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Market Morning: Iran Downs Drone, Gold Breaks Through, Mexico Approves USMCA

ME Staff

The Persian Gulf is Boiling

Iran shot down a US drone in the Straits of Hormuz, the narrowest point of the Persian Gulf, the biggest oil shipping lane in the world. The Iran Revolutionary Guards claimed credit for the move, the first time the country has admitted to playing a role in blowing something up belonging to another country since tensions started to rise in the area ever since the Trump Administration reinstituted sanctions against the country. The hit happened in international airspace, which could intensify any excuse to strike back, since the US is allowed to fly drones over international airspace and shooting them down is a technically a “provocation”. The drone was an RQ-4 Global Hawk according to Iran, and a US Navy MQ-4C Triton according to the US. Iran claims it was shot down over Iranian airspace, and the US demurs. Oil is up on the news past $55 a barrel. (NYSEARCA:USO)

Gold Breaks Through 5-Year Resistance

Although rates were held steady yesterday after the Federal Open Market Committee meeting, the Federal Reserve clearly signaled to markets that rates would be cut after the next meeting. At least if they aren’t, stocks are going to crash, given the dovish wording and the universally noticed lack of the word “patience” when addressing possible rate cuts in its press statement. In response to this, in addition to the biggest month in terms of government spending in US history, and equal signals of easing coming out of the European Central Bank, gold pushed through 5-year resistance at $1390 last night, hitting a high of $1397, though has since pulled back to the mid-$1380’s. Gold is now up about 9% in a month. (NYSEARCA:GLD)

Call the Village People, Mexico Approves the USMCA

Mexico approved the United States Mexico Canada Agreement (USMCA), a rehash of the North American Free Trade Agreement (NAFTA), except it has the letters that President Trump wants in it instead. The deal was approved by a vote of 114-4, with three abstentions. Apparently, the threat of tariffs against Mexico made 2 weeks ago are now completely forgotten. With Mexico ratifying the agreement, the United States and Canada still have to give it the go-ahead. In order for that to happen, Democrats in the House of Representatives will have to resist the urge to mess up Trump’s plans, a prospect too tantalizing for them to bypass.

Blackstone Says that China Trade War Won’t Cause Recession

Blackstone (NYSE:BX) CEO Stephen Schwarzman isn’t all that concerned about the trade war with China and doesn’t think that it will cause a recession, though conceding that the whole ordeal is a “high-wire act,” though he seems to think that there are pillows to break the fall if they trip.  “It’s not that big of a game to throw us into recession,” he told CNN Business in an interview. In one sense he may be right, in that the tariffs may not by themselves cause a recession, but if one is already coming, the tariffs will definitely make the situation that much worse. Schwarzman believes that upcoming talks between Trump and Xi, which were confirmed recently, would help reshape the relationship. Blackstone is at all time highs, and if Schwarzman is wrong, that means the stock could take a beating if he is positioning the investment group according to his positive economic outlook.

Gundlach Says Trump May Not Run for Reelection

If he’s down enough in the polls, he may not run, and he’s pretty down. If the economy goes into the crapper, “…there’s very little for him to run on ,” said the newly crowned “Bond King” Jeffrey Gundlach, who has apparently taken title from Bill Gross, the previous Bond King. Trump is trailing every Democratic candidate currently running, and even struggling to keep Texas, a typical GOP stronghold, against Joe Biden. “I am not even sure he’s going to really run,” said Gundlach to Fox’s Neil Cavouto, hedging his bets and not quite predicting that he will necessarily bow out. However, Trump is known to bail from fights that he thinks he cannot win. If he drops out, Vice President Mike Pence may take the baton, though China would certainly cheer if this were to be the case, since the trade war would quickly evaporate.

Deutsche Bank Get Punched in Gut, Again

Duetsche Bank (NYSE:DB), not having a particularly good decade, is being investigated yet again for alleged crimes of money laundering. Shares are down 2.2% in the premarket in Germany, though the ADR is trading about 0.9% up in the wee hours in the United States. The situation is a bit complicated by the fact that Deutsche is a big lender to Donald Trump, which probably doesn’t want any more information out about his finances than is already exposed. The stock is skirting all time lows and has already publicized plans to stuff some of its bad assets into a bad bank and get out of the investment banking business, in favor of concentrating on transaction banking. Some of the problematic transactions being investigated have to with Trump’s son-in-law Jared Kushner, another thing the President has to worry about.

Facebook Libra bad for Bank Stocks

Speaking of bad banks, Facebook’s (NASDAQ:FB) new Libra cryptocurrency is particularly bad news for transaction banking, provided that banking regulatory authorities allow the project to go forward. Since the crypto will be backed by a basket of government fiat currencies, the price will be much more stable relative to these currencies than bitcoin (BTC-USD) is currently. Facebook will eventually allow libra to be transferred between people on the social networks, and since the Libra would represent currencies, it can earn a yield, allowing Facebook to become a de facto at much lower transaction costs, displacing the business of many a big bank.

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