The charts that matter: the green shoots of global recovery?

With US employment data coming in much better than expected, John Stepek looks at how that’s affected the charts that matter most to the global economy.

Welcome back. A quick reminder to sign up for MoneyWeek if you’re not already a subscriber. You get your first six issues free as well as a rather fun e-book about previous market booms and busts (well, I thought it was fun to write, put it that way). Subscribe here now.

Here are the links for this week’s editions of Money Morning.

There’s also our Quiz of the Week – see what you can remember and what you missed of the economic and political events of the past seven days.

Having a contrarian lens through which to look at markets is pretty useful at times like these, so if you don’t already own a copy of The Sceptical Investor, my book on contrarian investing, then you can buy it here.

And a very special treat for you on the podcast this week – Merryn interviewed none other than former Bank of England head Mervyn King. They talk about everything from Covid-19 to Brexit to how to pay for all of this. Don’t miss this one – you can listen in here.

Also I popped up on The Week’s podcast this week, talking about China’s digital currency plans as well as some much heavier subjects - you can listen to it here.

On to today’s charts of the week...

The charts that matter

The big news yesterday afternoon was that US employment data was far, far better than expected. Analysts had expected to see a massive drop in employment of around eight million. Instead, there were 2.5 million job gains, and the unemployment rate fell to 13.3%, when it had been expected to rise to nearly 20%.

One swallow doesn’t make spring as the saying goes, but it’s certainly one to chalk up for the believers in a V-shaped rally. That said, is it all that surprising given that businesses across the US have been reopening for quite a few weeks now? Let’s see what happens in future months, but for now it’s a very positive statistic.

Of course, markets being markets, good news is not always entirely welcomed, given the potential impact on monetary policy as well as the U-turn in thought processes, as investors bent on one plan of action suddenly have to incorporate an entirely new set of scenarios into their thinking.

That rather threw the cat among the pigeons which is not always obvious from the charts below, as they go up to the close of play on Monday.

The most obvious short-term casualty was gold (measured in dollar terms). Gold has been benefiting from the whole “safe haven” bid. Having been at over $1,720 an ounce on Friday morning, when the jobs data came through, the yellow metal plunged to below $1,690.

With markets suddenly embracing “risk-on”, no one wants to be sitting in an inert shiny rock. However - let’s see if they feel the same way if an unexpectedly rapid recovery turns into rather more rapid inflation than expected too.

(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) continued its slide lower this week, despite the strong jobs data. The main driver is still the hope that Europe can get its act together, which as in turn pushed the euro (the biggest component of DXY) higher.

(DXY: three months)

Despite the tensions over Hong Kong, the Chinese yuan (or renminbi) has stopped weakening against the US dollar, which these days is roughly equivalent to an informal truce in the Cold War between the US and China.

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

The yield on the ten-year US government bond moved significantly higher this week and the good jobs data only pushed that trend further. If there’s a strong recovery, it points to higher inflation and higher interest rates over time.

(Ten-year US Treasury yield: three months)

The yield on the Japanese ten-year rose into positive territory, following the US bond higher.

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

Meanwhile the yield on the ten-year German bund headed sharply higher amid hopes that the eurozone can get its act together and also on the news that Germany plans to throw some of its prior fiscal caution to the winds.

(Ten-year Bund yield: three months)

Copper had a very good week, bolstered by hopes for an ongoing reopening in the global economy. Copper hit absolute bottom just before stock markets bottomed out (as you can see in the chart below - the markets bottomed on March 23rd and copper hit its low shortly before that), which is yet another reason why it’s always worth watching “the metal with a PhD in economics”.

(Copper: three months)

The Aussie dollar which is of course sensitive both to the Chinese economy and to commodity demand, continued to push higher against the US dollar this week.

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

Cryptocurrency bitcoin continues to trade in a range - every time it claws its way back above 10,000 it gets slapped down. It’ll be one to watch when (if) it finally takes off I suspect.

(Bitcoin: ten days)

This week’s US weekly jobless claims figure was somewhat overshadowed by the aforementioned nonfarm payrolls report on Friday. But the news was relatively positive on that front too.

The number of new claims fell below two million for the first time since the middle of March. Initial claims fell to 1.9m (down from 2.1m last week). The four-week moving average now sits at 2.28m, compared to last week’s 2.61m.

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

The oil price kept moving higher too, similarly to copper. We’ll find out next week if oil cartel Opec’s scheduled meeting over the weekend does anything to derail that.

(Brent crude oil: three months)

Amazon shares were higher this week along with the wider market...

(Amazon: three months)

… as were shares in electric car group Tesla.

(Tesla: three months)

Recommended

The currencies to bet on this year
Currencies

The currencies to bet on this year

The US dollar could be set to weaken this year, while the euro, Canadian dollar and the Swiss franc could be good bets for optimistic traders.
17 Jan 2020
Jim Reid: an ”age of disorder” is looming
Global Economy

Jim Reid: an ”age of disorder” is looming

The world is headed for a new “age of disorder”, says Jim Reid, the veteran multi-asset strategist at Deutsche Bank, in the latest edition of his annu…
21 Sep 2020
The charts that matter: China’s recovery bolsters the yuan
Global Economy

The charts that matter: China’s recovery bolsters the yuan

China's strengthening currency is a sign of confidence in the country's economic recovery. John Stepek looks at the yuan chart, and all of the others …
19 Sep 2020
A “new deal” needn’t be green
UK Economy

A “new deal” needn’t be green

Britain is seeking measures to revive its Covid-ravaged economy. It should choose from a broader palette than just “green”, says Matthew Lynn.
13 Sep 2020

Most Popular

Will a second wave of Covid lead to another stockmarket crash?
Stockmarkets

Will a second wave of Covid lead to another stockmarket crash?

Can we expect to see another lockdown like in March, and what will that mean for your money? John Stepek explains.
18 Sep 2020
Here’s why you really should own at least some bitcoin
Bitcoin

Here’s why you really should own at least some bitcoin

While bitcoin is having a quiet year – at least in relative terms – its potential to become the default cash system for the internet is undiminished, …
16 Sep 2020
James Ferguson: How bad data is driving fear of a second wave of Covid-19
UK Economy

James Ferguson: How bad data is driving fear of a second wave of Covid-19

Merryn and John talk to MoneyWeek regular James Ferguson about the rise in infections in coronavirus and what the data is really telling us.
17 Sep 2020