The charts that matter: what happened to reflation?

Government bond yields turned down this week, while the US stock market hit new highs, as “reflation” trades wilted under the pressure of concerns over the Delta variant. Here’s how it affected the charts that matter most to the global economy.

Welcome back. 

On the cover of this week’s magazine, we’ve got England’s “Freedom Day”. It was supposed to be the great release from months of lockdowns. But, says Emily Hohler, it “turned out to be much the same as every other day, except worse”. 

Meanwhile, our big investment feature this week is India. It’s had a catastrophic pandemic, but the stockmarket is hitting record highs. Investors might be getting a little ahead of themselves, says Cris Sholto Heaton, but they’re “right to remain optimistic about the long term”. Cris looks at the economic background and picks five of the best ways to buy in. If you’re not already a subscriber, sign up for MoneyWeek magazine now.

This week’s “Too Embarrassed To Ask” video looks at the “lifetime allowance”. If you have been saving into your pension for some time now you may well have heard the term. Here's what it means and why it matters.

And joining Merryn on the podcast this week is Brian Pellegrini, founder of Intertemporal Economics. They talk about the post-pandemic recovery and why many Americans are just not returning to work, plus Big Tech, inflation and productivity. Find out what Brian has to say here

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

Now for the charts of the week. 

The charts that matter 

Gold’s recovery stalled after a couple of weeks of gains.

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) carried on getting stronger (which partly explains gold wilting).

US dollar index chart

(DXY: three months)

The Chinese yuan (or renminbi) continued to reflect the dollar’s strength (when the red line is rising, the dollar is strengthening while the yuan is weakening). 

USD/CNY currency chart

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

The yield on the ten-year US government bond fell further as investors continued to demand bonds despite concerns about inflation.

Ten year US Treasury bond yield chart

(Ten-year US Treasury yield: three months)

The yield on the Japanese ten-year bond had an erratic week, ending much where it started.

Japanese government bond yield chart

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

And the yield on the ten-year German Bund took a big tumble, too.

German Bund yield chart

(Ten-year Bund yield: three months)

Copper is just biding its time, perhaps as investors feared the rampaging Delta variant would derail the recovery.

Copper price chart

(Copper: nine months)

The closely-related Aussie dollar fell further, though it turned up a little towards the end of the week.

AUD/USD currency chart

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

Bitcoin continued its drift lower. Even Elon Musk’s latest pronouncement, that Tesla might start accepting it as payment again, failed to stir much movement.

Bitcoin price chart

(Bitcoin: three months)

US weekly initial jobless claims jumped by 51,000 to 419,000. The four-week moving average rose by 250 to 384,500. 

US initial weekly jobless claims chart

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

The oil price saw a big drop as the Opec cartel said it would ramp up production, then shot back up towards the end of the week. 

Brent crude oil price chart

(Brent crude oil: three months)

Amazon turned higher, helped by demand for growth stocks.

Amazon share price chart

(Amazon: three months)

And Tesla trod water.

Tesla share price chart

(Tesla: three months)

Have a great weekend. 

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