The charts that matter: corona panic breaks out

As the markets finally succumbed to coronavirus fears, John Stepek looks at how it's affected the charts that matter most to the global economy.

Welcome back.

On the podcast front – Merryn and I will be recording a new one, and no doubt discussing a certain virus, early next week. Meanwhile, if you missed me interviewing Dominic Frisby about his new book Daylight Robbery last week, you can listen to it here.

Here are the links for this week’s editions of Money Morning in case you missed any.

And keep 22 May free! We’ll be telling you more about our next event very very soon – what with the havoc that’s been wrought on markets in the last week or so, you’ll want to make sure you’re free to come along!

The charts that matter

It was all about coronavirus this week as markets finally succumbed to fear. The US yield curve – as measured by the gap between the yield on the ten-year US Treasury (government bond) and the two-year – remains close to being flat.

The yield curve inverted (the two year was yielding more than the ten year) in the middle of last year. That’s been a reliable recession signal since at least World War II.

Of course, the inverted yield curve could never have predicted coronavirus. So it’s a little ironic that if the disease does trigger a US recession, it would validate the red flag. It’s the kind of thing that makes your brain hurt if you think about it for too long. Like the plot of The Terminator.

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

Gold (measured in dollar terms) had a solid week right up until Friday, which is when it slid hard as investors apparently got margin called (in other words, they had to sell the liquid stuff and the good stuff that they owned in order to fund the losses they’d made on other assets). The chart below only goes up to the close on Thursday, so you can’t see the Friday drop.

(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 – actually weakened this week. That’s interesting – as a “safe haven” you’d have expected the dollar to strengthen.

(DXY: three months)

That meant the Chinese yuan (or renminbi) remained relatively strong this week, sitting only just above the $1/¥7 mark that gets markets worried.

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

The yield on the ten-year US government bond slid hard as investors got gloomy.

(Ten-year US Treasury yield: three months)

The yield on the Japanese ten-year fell too.

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

And the yield on the ten-year German Bund followed suit.

(Ten-year Bund yield: three months)

Copper held out for most of the week and then gave up the ghost on Friday, sliding towards the $2.50 mark.

(Copper: six months)

Despite the weakness of the US dollar, the Aussie dollar was weaker, as you’d expect, given its reliance on China.

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

Cryptocurrency bitcoin has fallen back sharply this week. It’s not really working as a safe haven, it seems.

(Bitcoin: ten days)

US weekly jobless claims rose to 219,000 (from 211,000 – the previous week’s figures were revised higher by 1,000 claims). The four-week moving average now sits at 209,750. When the four-week moving average troughs, the market often hits a top soon after.

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

The oil price (as measured by Brent crude, the international/European benchmark) slid hard as markets decided that economic growth is going to take a real knock.

(Brent crude oil: three months)

Retail behemoth Amazon crashed along with the wider market.

(Amazon: three months)

And even electric car group Tesla – which often goes in the opposite direction to the rest of the market – couldn’t sustain its recent momentum, collapsing from above $900 a share to around $640 by the end of the week.

That’s a bear market right there…

(Tesla: three months)

Is this capitulation? I’m wondering what next week will have in store for us.

Meanwhile, have a great weekend, and don’t overly stress about your portfolio. If you have a plan in place, this is noise. If you don’t have a plan in place, use this as a learning experience – and get one.

Recommended

Money Minute Wednesday 4 December: Britain's economic sentiment and American job figures
Economy

Money Minute Wednesday 4 December: Britain's economic sentiment and American job figures

Today's Money Minute looks ahead to the UK's latest all-sector PMI survey, and America's private payrolls report.
4 Dec 2019
The British equity market is shrinking
Stockmarkets

The British equity market is shrinking

British startups are abandoning public stockmarkets and turning to deep-pocketed Silicon Valley venture capitalists for their investment needs.
8 Nov 2019
I wish I knew what a share was, but I’m too embarrassed to ask
Too embarrassed to ask

I wish I knew what a share was, but I’m too embarrassed to ask

When people talk about investing, they often refer to putting money into “shares”, or buying “stocks and shares”. But what is a share anyway?
28 Oct 2020
Why would you pay anyone for the privilege of lending them money?
Government bonds

Why would you pay anyone for the privilege of lending them money?

In the latest in his series on fixed income investing, David Stevenson explains what’s driving the trend towards negative-yielding government bonds – …
26 Oct 2020

Most Popular

The Bank of England should create a "Bitpound" digital currency and take the world by storm
Bitcoin

The Bank of England should create a "Bitpound" digital currency and take the world by storm

The Bank of England could win the race to create a respectable digital currency if it moves quickly, says Matthew Lynn.
18 Oct 2020
Don’t miss this bus: take a bet on National Express
Trading

Don’t miss this bus: take a bet on National Express

Bus operator National Express is cheap, robust and ideally placed to ride the recovery. Matthew Partridge explains how traders can play it.
19 Oct 2020
Three stocks that can cope with Covid-19
Share tips

Three stocks that can cope with Covid-19

Professional investor Zehrid Osmani of the Martin Currie Global Portfolio Trust, picks three stocks that he thinks should be able to weather the coron…
12 Oct 2020