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Video / 26 April 2017 at 7:32 GMT

From the Floor: White House meeting stokes N. Korea fear — #SaxoStrats

  • Extraordinary White House gathering stokes worries over conflict with North Korea 
  • Trump summoned all 100 senators to White House for unusual meeting Wednesday
  • Heightened geopolitical worries lend support to safe-haven assets, including gold
  • Gold holding above support despite multiple headwinds
  • US share prices keep storming higher despite increased geopolitical jitters
  • Earnings season better and better; best quarter in six years in Europe: Garnry
  • Oil needs bullish EIA inventory report today to avoid further weakness: Hansen

Saxo Strats bannerBy John Acher

An extraordinary upcoming White House meeting between the US president and all of the Senate has added a layer of worries about the potential for conflict with North Korea, and the heightened geopolitical jitters seem to be lending support to safe-haven assets, especially gold.

US president Donald Trump has summoned all 100 senators to the White House for an unusual briefing on the North Korean situation on Wednesday by the secretary of state, secretary of defense, director of national intelligence and the chairman of the joint chiefs of staff.

Despite the increased geopolitical jitters, US share prices have continued their upward march, with the Nasdaq composite index blowing through 6,000 points on Tuesday, helped by robust macroeconomic data and generally strong quarterly earnings performance. 

“Yesterday’s news is definitely linked to North Korea – I think the geopolitical risk in that area is definitely on the rise,” says Saxo Bank’s head of equities strategy Peter Garnry. “It’s very unusual to have this gathering.”

Geopolitical worries are probably the main reason there has not been a bigger correction in gold prices this week after the selling sparked by relief over the outcome of the first round of the French presidential election last weekend, says Saxo Bank’s commodities strategy chief Ole Hansen.

“We have seen multiple headwinds building up [for gold], with the surge in stocks, bond yields are moving higher once again, Trump’s tax reform – if credible – could lead to even higher bond yields,” says Hansen.

Gold prices are nevertheless holding above a key support level, and a deeper price correction at this stage would be seen as a buying opportunity because of the perceived geopolitical risks around the world, he says. 

“We are neutral at this stage because of the failure to break above $1,292/oz last week, and we are not turning bearish until $1,233,” Hansen says.

Oil steadies

Oil prices have more or less stabilised after another selloff on Tuesday, Hansen says, adding that Wednesday’s US inventories report from the Energy Information Administration will be a focal point for the market, especially after the selling that was kicked off by last Wednesday’s US inventory report.

The new weekly petroleum status report from the EIA is expected at 1430 GMT, and oil needs bullish inventory report today to avoid further weakness, Hansen says.

“We did find some support ahead of the 200-day moving average, as you can see on the chart,” Hansen says. “The rally was probably just short-covering after a six-day selloff ahead of today’s inventory report.”

The American Petroleum Institute’s weekly precursor of the EIA’s report on Tuesday showed a surprise rise in gasoline and crude oil inventories. “That’s why we are a tad weaker again this morning,” Hansen says.

“If crude inventories start to slow, but gasoline rises, then you’re just moving stocks from one barrel to another, and that’s not removing the overhang in supply,” says Hansen. US production, which has been rising steadily since October, will also be closely watched in today’s EIA figures.

A Reuters report on Tuesday showed April oil shipments up 10% from December, highlighting a problem in the oil market, with deliveries to oil customers around the world rising despite the near full compliance with Opec’s production cut.

“Output cuts don’t necessarily mean supply cuts, because even though you are cutting production, you may still maintain shipments to your clients because you have storage facilities, which you can empty and draw down on,” Hansen says. “And that seems to be what is happening.”

“So the market is settling down for a long, drawn-out rebalancing process,” says Hansen, who will hold a commodities update webinar today at 1330 CET (1130 GMT).

A WTI crude oil price of $49.80/barrel now looks like a key area on the downside, Hansen says. “If we break through that, then the market will potentially start to focus on $46.” 

WTI looking over its shoulder

Source: SaxoTraderGO

“At the moment, we are just looking for the bottom within this range, and there are enough arguments for calling it higher as well, so I think we will try to find a floor here in the market, but how deep we need to go before we get there really depends to a great extent on the US data,” Hansen says.

Better and better

The quarterly earnings season continues at full-blast, and the aggregate performance by reporting companies has generally been solid.

Nasdaq composite index blasted through 6,000 points
Nasdaq composite indexSource: Bloomberg

Shares in US fast-food group McDonald's leapt 6% on Tuesday on better-than-expected first-quarter earnings, while Coca-Cola’s first-quarter results showed headwinds persist amid high valuation, says Saxo’s head of equities strategy Peter Garnry.

“The earnings season is getting better and better the more data we are getting,” Garnry says, noting that quarterly reports are due today from companies including PepsiCo, Procter &Gamble, Boeing and Amgen. 


A gathering at The White House could have
serious geopolitical consequences. Photo: Shutterstock

John Acher is a consulting editor on TradingFloor


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