Powell, Earnings, Bitcoin, Oil, Gold

July 12, 2019

New York (July 12)  We're trading in the green again on Friday, with US futures pointing to fresh record highs on Wall Street after a satisfying testimony from Jerome Powell earlier in the week.

Powell testified on the semi-annual monetary policy report and Wednesday and Thursday and, safe to say, he passed with flying colors as far as investors are concerned. His downbeat tone when reflecting on the economic outlook and inflation combined with his complete lack of desire to correct market expectations, despite a cut being 100% priced in this month, gave investors exactly what they wanted.

Trade talks are continuing between the US and China although Trump's tweet about Chinese purchases of agricultural products yesterday further highlighted how more speed bumps may remain in the road ahead. The G20 was a positive development but there's still a long way to go and while a deal makes sense for both sides this year, it's far from guaranteed and could hit many more snags.

Still, with talks ongoing and the Fed soon to be back in easing mode, attention can now shift to earnings season which gets underway next week. It's expected to be a tough season for companies with a large number have offered negative guidance in the run up to it. An earnings recession looks on the cards, with earnings expected to have declined by a little below 3% in the second quarter, further fueling the case for rate cuts.

Bitcoin resilient in the face of Trump opposition

It seems nothing can escape the attention and criticism of the US President, with Trump tweeting about Libra and cryptocurrencies as a whole on Thursday evening, warning that Facebook and others will need a banking charter and be subject to all regulations. He also claimed not to be a fan and lauded the US dollar as the most dependable and dominant in the world, which suggests the road ahead is not going to be easy for these assets in the US.

Bitcoin has proven to be very resilient to the attacks though, dropping around $500 following the tweets - a drop in the ocean by its standards - before rebounding today. I doubt this will be Trump's final intervention on the subject though so there'll be plenty more tests for the cryptocurrency space which is probably being helped by the fact that it's going through a good moment right now thanks to the Libra announcement.

WTI holding above $60

Oil is trading higher again on Friday, with WTI on course to close the week out above $60 a barrel which could technically be quite a bullish signal. Numerous factors have contributed to oil's rally since the start of last month - restart of sino-US trade talks, OPEC+ deal being two important ones - but the recent inventory data has played a big role recently.

Another large inventory drawdown this week has propelled WTI back above $60, before finding some resistance around $61, which has been a notable level this year. If it can break above here then it would be a very bullish signal, with the next notable level being around $63.50-64.

Gold fails to make new highs again

Gold is a little higher again on Friday but we've seen further signs this week that the run may be experiencing some exhaustion. Last week a strong rally ended just short of the previous peak and the same happened yesterday, raising the question of whether it has the legs to see it higher in the near-term, or if the correction flags are waving.

The key level below remains $1,380, which it's seen support around on a couple of occasions recently. A break below here may signal that a sharper correction is on the cards. It may not be straightforward though as we failed to break this earlier this week also, suggesting there is some indecision and possible consolidation on the cards.


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