Global equities are mildly positive as geopolitical risks appear contained and on expectations the Fed and other central bank’s this week will deliver dovish signals. In Hong Kong, the Chinese government suspended a controversial extradition bill that saw the largest protests in decades. Tensions in the Middle East are growing, as Iran threatens to abandon the nuclear pact made in 2015 in 10 days, but financial markets do not expect either side to escalate this to a war.
This week, markets are focused primarily on the Fed, with some attention falling on the BOJ and BOE who will also have policy decisions. With inflation remaining muted and growth vulnerable due to the trade war, the Fed is expected appears set to signal to markets that a rate cut is coming at the July meeting. Fed fund futures see a 18.2% chance that rates will be cut at the June 19th meeting, while the July 31st meeting has an 80.2% expectation for a rate cut. The Fed is widely expected to tweak their stance on being patient, which would signal they are ready to ease. Global equities could rally higher once we get a dovish commitment from the Fed and progress in trade talks between China and the US that ultimately see a scaling back in the tariff war.
The dollar softened after Empire Manufacturing fell to the lowest level since 2016. EUR/USD was 0.3% higher at 1.1239.
- Xi – To visit North Korea June 20-21st
- Oil – Tehran to abandon 2015 uranium cap
- Gold – Retreats from 14-month high ahead of Fed
- Bitcoin – Eyeing $10,000
Chinese President Xi reportedly will visit North Korea on June 20-21. This would be the first visit by China’s president in about 14 years. Markets are still awaiting Xi’s confirmation that he will attend the G20 in Japan at the end of the month. Investors are still expecting the G20 to yield an agreement on how to move forward with trade talks. Trump has threatened another round of tariffs and right now US stocks appear to not be pricing that in.
Oil prices were dragged down on weakening demand concerns after US Commerce Secretary Wilbur Ross downplayed trade progress optimism heading into G-20 summit in Japan. Last week crude prices stabilized after heightened military tensions in the Persian Gulf. Two fuel tankers were attacked in the Gulf of Oman and the US and Saudi Arabia are blaming the Iranians for the attacks. Oil’s gains however were limited as market participants do not expect a full blown out war.
Iran is now threatening Europe that it will abandon the 2015 cap on inventories of low-enriched uranium in 10 days. The landmark agreement in 2015 that prevented Iran from creating a nuclear a bomb is likely the latest political posturing from Iran to spark European countries in delivering some relief from the US sanctions that have crippled their economy.
For oil prices to see a sustained rebound, trade uncertainty needs to be removed, geopolitical risks should see Brent and WTI supported around the $60 and $50 a barrel respectively. If Iran does abandon the nuclear pact over the next two weeks, that would raise the bar with tensions and the Middle East and should see oil prices.
Gold is tentatively taking a break from its recent rally as investors brace for the Fed to enter into full easing mode and signal they are prepared to cut rates at the next meeting. The yellow metal’s recent rally took prices to 14-month highs but has retreated on better than expected US data. Gold should remain supported on trade and geopolitical risks.
Bitcoin is rallying ahead of a big week that will see Facebook’s announcement of Libra, a new cryptocurrency that has key partnerships with Visa, Mastercard, Paypal and Uber. Mainstream commerce is important for the success with digital currencies and the social media giant’s digital coin could re-energize crypto fans. Libra is expected to launch next year but we could see cryptocurrencies continue to rally as continued acceptance in the financial world will improve retail demand.
After tentatively finding strong resistance from the $9,000 zone, Bitcoin appears to have its eyes set on the $10,000 level. The digital asset has rebounded strongly and appears to be gaining further momentum here.