U.S. stocks have recovered almost half of selloff that stemmed from Friday’s disappointing nonfarm payroll report. The playbook for higher U.S. stocks seems etched in stone as investors brace for what could be second straight quarterly decline with earnings. Stocks should rally another 5% this year since the Fed is on hold, the U.S.-China trade war will not fall off a cliff, Middle East tensions will remain, but unlikely yield a war, and the U.S. consumer remains strong. Today is the calm before the earnings storm. Tuesday, markets will see big reports from JPMorgan Chase (NYSE:JPM), Citigroup Inc (NYSE:C), Wells Fargo (NYSE:WFC) and Delta (NYSE:DAL).
Oil
The fading of the Middle East geopolitical appears to have run its course. Oil prices are steadying for a second consecutive trading session as traders await the next saga between the U.S. and Iran. Iran saw a second consecutive night of massive protests after Iran’s government admitted to the accidental shooting down of a Ukrainian passenger plane. U.S. President Donald Trump also added fuel to the anti-government protests after tweeting a warning over to Iranian leaders not to harm their protesters. Trump is keeping the pressure on Iran and it seems almost inevitable that Iranian leaders will deliver another attack to a U.S. ally.
Oil prices also received some support from various oil leaders at an oil summit in Dhahran, Saudi Arabia. Saudi Aramco (SE:2222) CEO Amin Nasser’s delivered his first comments since the Aramco IPO. Nasser attempted to calm market concerns of the vulnerability of Aramco’s defences at its facilities. He reiterated that there is enough supply in market to ease concerns. Baker Hughes CEO also provided a more optimistic target for oil prices with a range of $65 to $75 a barrel.
Oil prices remain vulnerable as long as West Texas Intermediate crude remains below the $60 a barrel level. Risks remain plentiful in the Middle East and as U.S. shale growth slows in 2020, prices should be supported and not just slide back down towards the low $50s region.
Gold
Safe havens are under pressure as Iranian tensions wind down and as further trade optimism brews from the U.S. and China. The phase one trade deal are not expected to be released until after the signing, but leaks are suggesting the enforcement terms are written in favor for the Chinese. While the rhetoric from both sides appears very constructive, most experts anticipate no major trade deals until after the U.S. presidential election in November.
Gold prices could reassert its longer-term bullish trend if last week’s low is not breached. Buyers are attempting to defend the $1,540 level, so we should see limited downside in the first half of the week. If earnings season kicks off much better than expected, we could see the yellow metal target $1,510.
CNY
As markets await the finalization of the phase one trade deal, the CNY/USD has firmed up as trade tensions have eased. Trade optimism amongst the two world’s largest economies has kickstarted a yuan-strengthening trend that could continue as China’s economy shows signs of coming back to life. While the yuan could see further appreciation here, the currency could ultimately see the PBOC’s counter-cyclical factor limit a significant breakout here. The yuan could eventually see its rally stall around the 6.80 level.
Bitcoin's bearish trend appears to have been snapped as crypto trading volumes surged last week. Interest with digital coins have returned as geopolitical risks remain in place as the temporary easing of tensions in the Middle East likely appear to be short-lived. Bitcoin and other altcoins are showing renewed interest as investors are seeing a firm bottom put in place, the $6,300 region, which is where mining costs are reportedly averaging. Bitcoin still has a large amount of bearish catalysts, but in the short-term, $6,000 to $10,000 could be the key range until the halving event in early May.