The charts that matter: the dollar flexes its muscles

As the US dollar made significant gains this week, everything else sold off. John Stepek looks at how it's affected the charts that matter most to the global economy.

Don’t miss this week’s issue of MoneyWeek magazine.

I take a look at the theory that passive investing is distorting the stockmarket to a dangerous extent. We’re fans of passive investing – but I’m starting to think there’s something to this fear – it’s not just active managers talking their book. And it could have genuinely serious ramifications for how the market works – and for your own portfolio. To find out more, get hold of your copy now.

In this week’s podcast Merryn talks to Dale Nicholls, manager of Fidelity’s China Special Situations fund. Is now a good time to invest in the rising superpower? Find out here.

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Meanwhile, I joined the team over at The Week Unwrapped to talk about the electric car bubble. We also discussed the problems facing pregnant women during lockdown – and whether our spies really should have a licence to kill. It’s always a stimulating chat with that lot...

And if the buzz term “ESG” has you slightly confused, do check out our new “Too Embarrassed To Ask” video for a quick and painless explanation.

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 took a tumble this week as the dollar strengthened and investors started to worry that there won’t be any more free money for the stockmarket (and other assets) until the US election is over. As Dominic wrote earlier this week, the short-term trend on most assets is now looking wobbly. That said, we reckon this gold bull market has a long way to go, so unless you’re a leveraged trader (which is your choice, but you really really need to be aware of the risks) then I wouldn’t worry about the current dip.

(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) made a significant gain this week, which is why everything else sold off.

(DXY: three months)

Even the Chinese yuan (or renminbi) has weakened against the dollar this week (when the black line below rises, it means the yuan is getting weaker vs the dollar). It’s ironic and yet entirely in line with the way markets work, that this turnaround has happened just as analysts were starting to get very bullish on the yuan.

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

The yield on the ten-year US government bond was once again little changed on the week. As Eoin Treacy of FullerTreacyMoney pointed out earlier in the week, “the price has gone literally nowhere over the past month”, with traders acting as though the Federal Reserve is already engaging in “yield curve control” - capping yields, basically – even although that’s not officially the case as yet.

(Ten-year US Treasury yield: three months)

The yield on the Japanese ten-year, where yield curve control is official policy, barely changed.

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

The yield on the ten-year German bund also barely moved.

(Ten-year Bund yield: three months)

Copper slipped back this week along with everything else as fears over a resurgence of Covid-19, alongside the rising US dollar (which is a “fear trade” anyway), saw the metal drop back.

(Copper: nine months)

The Aussie dollar slid hard against the US dollar this week.

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

Cryptocurrency bitcoin joined every other risk asset in going lower, though it recovered somewhat quicker than most others.

(Bitcoin: three months)

US weekly jobless claims were higher than analysts expected last week. There were 870,000 new claims, up from 866,000 last week (that was revised a little higher from 860,000). The four-week moving average fell to 878,250 from 913,250 (which was revised a little higher) previously.

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

The oil price (as measured by Brent crude) ticked lower this week. The strong dollar didn’t help, and nor did concerns about another Covid-induced slowdown. If anything, the surprise is that oil didn’t fall further.

(Brent crude oil: three months)

Amazon enjoyed a bit of a rebound this week. That’s partly because it’s a Covid trade and also because your fund manager won’t get fired for owning it. So it’s a safety trade, believe it or not.

(Amazon: three months)

Tesla was little changed this week. “Battery day” was a bit of a damp squib – why investors thought Elon Musk would whip out a “million mile” battery there and then is anyone’s guess, but hope is what a bull market runs on.

(Tesla: three months)

Have a great weekend.

John Stepek

John is the executive editor of MoneyWeek and writes our daily investment email, Money Morning. John graduated from Strathclyde University with a degree in psychology in 1996 and has always been fascinated by the gap between the way the market works in theory and the way it works in practice, and by how our deep-rooted instincts work against our best interests as investors.

He started out in journalism by writing articles about the specific business challenges facing family firms. In 2003, he took a job on the finance desk of Teletext, where he spent two years covering the markets and breaking financial news. John joined MoneyWeek in 2005.

His work has been published in Families in Business, Shares magazine, Spear's Magazine, The Sunday Times, and The Spectator among others. He has also appeared as an expert commentator on BBC Radio 4's Today programme, BBC Radio Scotland, Newsnight, Daily Politics and Bloomberg. His first book, on contrarian investing, The Sceptical Investor, was released in March 2019. You can follow John on Twitter at @john_stepek.