In this briefing:
- Weekly Oil Views: Rising Mideast Tensions Dwarfed by Demand Growth Worries
- This Week in Blockchain & Cryptos: Visa, Ubisoft, GM, Target, FB & Apple Reveal Blockchain Plans
- Hong Kong /Trade War/Huawei/Stimulus/Stink Bugs
- What Would Happen If The Fed Cuts Rates?
Two oil tanker attacks on June 13 in the Gulf of Oman, a key waterway used for shipping oil to the world by seven major Middle Eastern producers, jolted the market. The US and Saudi Arabia blamed Iran, though the latter vehemently denied having any role.
The fact this followed a similar incident on May 12 involving four oil tankers off the UAE port of Fujairah, and amid increased attacks on Saudi infrastructure by the Iran-backed Houthi rebels in Yemen in recent weeks, points to a new high in geopolitical tensions in the Middle East.
And yet, benchmark Brent crude recorded its fourth successive weekly loss, closing at $62.01/barrel on Friday. The “fear premium” in crude was kept in check by oil market bears, who have rapidly soured over the prospect of global consumption growth this year amid economic headwinds unleashed by trade wars and tensions.
- Bitcoin saw a correction during the first week of June but has recovered quickly. Bitcoin’s leading indicators remain positive, giving a bullish outlook for the market.
- A number of public companies, including Visa Inc (V US), UBISOFT Entertainment (UBI FP), Legal & General (LGEN LN), General Motors Co (GM US), Target Corp (TGT US), Panalpina Welttransport Holding (PWTN SW), Facebook Inc A (FB US) and Apple Inc (AAPL US) revealed their blockchain plans/initiatives during the past two weeks.
- In other news, Justin Sun, the founder of the cryptocurrency company Tron, was the winner of this year’s “Power Lunch” with Warren Buffet, while major Korean banks show an appetite for blockchain based solutions.
China News That Matters
- Do you hear the people sing?
- The deadline is in my head
- A wealth of data on people, governments and companies
- So stimulating: Beijing pushes funding for big infrastructure
- Stink Bug vs Armyworm, amid food inflation battle
In my weekly digest China News That Matters, I will give you selected summaries, sourced from a variety of local Chinese-language and international news outlets, and highlight why I think the news is significant. These posts are meant to neither be bullish nor bearish, but help you separate the signal from the noise.
As we look ahead to the FOMC meeting next week, the market has priced in three quarter-point rate cuts for 2019, with the first cut occurring at the July meeting.
A rate cut is not unexpected, as the bond market has pushed the Treasury yield curve down so far that only the 30-year Treasury bond is trading above the current Fed Funds target. It is likely too early for the Fed to cut rates at its June meeting next week, but if the market is discounting a July cut, the Fed is likely to signal it is either in agreement with that expectation or correct the market.
Rather than debate whether the Fed should cut rates, we consider the scenario of what might happen if it were to proceed with a July rate cut. What are the consequences for economic growth and the stock market?
We believe that while the Fed could decide to cut rates at its July FOMC meeting, the future path of interest rates and stock prices depends on the reasoning behind the rate cut. If the cut is in response to the eruption of a full-blown trade and economic cold war with China, it is likely to be the start of a protracted rate cut cycle, with bearish implications for equity prices. On the other hand, if the rate cut is an “insurance” cut designed to heed off further economic weakness in the face of a stalemated trade dispute, we expect the cut to be reversed relatively quickly because the global growth backdrop remains constructive. Equity prices would rise under such a scenario as the bullish implications of higher growth would overwhelm the bearish implications of higher interest rates.