“I guarantee you everybody that ever bought a Harley Davidson voted for Trump” -Donald Trump
Everything that we read has Q2 growth in the U.S. coming in strong, some analysts are looking for 4% or better. The Atlanta Fed GDP forecast for Q2 is just under 3%, while the New York Fed model is predicting 2.79%. Who is right the Fed or the Wall Street prognosticators?
The reason for the focus is that Growth in the U.S. affects the stock markets, the interest rate markets, Federal Reserve policy etc. etc. Not to mention President Trumps ability to boast and like it or not, he is concerned about the stock market.
The June Manufacturing report was above expectations in the U.S. showing a strong quarter for growth, which is also important for President Trump as he is working to bring jobs to the states and increase activity in the non-service sector!
All rosy you might think: in the fine print of the report mentioned above, it states that the lack of certainty regarding tariff policy and the threat of trade wars, is causing general business instability and is a drag on growth for investments. Some manufacturers are preparing to move production that is targeted to China from the U.S. to Canada.. Steel prices in the U.S. are up 20% since March. In general the tariffs are causing concern, hesitation in investment and forcing some production to leave the U.S. It will be interesting to see if the Trump administration reacts. (just ask Harley Davidson: https://nypost.com/2018/07/01/trump-says-harley-davidson-will-take-big-hit/)
It will be important for the markets how these trade issues play out and interesting to see who blinks first, the U.S. administration, China, U.S. allies or the U.S. economy. Or maybe there can be an agreement that all sides can live with.
In the commodities world we are expecting a volatile time ahead.
For one thing, liquidity often becomes an issue. Most of the commodity markets such as metals and grains have been under pressure the past weeks and long positions have taken a beating. With a stronger USD and potential trade wars, it is not surprising to see these markets under pressure.
- In the metals markets, including gold, we now believe the market is net short, with a strong dollar and a break of the 1280 technical support, the gold bugs are licking their wounds and waiting for the market to stabilize.
- In the agriculture market, there is continued selling with trade concerns hitting corn prices based on trade with Mexico and Soybean prices based on trade with China
- Oil is volatile, there was a technical break to the upside, driven by political statements from oil producing countries. The question for the market is will the increase agreed upon be enough to match the global demand as the market loses capacity from Iran and Venezuela. Will the Saudis step up to help Trump… tough to handicap, and global economic growth as we stated above, will play a key role.
- The power markets look very positive. As stated here last week, we were looking for a break above 50 EUR/MWh in the Q4 2018 contract. This happened yesterday with the spot price at 50.53 EUR/MVh. The weather forecast is still for high temperatures, and the spot price has not been above 50 during July for decades. The next target is 55 EUR/MWh on the Q4 contract.
Dollar index vs gold:
|Ticker||Date Opened||Entry Price||Stop||Target Price||Current Price|
|NOKSEK Call Option / strike 1.0950 / Exp. 1st August||20/6||0.0052||ref. spot 1.10||0.0052|
|EURUSD Put Option / Strike 1.1300 / Exp. 26 of Sept.||2/7||0.0056||premium||below 1.1300||0.0056|
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– Mark W