There’s an air of caution in the markets at the start of a week that’s bookended by new US sanctions on Iran and the meeting between US President Donald Trump and Chinese President Xi-Jinping. Asian stocks are seeing a mixed Monday morning, while futures for the S&P 500 remain steady, indicating that equity bulls are losing some momentum ahead of a crucial catalyst for risk sentiment.
The outcome from the Trump-Xi meeting promises significant implications for investors who are finalizing their outlooks for the second half of 2019. Markets are expecting to see whether the US-China brinkmanship will give way to a truce that could ease trade tensions, or if markets will still have to contend with the protracted standoff over the coming months.
While the Trump-Xi meeting is a meaningful step towards de-escalating tensions, markets could also be left disappointed if the high-stakes meeting yields naught, leaving the status quo of the heightened conflict intact. Such a risk suggests that investors would want to avoid getting ahead of themselves in anticipating a market-friendly outcome from the meeting.
Oil jumps on new US sanctions on Iran
Both Brent and WTI are climbing by over 0.6 and 0.8 percent respectively at the time of writing, after President Trump tweeted about placing “major additional sanctions on Iran” on Monday. This is stoking market concerns that heightened geopolitical tensions could ultimately weigh on the global supply of Oil. In the meantime, energy stocks in Japan and Australia are climbing higher, contrasting the losses in their respective benchmark equity indices.
Oil’s recent surge frames the OPEC+ meeting next week, as Oil producers face the delicate task of rebalancing Oil markets. While rising geopolitical tensions have been doing the legwork for OPEC+ in sending crude higher, the demand outlook remains plagued by uncertainties surrounding US-China trade tensions, which threatens to be a major drag on Oil consumption through the rest of 2019. Unless there’s a seismic shift in the supply-demand equation this week, the OPEC+ alliance may have little choice but to extend its supply cuts into the second half of the year, which should help support Oil prices.
Gold to remain support amid global uncertainties
Gold’s stay above the psychological $1400 mark highlights the cautionary tone across various asset classes on Monday. Rising geopolitical tensions as well as the uncertainty over the US-China standoff ensure that safe haven assets remain in a supportive environment for the time being.
While it’s hard to imagine US-led tensions melting away rapidly in the immediate-term, recent history has only demonstrated that the geopolitical landscape remains highly fluid and can turn on a dime. Still, any potential declines in Gold triggered by de-escalating in tensions over the near-term should be mitigated by the expressed easing bias out of major central banks.