of losses. After seven consecutive weeks of losses – the longest string of weekly losses in three years – oil prices steadied on Monday. Investors have weighed the red flags for the global economy, the trade war and the currency crisis in Turkey against the threat of supply outages from Iran and the slowing of production in U.S. shale. Oil is down 11 percent from the recent peak in June, and while there is not a clear direction from here, prices started off the week relatively having stabilized after last week’s losses.

Cryptocurrencies

Bitcoin in narrow range. Bitcoin prices are trapped within a relatively narrow range. After moving past a technical resistance point last Friday, the next threshold for Bitcoin prices was thought to be $7,000, but the digital currency stagnated. The coin has also avoided falling through the $6,300 floor, another resistance point. As a result, the next move is uncertain. Meanwhile, the narrow trading range has also translated into the lowest level of price volatility in 14 months. 

Digital currency losses a drag on the sector. Nearly a year after the cryptocurrency craze hit its zenith, legions of individual investors are still nursing their losses and trying to get their financial houses in order. A report from the New York Times profiled several investors who saw huge sums go up in smoke after they jumped in at the top of the market. More broadly, analysts say the losses could slow the development of cryptocurrency markets as the boom-and-bust stigma takes time to wear off.

UPS looks at blockchain to track global shipments. UPS (NYSE: UPS) has filed a patent to develop a system to track parcels around the world using a distributed ledger system using blockchain technology. The patent application included a concept UPS called “Autonomous services selection system and distributed transportation database(s).” The possibility that UPS, with its global reach, will develop a global tracking system using the blockchain could be a major advancement for nascent technology.

By Josh Owens for Safehaven.com

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