Advertisement
Features

The charts that matter: Powell takes a telling from Trump

In a week when the US Federal Reserve turned dovish on interest rates, John Sepek looks at what that means to the global economy’s most important charts

We have a new podcast this week, and exciting news the audio is now vastly improved. So if you haven't listened to it already (or gave up previously) then please do have a listen now. It's about 20 minutes of Merryn and I talking about the Brexit deal does it do what we want it to? And what happens if it doesn't get past parliament?

Advertisement - Article continues below

If you missed any of this week's Money Mornings, here are the links you need.

Monday: Britain is now uninvestable which probably makes now a good time to buy

Tuesday: Will Jerome Powell toss markets a bone, or leave them hungry?

Wednesday: Oil was my 2016 "trade of the lustrum" but should you keep holding on?

Thursday: This is the most important central bank story of the week so far

Friday: What could China and America's clash at the G20 mean for your money?

Advertisement
Advertisement - Article continues below

Don't miss this week's issue of MoneyWeek magazine in which we look at the state of global property markets if you're not already a subscriber, sign up here now.

And now over to the charts.

Gold (measured in dollar terms) remained around $1,220 an ounce. The big news this week was that the US Federal Reserve started to waver on raising interest rates. The trick for gold though, is when investors start to believe both that the Fed is going to go easy on inflation, and that inflation is also going to take off. They're not there yet. Instead, the idea that the Fed might stop raising interest rates earlier than expected has everyone worried about a slowdown or even recession.

181130-MWU01-gold

(Gold: three months)

Advertisement - Article continues below

The US dollar index a measure of the strength of the dollar against a basket of the currencies of its major trading partners fell back as the Fed looked as though it might not go ahead with as many rate hikes next year as markets had previously expected.

181130-MWU02-USD

(DXY: three months)

Hopes that the Fed will go easier on rate rises also saw the yield on the ten-year US Treasury bond decline, although it continued to hold out above 3%.

181130-MWU03-Treasuries

(Ten-year US Treasury yield: three months)

The Japanese government bond (JGB) yield headed lower too.

181130-MWU04-JGB

(Ten-year Japanese government bond yield: three months)

Ten-year German bund yields (the borrowing cost of Germany's government, Europe's "risk-free" rate) hit their lowest levels in months as eurozone inflation coming in lower than expected. On the upside, "lo spread" the gap between Italian and German bund yields slipped below three percentage points to the lowest level since early November. The market is now expecting Italy to compromise sufficiently on its budget to avert any major battles with the EU for now.

181130-MWU05-bunds

(Ten-year bund yield: three months)

Advertisement - Article continues below
Advertisement
Advertisement - Article continues below

Copper is continuing to hold up. It'll be interesting to watch what happens to the copper price in reaction to the G20 meeting this weekend. I'd expect copper to do well if it looks as though tariffs are going to be lower than expected.

181130-MWU06-copper

(Copper: three months)

Cryptocurrency bitcoin showed some signs of rallying this week. I suspect it might be something to do with the general rally in risk assets, although I still would hesitate to say that I have any real idea of what drives the bitcoin price from one month to the next.

181130-MWU07-bitcoin

(Bitcoin: two months)

Hmm this next chart is getting interesting. The four-week moving average of weekly US jobless claims headed higher again, to 223,500, as weekly claims came in at 234,000. That was the highest level since May and it's the third gain in a row.

Now, there are good reasons to take this data with a pinch of salt. Thanksgiving is pretty disruptive for a start. And of course, there's Christmas shortly, too. So we shouldn't read too much into this data.

Advertisement - Article continues below

But it is starting to look like and I say this tentatively we might have reached a trough for this cycle. Maybe it won't hold, but let's watch this number really closely. It's important.

As David Rosenberg of Gluskin Sheff has noted in the past (admittedly reading from a small sample size), the stockmarket usually does not peak until after we've seen jobless claims (as measured by the 4-week moving average) hit rock bottom for a cycle. On average, the peak follows about 14 weeks from the trough for jobless claims. A recession follows about a year later.

So if mid-to-late September was the bottom, that would imply a market peak around late December, or the start of next year. Just enough time for a quick, Fed-inspired blast of exuberance in the run up to Christmas, then.

181130-MWU08-jobless

(US jobless claims, four-week moving average: since January 2016)

The oil price (as measured by Brent crude, the international/European benchmark) continued its descent. Dominic talked about the oil price in Money Morning this week he tipped it as one of his favourite trades for a five-year time horizon back in 2016. It was a good tip, but how is he feeling about it now?

181130-MWU09-oil

(Brent crude oil: three months)

We saw a significant rebound for internet giant Amazon. The turnaround in the Fed's attitude definitely helped but the rebound was already underway as people who failed to get in before decided that now was their opportunity to "buy the dip" on the stock you won't get fired for owning.

181130-MWU10-amazon

(Amazon: three months)

Electric car group Tesla is also still doing well. Investors are hopeful that the company can maintain production and profitability. What's interesting though is that its bond prices continue to struggle. Bond investors do tend to focus on risk rather than upside (mainly because unlike equity investors, their upside is fixed). Although that begs the question if you're focused on risk, why do you own Tesla bonds in the first place?

181130-MWU11-tesla

(Tesla: three months)

Have a great weekend.

Advertisement
Advertisement

Recommended

Bonds
Glossary

Bonds

A bond is a type of IOU issued by a government, local authority or company to raise money.
19 May 2020
The currencies to bet on this year
Currencies

The currencies to bet on this year

The US dollar could be set to weaken this year, while the euro, Canadian dollar and the Swiss franc could be good bets for optimistic traders.
17 Jan 2020
Commodities look cheap
Commodities

Commodities look cheap

Gold may be on a bull run, but industrial commodities, including copper, zinc and aluminium, remain cheap.
17 Jan 2020
What escalating tension between Iran and the US means for oil prices
Global Economy

What escalating tension between Iran and the US means for oil prices

The tension between the US and Iran is unlikely to mean all-out war in the Middle East. But markets may be getting a little too complacent about its e…
6 Jan 2020

Most Popular

How “support” and “resistance” can help you spot trading opportunities
Sponsored

How “support” and “resistance” can help you spot trading opportunities

Technical analysis can help traders manage risk and decide where to enter and exit a trade. One simple form of technical analysis is the concept of “s…
6 Jul 2020
House price crash: UK property prices are falling – so where next?
Property

House price crash: UK property prices are falling – so where next?

With UK property prices falling for the first time in eight years, are we about to see a house price crash? John Stepek looks at what’s behind the sli…
2 Jul 2020
An economics lesson from my barber
Inflation

An economics lesson from my barber

On reopening his shop after lockdown, Dominic Frisby’s barber doubled his prices. It’s all part of the post-Covid inflation process – and we’re going …
8 Jul 2020