The charts that matter: the unshakeable market

Welcome back. I’m just on the train heading back from a talk I gave at Mello 2019, an event for private investors – it was good fun, great to see lots of MoneyWeek readers there, and I enjoyed getting the chance to talk about some of the key lessons that I believe are most important for contrarian investors (or sceptical investors as I call them) to bear in mind when investing.

On that front – we’re having some exciting conversations behind the scenes here at MoneyWeek Towers – look out for an announcement any day now. All I will say for now is – keep 22 November free.

Seriously. Go on, mark it in your diary now. I’ll wait.

OK – no new podcast this week (sorry, normal service will be resumed shortly – oh wait, this is normal service). But if you’ve haven’t yet caught up on our new weekly column, Currency Corner (in association with currency specialists OFX), then check it out now.

Every Friday, Money Morning regular Dominic Frisby takes a look at the big trends and the big news stories moving the foreign exchange markets. This week Dominic wants to introduce you to the Frisby Flux.

If you missed any Money Mornings this week, here are the links.

Monday: Uber’s big belly flop might be good news for wider markets

Tuesday: Trade wars are a stupid idea, but it seems we’re going to have one anyway

Wednesday: The bitcoin rollercoaster has started up again – hang on tight!

Thursday: How to protect yourself from dividend disappointment

Friday: Trade war with China, rising tension with Iran – markets just don’t care

If you don’t already subscribe to MoneyWeek, do it now – you get your first six issues free when you sign up.

Now let’s turn to the charts.

The yield curve (remind yourself of what it is here) was little changed. The chart below shows the difference (the “spread”) between what it costs the US government to borrow money over ten years and what it costs over two. Once this number turns negative, the yield curve has inverted, which almost always signals a recession (although perhaps not for up to two years).

Yield curve chart

(The gap between the yield on the ten-year US Treasury and that on the two-year, going back three months)

Gold (measured in dollar terms) surged but then fell back as investors decided they’d prefer the US dollar over the yellow metal as a safe haven.

Gold price chart

(Gold: three months)

The US dollar index – a measure of the strength of the dollar against a basket of the currencies of its major trading partners – jumped again this week as investors stepped up the search for safe havens.

US dollar price chart

(DXY: three months)

Ten-year yields on the world’s major developed-market bonds continued to edge lower as the trade wars continued to heat up.

US Treasury bonds price chart

(Ten-year US Treasury yield: three months)

Japanese government bonds price chart

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

German bunds price chart

(Ten-year bund yield: three months)

Copper slid further again this week but rebounded a little along with wider markets towards the end of the week.

Copper price chart

(Copper: three months)

The Aussie dollar – our favourite indicator of the state of the Chinese economy – slid hard this week. The Australian economy is looking poorly; the trade war bodes ill for both China and Australia’s global growth-dependent economy; and the Aussie dollar has also tumbled through a key technical level – it’s all pointing down for now.

Australian dollar price chart

(Aussie dollar vs US dollar exchange rate: three months)

Cryptocurrency bitcoin continued to rally, although it stumbled towards the end of the week, possibly because of the dollar’s strength.

Bitcoin price chart

(Bitcoin: ten days)

Four weeks ago, US jobless claims hit a fresh low on the four-week moving average measure, dropping to 201,500. This week they were up to 225,000, but weekly claims fell back to 212,000.

The moving average matters because as David Rosenberg of Gluskin Sheff has noted in the past, US stocks usually don’t peak until after this four-week moving average has hit a low for the cycle. A recession tends to follow about a year later (bear in mind, this is a tiny sample size).

US jobless figures chart

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

The oil price (as measured by Brent crude, the international/European benchmark) continued to slip back from its recent highs but rebounded amid tensions over Iran.

Oil price chart

(Brent crude oil: three months)

Internet giant Amazon fell back in line with the wider market earlier in the week before rebounding strongly as investors decided that if they’re going to own anything, it might as well be the world’s most-loved stock.

Amazon share price chart

(Amazon: three months)

Electric-car group Tesla continued to slide as one of its biggest investors T Rowe Price sold the vast majority of its shares in the company.

Tesla share price chart

(Tesla: three months)

Have a great weekend.