European stocks and S&P 500 futures are climbing after ECB President Lagarde’s warning to EU leaders of market risks if the EU can’t quickly agree upon the EU recovery fund and after China pledged to follow through with the remaining $30 billion plus worth of American agriculture products under the phase one deal. Financial markets are possibly getting a double dose of good news on the fiscal front from the EU, and a confirmation that the US-China relationship is not falling apart.
European leaders seem to have enough pressure to sway the fiscally hawkish nations into agreeing on the proposed 750-billion-euro recovery fund. The southern periphery needs critical support for their economic recovery and if negotiations do not have a relatively smooth path, the euro could quickly erase a majority of its June gains.
US-China relations are not entering a period of calm by any means, but this latest breakthrough suggests neither side wants to mess with their respective fragile economic recoveries. US Secretary of State Michael Pompeo noted China’s top foreign policy official Yang Jiechi committed to honor all of Beijing's commitments under the trade deal. China has only purchased $4.7 billion of US goods throughout the first four months of the year, leaving over $30 billion of American agricultural products to make them whole. President Trump will likely remain relentless with his attacks on China at his campaign rallies. But Wall Street won’t care if American firms are still able do business with Chinese tech giants and if trade relations improve.
Oil
Crude prices are rising on optimism EU leaders are nearing a much-needed fiscal stimulus plan and on optimism that the US and China will likely play nice throughout their coronavirus pandemic battered economic recoveries. The EU 750-billion-euro recovery fund will support the return to growth in Europe and help the prospects for stronger crude demand later this summer. Globalization is also important for crude demand and if the US and China can continue a healthy trade relationship that should also be positive for oil prices.
WTI crude is testing the $40 level as demand prospects continue to brighten. The oil market may not rebalancing as quickly, but it seems tank tops are no longer a concern, and mounting optimism could keep prices nears the highs of the recent trading range. A sustained move above the $40 level will be difficult for WTI to execute, given the persistent outbreaks of the virus globally. Restrictions are not going away anytime soon, so oil prices, at best, might have another dollar or two to climb.
Gold
Gold prices are benefiting from the stimulus talks in Europe and constructive Chinese promises to fulfill their pledge to buy US agricultural goods. Gold remains supported by worries about the virus, surging government debts, as unbalanced economic recoveries globally will keep fiscal and monetary stimulus coming from all directions.
Gold is still in a consolidation phase, but that could be over if prices have a clean break of the $1750 level next week. Volatility in the equity markets will be huge as the S&P and Russell 2000) indexes rebalance next week. Many catalysts are brewing for gold bulls and it seems like only a matter of time before the rally can accelerate.
Bitcoin
Bitcoin continues to consolidate in what many crypto-fans are calling the typical accumulation phase that occurs after a halving event. Bitcoin has struggled to despite an overall resilient appetite for risky assets. The world’s largest cryptocurrency by market capitalization has started to see some traders focus more so on Ether’s network as demand grows for decentralized finance (DeFi) applications. Bitcoin may struggle as its rival continues to gain momentum.
In the short-term, Ether’s growing interest is somewhat negative for Bitcoin, but ultimately anything that drums up interest for cryptos is positive long-term.