The charts that matter: inflation, bubbles, and booze

As US stocks head higher into bubble territory, John Stepek looks at the charts that matter most to the global economy.

Welcome back.

A quick reminder, if you haven’t yet registered to watch Merryn’s upcoming interview with Charles Plowden of Baillie Gifford, don’t miss out – sign up here. It’s free, and promises to be extremely pertinent given BG’s deep understanding of the companies that have led the bull market of the last decade. Don’t miss it (you don’t have to tune in live, just register to make sure you can watch it in your own time).

In the magazine this week, Matthew Lynn suggests that the FTSE 100 is heading for a major tech makeover; Jonathan Compton looks at the best bets in the booze business; and we look at the sticky issue of inflation. If you’re not already a regular reader, then sign up now – you get your first six mags free when you subscribe.

On the latest podcast, Merryn and I discuss all the signs of a bubble in markets, ranging from leveraged bets soaring to 12-year olds swapping stock tips in the playground. We also spot an ESG snag for bitcoin and ask our more mature readers to share their tales of what it was like to own a house during the inflation of the 1970s. Have a listen, leave a review, and send us your war stories!

Our latest “Too Embarrassed To Ask” video looks at one specific measure of a company’s worth, and one that is particularly associated with value investors. “Book value” has its uses – but it also has plenty of flaws. Find out more here.

Here are the links for this week’s editions of Money Morning and other web stories you may have missed.

Now for the charts of the week.

The charts that matter

Gold has another mediocre week, as Dominic noted in his most recent Money Morning. The main issue for gold right now is that US interest rates have crept higher. That means “real” (after-inflation) rates have perked up. That makes gold look less appealing. I don’t think it will last; In the longer run, I think inflation will rise more rapidly than interest rates, meaning that real rates will fall again. But we’ll see how it all unfolds.

Gold price chart

(Gold: three months)

The US dollar index (DXY – a measure of the strength of the dollar against a basket of the currencies of its major trading partners) was little changed in the past week.

US dollar currency chart

(DXY: three months)

The Chinese yuan (or renminbi) continues to be strong against the US dollar (when the black line is falling, the yuan is strengthening). China has helped to buoy demand for commodities and the like over the past few months as it recovers from the pandemic. Might that shudder to a halt? I’m not sure, but it’s a risk.

CNY/USD currency chart

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

The yield on the ten-year US government bond remains close to year-long highs. Given Joe Biden and Janet Yellen’s desire to spend more money, this shouldn’t be a surprise. The question is how high it can rise before it unnerves the Federal Reserve – or sparks a market reaction.

US Treasury bond yield chart

(Ten-year US Treasury yield: three months)

The yield on the Japanese ten-year moved in the opposite direction – it’s still being pinned to near 0% by the Bank of Japan.

Japanese government bond yield chart

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

And the yield on the ten-year German Bund was modestly higher on the week.

German Bund yield chart

(Ten-year Bund yield: three months)

Copper appears to be taking a breather for the time being.

Copper price chart

(Copper: nine months)

It’s a similar story for the commodities-and-China-dependent Aussie dollar.

AUD/USD currency chart

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

Cryptocurrency bitcoin fell hard this week, dipping below the $30,000 mark at one point. This looks like a deeper, more serious correction than before. Does it mean that bitcoin is going back into long bear market mode? That seems a little premature, but let’s see how it unfolds.

Bitcoin price chart

(Bitcoin: three months)

US weekly jobless claims slipped back to 900,000, compared to 926,000 last week (which was revised down from 965,000). The four-week moving average rose to 848,000 from 824,500 (which was revised down from 834,250) the week before.

Us weekly jobless claims chart

(US jobless claims, four-week moving average: since Jan 2020)

The oil price (as measured by Brent crude) remained above the $55 mark, with Saudi Arabia’s surprise production cut continuing to prop up prices.

Brent crude oil price chart

(Brent crude oil: three months)

Amazon moved higher this week. Amazon hit a top at the start of September last year, and has been trading in a pretty tight range since then, between about $2,950 and $3,500 per share. It’ll break out eventually – but which way?

Amazon share price chart

(Amazon: three months)

Meanwhile Tesla had a relatively quiet week by its standards, closing the week little changed.

Tesla share price chart

(Tesla: three months)

Have a great weekend. Remember to register for Merryn’s interview!

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