Features

The charts that matter: Britain elects and the risk is on

John Stepek looks at how the week's events have influenced the charts that matter the most to the global economy.

After a lengthy drought we have not one but two podcasts for you this week. First, Merryn and I give our take on the election result. You'll not be surprised to know that we think it's good news for investors and the UK economy.But what about the prospects for Scottish independence? And the future for the Labour party? And the pound? Listen here and don't forget to send us your hate mail.

Secondly, I joined the team at The Week Unwrapped for their latest podcast. I talked about the Saudi Aramco listing and what it means for oil and geopolitics, while The Week team talked about psychopathy and the proliferation of privilege in the acting profession. I spend a lot of this one in a state of mildly baffled cynicism but it was fun to do.

Meanwhile, if you missed any of this week's Money Morning articles or blogs, here are the links you need:

Monday: Investors today are unreasonably bearish on oil companies

Tuesday: How to plan for the general election result

Wednesday: Why traders should believe in Santa Claus

Thursday: It's inflation or bust as far as the Federal Reserve is concerned

Friday: Why the Conservative victory is good news for investors

Currency Corner:

Merryn's Blog: Six contrarian books for Christmas

Subscribe: Get your first 12 issues of MoneyWeek for £12

This is where I normally plug my book, The Sceptical Investor, but I've just found out that the publisher Harriman House are going to do a 40% off deal on it for a few weeks immediately after Christmas, so much as it goes against the grain to tell you to hang on, you probably should!

(Although if you want to get the audiobook version then I think you can get that free if you sign up to Audible at the same time here's the link!)

The charts that matter

The yield curve has widened slightly again this week that is, the gap between the yield on the ten-year US government bond and that on the two year has expanded, which is what you'd expect in a healthy economy.

That said, the curve inverted in August this year (in other words, the two yielded more than the ten) which history suggests means a recession is likely to within 18-24 months from then (in other words, by August 2021). No indicator always gets it right, but the yield curve does have a good track record.

191213-MWU01-yields

(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) fell this week. I'd mostly put this down to the return of a more "risk-on" attitude towards the end of the week, driven primarily by Donald Trump's teasing of a US-China trade deal, but also by the lifting of a certain amount of uncertainty over Brexit, following the decisive British election outcome.

191213-MWU02-gold

(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 also weakened further this week, which is also conducive to a "risk-on" mood. It was helped by the Federal Reserve's latest meeting, at which the US central bank made it clear that it was in no hurry to raise interest rates.

191213-MWU03-usd

(DXY: three months)

The number of Chinese yuan (or renminbi) to the US dollar (USDCNY) slipped closer to the key seven mark, which is again, a "risk-on" sign when the dollar is strengthening (the line on the chart below is rising), that's deflationary; when the yuan is strengthening (the line is falling), that's inflationary.

191213-MWU04-cny

(Chinese yuan to the US dollar: since 25 June 2019)

The ten-year yield on US government bonds ticked higher again when markets are in "risk-on" mood, bond prices tend to fall (and so yields rise).

191213-MWU05-treasuries

(Ten-year US Treasury yield: three months)

The yield on the Japanese ten-year is tantalisingly close to positive territory.

191213-MWU06-jgb

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

The yield on the ten-year German bund is rising too, helped by signs that the global manufacturing cycle may have started to bottom out.

191213-MWU07-bunds

(Ten-year Bund yield: six months)

One very promising sign came from copper this week. A possible trade deal, signs of a pick up in the Chinese economy, a weaker dollar no wonder copper moved higher.

191213-MWU08-copper

(Copper: six months)

The Aussie dollar followed suit, strengthening against the US dollar.

191213-MWU09-aud

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

Cryptocurrency bitcoin appears to have gone back into one of its hibernation phases.

191213-MWU10-bitcoin

(Bitcoin: ten days)

US weekly jobless claims leaped to their highest level in more than two years this week, jumping to 252,000, much worse than expected, and up from 203,000 last week. The four-week moving average jumped to 224,000.

The figures are thought to be distorted by Thanksgiving last week was surprisingly low, this week surprisingly high. So maybe it'll fall next time.

But I have to say, if this was a share price chart, I'd say it was at risk of breaking out. That would indicate that a market top is likely on the way, with a recession not all that far behind.

That said, you could have said the same thing towards the end of 2018, and you'd have been wrong. Let's see what happens over the next couple of months.

191213-MWU11-jobless

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

The oil price (as measured by Brent crude, the international/European benchmark) continues to meander higher. Oil cartel Opec agreed further cuts to oil production, and Saudi Arabia is keen to prop up the valuation of the recently-listed oil company, Saudi Aramco. If global demand picks up more rapidly than investors expect, I suspect that next year's big surprise could be a sharp rally in oil prices.

191213-MWU12-oil

(Brent crude oil: three months)

Shares in internet giant Amazon rose a little this week as the market started to rally on hopes of a deal between the US and China, and also because of the Fed's relaxed tone on Wednesday.

191213-MWU13-amazon

(Amazon: three months)

Shares in electric car group Tesla header higher, helped by the fact that chief executive Elon Musk is currently managing to stay out of trouble.

191213-MWU14-tesla

(Tesla: three months)

Recommended

Barry Norris: we’re already in the 1970s. Here’s how to invest
Investment strategy

Barry Norris: we’re already in the 1970s. Here’s how to invest

Merryn talks to Barry Norris of Argonaut capital about the parallels between now and the 1970s; the transition to “green” energy; and the one sector w…
19 May 2022
Inflation is now at its highest since 1982 – is this the peak?
Inflation

Inflation is now at its highest since 1982 – is this the peak?

At 9%, UK inflation is at its highest for 40 years – and it’s not going anywhere soon, says John Stepek. That means you need to be much more active a…
18 May 2022
Get set for another debt binge as real interest rates fall
UK Economy

Get set for another debt binge as real interest rates fall

Despite the fuss about rising interest rates, they’re falling in real terms. That will blow up a wild bubble, says Matthew Lynn.
15 May 2022
Interest-rate rises mean more pain for stocks
Stockmarkets

Interest-rate rises mean more pain for stocks

Interest rates are rising around the world as central banks try to get inflation under control. That’s hitting stockmarkets – and there is more pain t…
13 May 2022

Most Popular

Barry Norris: we’re already in the 1970s. Here’s how to invest
Investment strategy

Barry Norris: we’re already in the 1970s. Here’s how to invest

Merryn talks to Barry Norris of Argonaut capital about the parallels between now and the 1970s; the transition to “green” energy; and the one sector w…
19 May 2022
The ten highest dividend yields in the FTSE 100
Income investing

The ten highest dividend yields in the FTSE 100

Rupert Hargreaves looks at the FTSE 100’s top yielding stocks for income investors to consider.
18 May 2022
Share tips of the week – 20 May
Share tips

Share tips of the week – 20 May

MoneyWeek’s comprehensive guide to the best of this week’s share tips from the rest of the UK's financial pages.
20 May 2022