US stocks struggled for direction as earnings season begins and investors try to see how deep of a rate cut we will see from the Fed at the end of the month. 
The start of earnings season will focus on the US consumer, and today’s report from Citigroup was a good start, as the consumer division was a standout. Citi beat on both the top and bottom line, but it was not all positive a lot of the other metrics came in softer than consensus. JP Morgan, Goldman Sachs, and Wells Fargo will report Tuesday morning and if Citi’s results are any indication, we could see softer FICC and equities trading data.
Markets may have become too pessimistic going into earnings season and we should not be surprised if we see better results if we get a strong vote of confidence for the US consumer as the large banks report this week.
Mnuchin/Bitcoin
Bitcoin pared earlier losses after Treasury Secretary Mnuchin’s cryptocurrency press conference did not unveil any new ultra-restrictive measures against digital currency. Most of his comments were reiterations that highlighted the Trump administration’s concerns over cryptocurrencies. Bitcoin recovered some of its earlier losses when it was clear Mnuchin was not announcing any regulations for the crypto space. Facebook’s Libra has an uphill battle and Bitcoin might see some new hurdles as the regulatory environment tightens.
Trade War
The second part of the Mnuchin’s presser focused on the debt ceiling and trade talks but did not yield any meaningful updates. He noted another call with China will take place this week. Stock market investors are growing nervous that we will not see a trade deal done between the US and China this year.
With no meaningful progress since trade talks were restarted at the G20 sideline meeting at the end of last month, markets will slowly begin to fear that the nightmare scenario of another tranche of US tariffs could be coming to China. The effects of the US-China trade war will continue to especially weigh on Asia, which contributes to 60% of global GDP. Singapore was the latest victim after their economy posted a surprise contraction, the largest in almost seven years.
While all warning signs should be having investors nervous, no one wants to fight the Fed, PBOC or ECB. With fresh stimulus around the corner and as both the Chinese and American economies remain in slowdown mode, we should see a period of calm on the trade front. China could end this trade war pretty easily and markets should not become overly pessimistic.
Gold
Gold prices are coiling once again in what many expect to be a clear path toward the $1,500 an ounce level. The primary driver for the yellow metal is that the US is about to enter an easing cycle and China is prepared to unleash more stimulus regardless what happens on the trade front. Earnings season is expected to see lots of caution for the second half of the year that could see the risks grow for an earnings recession.
Oil
Oil slumped to start the trading week as the first big risk from hurricane season is behind us. Exxon and Chevron workers returned to offshore platforms, bringing back production in the Gulf of Mexico. The path of least resistance right now for oil is higher. If crude stockpiles continue to decline in the US, we could see oil prices march on higher. The analysts’ consensus for this week’s oil inventory report is for a decline in stockpiles of 3.7 million barrels, down from last weeks near 10-million-barrel draw. Tensions in the Persian Gulf is the other wildcard and we should not dismiss it anytime soon.
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