US stocks are drifting lower despite some progress on trade and after a wrath of mixed economic data from Europe and Asia. China’s decision to remove curbs on US poultry imports is a positive step, but it was widely expected.

Financial markets are having little reaction from yesterday’s testimony from Fed Chair Powell and expectations are for him to stick to script today when testifying to the House Budget Committee. Powell signaled rates will be on hold as the economy remains broadly consistent with their outlook. The risks to the economy remain and we will likely need a collapse in trade or deflationary pressures to pick up to see the Fed resume easing.

Thursday’s theme appears to be the good, the bad and the ugly. With fading expectations that the phase-one trade deal will get done anytime soon and anticipiation central banks globally appear on hold in the-short term, risk appetite seems poised for a break here.

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The last major earnings report of the week however could derail calls for a pullback. Walmart delivered a strong earnings beat and raised their EPS growth target. The US consumer looks strong and expectations are high for a robust holiday season.

The Good (EU)

German avoided its first recession since the financial crisis. The economy grew 0.1%, better than the expected 0.1% decline, but doesn’t change the German slowdown story. Germany continues to be rattled by trade wars and softer global growth. The euro has recently held up nicely as investor sentiment improves on signs economy is near a bottom. The problem for the euro is that stabilizing data from Germany will derail and hopes for a fiscal stimulus breakthrough.

The Bad (China)

Three huge readings on Chinese industrial production, retail sales and fixed asset investment all posted terrible readings last night, prompting investor concern China’s growth next year is at risk of falling below 6%. The longer this phase-one trade deal takes to get finalize, the worse China’s key economic data will fall. The PBOC and a bazooka full of stimulus remains cocked and loaded in the event trade talks see a complete collapse, but unlikely before that worst-case scenario.

The Ugly (Hong Kong)

No one knows how Hong Kong’s protest will evolve, but the risk of disruptions to Chinese access to global financial services are growing as the unrest intensified for a fourth consecutive day. We may be getting closer to seeing Beijing abandon the “one country, two systems” model, a possible cataclysmic outcome that would derail the bull argument for global equities.

Oil

Oil prices are higher after the American Petroleum Institute reported that stockpiles fell by 541,000 barrels last week, snapping a steady string of builds. The EIA report this morning however is still eyeing a build of 1.4 million barrels, down from the 7.9 million barrels rise with inventories delivered last week.

Energy prices also saw little reaction to the OPEC monthly report as world oil demand forecasts were kept unchanged for 2019 and 2020. The outlook for non-OPEC 2020 oil supply growth was reduced by 34,000 bpd to 2.17 million bpd.

Gold

Gold is slowly stabilizing as the global economic outlook remains foggy at best and as trade doubts linger. A third day of gains for the precious metal could see further upside as some investors believe the current correction is over. Longer-term dynamics are still supportive of higher prices for gold, but it remains unclear if weakness can persist for a couple more weeks. Until gold can recapture the $1,480 an ounce level, the risks for a deeper correction remain.

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