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Gold hits 7-year high after Powell Warning

Fed Chair Jay Powell has warned the US economic recovery might last through the end of 2021. The Fed is normally too optimistic in its forecasts so the outlook feels bleak. Still, warm weather is encouraging countries to continue exiting lockdown. If the flu season is anything to go by, sunny skies reduce the odds of an imminent second wave.

 

Indices

Stock markets look optimistic as we start the new week. As lockdown easing progresses, investors continue to value companies as if the global economy has already hit its low point.

 

Shares in Asia started the week on the front foot. European shares are opening higher. Commodity market gains are helping Big Oil and the miners.

 

Futures points to a firmer open on Wall Street. The S&P 500 is set to open over 1% higher. Poor results and even worse guidance from big US retailers this week are clearly not affecting investor confidence. With the likes of JC Penney filing for bankruptcy this weekend, investors are well prepped for bad news from retailers.

 

Shares: Softbank

Shares of SoftBank are higher after the tech investment group reported a record $13 billion annual loss. Plans to buyback $4.3 billion shares and sell down some of its highest profile stakes to cover the losses are softening the blow. It was reported Softbank might sell some of its T-mobile stake to Deutsche Telekom. We’d expect the group will pare some of its position in Alibaba too after Jack Ma stepped down from the board.

 

Thinking further out, investing in start-ups is high risk and you need the big winners to cover the rest that go sour. WeWork was supposed to be the latest big winner after Uber and Alibaba, but it wasn’t. That means the only choice is to sell stakes until the next big winner, but that means lower returns and investors will start to walk, especially in a bad economy.

 

Forex: Pound breaking down

The British pound is turning lower against several major currencies. There was a thinking for a while that Brexit risk pales in comparison to the downturn brought about by the coronavirus. But now as medium-term economic forecasts darken, the prognosis is relatively worse for the UK than elsewhere because of Brexit.

 

Commodities: Gold 7-year high

Gold has a hit a fresh 7-year high on Monday ($1763 per oz at time of writing). The Fed Chairman’s warning is suggests taking an investment strategy that’s defensive against weak growth and more monetary stimulus and gold covers both.

 

Front month for WTI crude oil has risen above $30 per barrel. It’s a far cry from the negative prices of a month ago that everyone understood wasn’t anything close to a proper valuation. The surprise drop in US crude stockpiles last week means storage is no longer the central issue.

 

Opening calls

Dow Jones to open 206 points higher at 23,891

S&P 500 to open 24 points higher at 2887

 

Chart: GBP/USD & GBP/EUR (2-months)

The British pound has broken down from its horizontal trading range versus several major currencies, including the US dollar and euro.

22-9-2020

Risk-off & Tesla’s Battery Day
MARKETSThe Dow Jones ended off its lows on Monday, as investors snapped up beaten-down tech names to push the broader sector into positive territory, though falling hopes of further fiscal stimulus weighed on investor sentiment. The Dow Jones fell 1.84% while… Read more

21-9-2020

Trump approves TikTok deal, Powell & Superdry earnings
MARKETS The Dow Jones fell on Friday as investors had to contend with another selloff in big tech, led by Google. Friday moves came as four major types of options contracts were set to expire in a quadruple witching, triggering a rise in volatility. European e… Read more

18-9-2020

USD/JPY sub-105 and UK retail sales
MARKETS US stocks fell in volatile trading on Thursday amid renewed pressure in shares of major tech companies. Conflicting messaging on the coronavirus vaccine front and uncertainty around further stimulus also weighed on sentiment. European equities fell aro… Read more

16-9-2020

Buffett-backed Snowflake IPO & Fed Preview
MARKETS The Dow Jones ended roughly flat on Tuesday, pressured by a fall in financials and a u-turn in Apple after the tech giant launched a new services bundle and hardware. The S&P 500 was up 0.52% while the Nasdaq added 1.21%. Apple rose 0.2% but had be… Read more

14-9-2020

Brexit bill first debate & tech stock sell-off
Markets The major U.S stock indexes fell for the second week in a row, as technology stocks experienced their worst pullback since March. The market was volatile in a holiday-shortened week, with the Nasdaq posting a 4% decline on Tuesday followed by a nearly… Read more

18-5-2020

Gold hits 7-year high after Powell Warning
Fed Chair Jay Powell has warned the US economic recovery might last through the end of 2021. The Fed is normally too optimistic in its forecasts so the outlook feels bleak. Still, warm weather is encouraging countries to continue exiting lockdown. If the flu s… Read more

14-5-2020

Powell predicts more pain to come but no NIRP
A warning from the top of the US central bank that there’s more pain to come isn’t going down well across markets. Fed Chair Jerome Powell warned yesterday that more stimulus will likely be needed in the US to fend off the economic damage done by virus and pol… Read more

13-5-2020

“Suffering and death” warning hurts markets
A sense of caution has taken hold across markets. Shares, riskier currencies and oil are pointed lower. There’s a reassessment of the likely timeline for economic reopening. Our sense is markets juiced up by higher liquidity may have gotten ahead of themselves… Read more