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iTrust Daily Insight

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18th September
iTrust Daily Insight
Edition 9.18.2019

September 18, 2019 — Measured Response — in Middle East and at the Fed

Market data as of about 7am PT, 10am ET

  • Bitcoin:  $10,211 (basically unchanged since mid day Monday) (Source: Coinmarketcap.com)
  • Digital currency price movement today: mixed with some up 10%, 24%; others up 1-4% (Coinmarketcap.com)
  • Number of digital currencies with market cap over $1 billion: 15 (Coinmarketcap.com)
  • Market Capitalization of Bitcoin: $183.2 billion (Coinmarketcap.com)
  • Gold “F” futures contract: $1514 (source: Yahoo Finance)
  • Copper “F” futures contract: 2.6185 (Yahoo Finance)
  • Oil “F” futures contract: $58.49 (Yahoo Finance) (Iran hawk John Bolton leaving job)
  • DJIA: $27,055  (Yahoo Finance)
  • S&P 500: $2,997 (yesterday’s close) (Yahoo Finance)
  • FTSE (main London stock index): 7,306 (at time of writing) (Yahoo Finance)
  • Shanghai stock index:2,986 (Yahoo Finance)
  • US 10 year Treasury yield: 1.761% (WSJ.com)
  • US 2-10 yield difference: +0.075% (i.e., positively sloped — normal — yield curve) (WSJ.com)

Today’s big news:

1) The United Kingdom Supreme Court is hearing arguments today from both the central government and the other side (the Scottish regional government) regarding Prime Minister Boris Johnson’s recently convincing Queen Elizabeth II to shut down parliament until a few days before Brexit — the day Britain is scheduled the exit the European Union bloc of countries — on October 31st.  Arguments are scheduled for yesterday (Sept 17), today and tomorrow (Sept 19).  Britain’s leaving the European Union entails border security, customs (movement and tariffs on goods and services), immigration policy, labor policy and other issues.  Perhaps the most “thorny” issue is what to do about the border between the Republic of Ireland (the country) and Northern Ireland (the UK province which comprises the northern counties on the island of Ireland).

2) The investigation regarding the source of the drones which attacked the Saudi oil processing facilities is on-going.  A conclusion of that investigation may bring a “measured response” from Saudi Arabia or its allies (perhaps most importantly the US) in the form of an attack on whoever launched the attack.  Violence around the Persian Gulf always scares oil markets — for two reasons: a) oil production or processing can be disrupted, and b) the Straits of Hormuz are a narrow part of the Gulf which is only 35-60 miles across (source: Brittanica.com) and would be difficult to keep open if Iran decided to block it militarily, which would become a risk in any military escalation, which escalation itself becomes a risk whenever military action starts 

3) The Federal Reserve of the United States concludes its two day monetary policy meeting today.  It is expected to cut its target for overnight interest rates charged by banks to lend to each other overnight by 25 basis points (or 1/4 of a percentage point) to a new target of 1.75%-2% (from the current target of 2%-2.25%).  The announcement will be one of the most anticipated news events of the day with most professional traders likely positioning themselves ahead of the news event, expected at 11:15am PT / 2:15pm ET.

4) as part of the US Fed’s expected 2:15pm ET set of press releases today, it is expected to publish the forward expectations of its voting governing members.  It will be important to compare these expectations to the bond markets’ forward expectations.  After the market close today, we will analyze the numbers and provide commentary on what they mean.

If you have any questions regarding how the above news events may affect market prices for digital currencies or gold, please contact iTrust Capital’s Blake Skadron.  He can directly inquiries to the economic team.  

Today’s morning commentary:

Pending outcomes of the above news events, our only commentary this morning regards the important economic outcome of the debate held last Thursday (9/12/2019) in Houston among the top 10 Democratic Party contenders to be that party’s nominee to be US president.  According to the press reports we have read, all of the candidates stated that if elected they would have to maintain the tariffs imposed on China by the current administration.  This is good news.  It means China does not benefit from taking a “wait and see attitude” toward the US elections.  We have long held that domestic “political” attitudes between the Chinese president and the ruling Communist Party supreme council (the “Politburo”) are far more important of a dynamic dictating Chinese negotiations regarding trade and intellectual property protections than seems to be appreciated by the financial markets or Wall Street or the press.  We believe that if China strengthens its intellectual property protections it would not only benefit Silicon Valley and Hollywood but also its own domestic inventors, which may unleash a new wave of creative economic activity and provide a strong boost to the global economy.  This would happen at the same time the tariffs would likely go away, which would also be a large boost to the global economy.  We don’t have any particular insight regarding the political machinations of the Chinese Communist Party, but we are heartened that the stance among the Democratic candidates running for president all chose not to provide any further incentive for China to hold off making a deal as soon as possible.

We will be back with more commentary regarding today’s Fed announcement after US stock and bond markets close today.  Simply though: if the news collectively is that the Fed is more “hawkish” than expected — by either not cutting rates today or by signaling it is not going to cut as much in the future as currently expected — gold prices and US equity prices will likely go down and US bond prices will likely go up.  If the news from the Fed today shows a more “dovish” Fed than expected — ie it cuts rates today more than expected or releases information indicating a future rate cuts greater than previously expected — the opposite is more likely: higher US equity and gold prices and lower bond prices.    

Very best,

iTrust Capital’s economics team

Tim Shaler is Chief Economist of iTrust Capital.  He is a published Real Estate economist, was a portfolio manager and asset allocation expert at his previous firms and is an adjunct professor at Webster University. His MBA (Finance) and MA in Russian Economic History are both from the University of Chicago.

For all media inquiries, please contact Blake Skadron at b.skadron@itrustcapital.com

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