Advertisement

The charts that matter: markets feeling the second wave wobble

As markets worry about a second wave of Covid-196 infections, John Stepek looks at the charts that matter most to the global economy.

Welcome back. Don’t miss Merryn’s latest podcast with Nick Greenwood of Premier Miton Investors. Nick’s always good to listen to – I’m a fan of investment trusts and he never fails to tell us about some of the most interesting and even obscure opportunities out there. Give it a listen here.

Advertisement - Article continues below

And if you like investment trusts, make sure you read Max King’s latest piece in this week’s issue of MoneyWeek, where he looks at the prospects for private equity and the best trusts in the sector right now. If you’re not already a subscriber of course, you can pick up your first six issues for free right here.

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

Advertisement
Advertisement - Article continues below

(On that last Money Morning, if you’re interested in contrarian investing, check out my book, The Sceptical Investor – you can get it on audio here, or print/ebook here.)

Advertisement - Article continues below

On to the charts of the week.

The charts that matter

This week, we got a dose of the “second wave wibbles” – that’s the technical term (well, it’s my technical term) for the mounting concern that Covid-19 is going to bounce back as lockdowns become less stringent. There’s no doubt that case numbers are rising, particularly in certain US states, where lockdown has been even more politicised than it has elsewhere.

This is a worry for lots of reasons. Putting individual health concerns to one side, there are two key issues.

One is whether the easing of lockdowns is actually reversed or not. That in turn will depend on a) case numbers; b) how healthcare systems cope (remember that lockdown was originally pitched as being designed to avoid overwhelming the emergency services, not as a way to avoid any cases at all); and c) politics – in the US specifically (and it is the world’s biggest economy), it’s hard to see Donald Trump giving the nod to anything that would jeopardise his already shaky chances in November’s presidential vote.

Advertisement - Article continues below

The second factor is a derivative of the first: what effect does this have on confidence? Even if there is no further lockdown, what if people decide they’re too scared to come out? I tend to think that the answer to this is that as long as people have jobs, or even a steady stream of income, then there’s probably enough genuinely “pent-up” demand to see us through a fair few months.

Advertisement
Advertisement - Article continues below

After that? The longer it drags on for, the greater the damage. But again, the length of time it drags on for probably depends on just how virulent any second wave is.

So you can see why the market might be feeling nervy. It’s pretty hard to come down on one side or another in terms of where this is going to go in the near term. So let’s look at how that played out in the charts.

Advertisement - Article continues below

Gold had a decent week. Central bank money printing is bullish for gold. But so is a desire to park money in a “safe haven” asset. So overall, the yellow metal benefited from the “risk-off” undertones this week.

Note though that on a purely technical level, it’s likely that gold will have a fight on its hands overcoming that $1,800 – $1,900 area (its previous US dollar high was just above $1,900).

(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) by contrast, has had a tougher time, again hinting at a market that’s torn between “half-empty” and “half-full”. The US currency started to rebound strongly the week before last, which is an unwelcome development from a bull’s perspective, but it had fallen quite consistently for a few weeks, so was probably due a bounce. Its struggle to continue higher is a good sign for the “risk-on” contingent, for now at least.

(DXY: three months)

Advertisement - Article continues below
Advertisement
Advertisement - Article continues below

The Chinese yuan (or renminbi) was little moved against the dollar, which is no surprise given that US-China tensions are currently on the backburner as far as markets are concerned (it’ll all kick off again at some point, rest assured).

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

The yield on the ten-year US government bond did continue lower, which again points to safe haven buying.

(Ten-year US Treasury yield: three months)

The yield on the Japanese ten-year was little changed (this looks like a big move on the chart but check the scale – in the last three months, the yield on this bond has hit a low of -0.045% and a high of just above 0.04%). That’s basically static, a move of less than ten basis points (ie 0.1 percentage points).

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

The yield on the ten-year German bund meanwhile, fell a bit lower.

(Ten-year Bund yield: three months)

Advertisement - Article continues below

Copper continues to be the indicator that the bulls should be rooting for. As long as copper is rallying it suggests that the economy is using more raw materials, and therefore that the idea we’re in for a better-than-expected rebound might have legs.

(Copper: three months)

The Aussie dollar was little changed this week, partly reflecting the dollar’s uncertain mood.

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

Cryptocurrency bitcoin has been so becalmed in recent months that I’ve decided we can start looking at it on a three-month basis, given that we haven’t really seen any significant volatility from it since early May. I’m still not sure what that means, if anything, but I think it’s still worth keeping an eye on the original digital cash.

(Bitcoin: three months)

This week’s US weekly jobless claims figure was little changed on last week, and was worse than expected. The number of new claims fell to 1.48 million (down from 1.51 million last week). Economists had expected the figure to come in at 1.3 million. The four-week moving average now sits at 1.62 million, compared to last week’s 1.77 million.

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

The oil price couldn’t muster the energy for another run higher although it has enjoyed a solid recovery from its negative-pricing nadir.

(Brent crude oil: three months)

Amazon had a good week, as big tech stocks – which are deemed the safest stocks to own right now, for a wide range of reasons, a lot of them relating to “safety in numbers” (you won’t get fired for owning the same stock all your fellow fund managers own) – rallied.

(Amazon: three months)

Electric car group Tesla wasn’t quite as exuberant as in recent weeks, although it has enjoyed an extraordinary run.

(Tesla: three months)

Advertisement
Advertisement

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
Four excellent books to get your teeth into while you remain holed up
Books

Four excellent books to get your teeth into while you remain holed up

Whether you’re going on a staycation (or even an actual holiday) or remaining holed up at home. Merryn Somerset Webb has four perfect books to educate…
6 Jul 2020
The charts that matter: Tesla triumphs
Global Economy

The charts that matter: Tesla triumphs

As Tesla becomes the world's most valuable car-maker by market capitalisation, John Stepek looks at how that affects the charts that matter most to th…
4 Jul 2020
How can markets hit new record highs when the economy is in such a mess?
Stockmarkets

How can markets hit new record highs when the economy is in such a mess?

Despite the world being in the midst of a global pandemic, America's Nasdaq stock index just hit an all-time high. And it's not the only index on a bu…
3 Jul 2020

Most Popular

House price crash: UK property prices are falling – so where next?
Property

House price crash: UK property prices are falling – so where next?

With UK property prices falling for the first time in eight years, are we about to see a house price crash? John Stepek looks at what’s behind the sli…
2 Jul 2020
How “support” and “resistance” can help you spot trading opportunities
Sponsored

How “support” and “resistance” can help you spot trading opportunities

Technical analysis can help traders manage risk and decide where to enter and exit a trade. One simple form of technical analysis is the concept of “s…
6 Jul 2020
A first-half home run for investment trusts
Sponsored

A first-half home run for investment trusts

The investment trust sector has seen some extraordinary performance in the first half of this year. Max King looks at what's behind it, and asks: is i…
7 Jul 2020