The charts that matter: a bigger, better vaccine and a promotion for Tesla

John Stepek looks at how the week’s events have affected the charts that matter the most to the global economy.

Welcome back. The good news is that we got another, bigger and better vaccine this week. The bad news is that in the UK, chancellor Rishi Sunak is fretting about how to pay for all these lockdowns – and it seems he has his eyes on your assets.

If you want to get an idea of how the chancellor’s capital gains tax musings could affect your portfolio, now’s a good time to start reading MoneyWeek – get your first six issues free here.

Make sure you make time to listen to Merryn’s podcast this week. She talks to one of the best Japan analysts out there – Peter Tasker – all about life in Tokyo and about why you should follow Warren Buffett’s lead and invest in the Japanese market.

And I was on a podcast with The Week Unwrapped team this week, talking about China’s big trade deal, among other things. Have a listen here.

Our latest “Too Embarrassed To Ask” video tackles the topical subject of “bubbles”. We all think we know what a bubble is – but pinning them down (no pun intended) is surprisingly difficult. Find out why here.

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 had another uninspiring week. While precious metals should eventually benefit from reflation, gold has enjoyed a very strong run this year and needed to consolidate. And do most people want to be holding more gold when risk appetite is picking back up? For now, the answer is no.

(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) fell again. It’s very close to falling through the 92 level, which would be a pretty big deal from a technical analysis point of view – worth watching, even if you think “charting” is a load of hocus pocus.

(DXY: three months)

The Chinese yuan (or renminbi) strengthened further against the US currency (when the black line below rises, it means the yuan is getting weaker vs the dollar). Overall, a weaker dollar is good news for risk assets, as in effect it means that global monetary policy is getting looser.

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

The yield on the ten-year US government bond drifted lower, belying the “risk-on” mood.

(Ten-year US Treasury yield: three months)

The yield on the Japanese ten-year stayed at zero, as always.

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

And the yield on the ten-year German Bund followed the US ten-year lower.

(Ten-year Bund yield: three months)

Copper continued to climb as the reflation trade (which includes buying commodities in the hope and expectation of a big rebound in economic growth next year) remained the name of the game.

(Copper: nine months)

The Aussie dollar was barely changed against the US dollar.

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

Last week I wondered if it was time for cryptocurrency bitcoin to take a breather. It clearly wasn’t. It now looks as though it might be gearing up for a pop at the all-time high, although compared to one investment banker’s guess this week, $20,000 is nothing compared to where bitcoin might end up.

Interestingly enough, that came almost three years ago, roughly when we stuck bitcoin on our Christmas cover – a classic example of the cover story indicator at work. (For what it’s worth, there are no plans yet to put bitcoin on the cover this year – but let’s see what happens over the next couple of weeks.)

(Bitcoin: three months)

US weekly jobless claims rose to 742,000 which was higher than expected (analysts had forecast about 710,000) and up from 709,000 last week. That said, continuing claims have fallen to a new post-pandemic low of 6.37 million. The four-week moving average fell to 742,000 from 755,750 previously.

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

The oil price (as measured by Brent crude) continued to grind higher this week. News of a second vaccine helped, but on the other hand, rising coronavirus figures in the US are not exactly bullish for oil demand.

(Brent crude oil: three months)

Amazon was little moved this week. With the vaccine around the corner, investors are growing less keen on “safe” Big Tech and more keen on “risky” traditional beaten-down assets.

(Amazon: three months)

Tesla by contrast, hit a fresh all-time high this week, rising by around 20% on Monday’s news that it will join the S&P 500 next month. That means lots of tracker funds will have to buy it, and quite a lot of it, because it’s going straight into the top ten when it enters the index.

To be very clear, the electric car manufacturer is wildly expensive and its current valuation is only justifiable based on a future that we can barely glimpse right now (a world of self-driving cars sold on a subscription basis, where Tesla is effectively Apple). Will that world arrive? Maybe. Am I keen to bet on it with my own money? Not right now.

(Tesla: three months)

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