All in the eyes of the beholder

Last week seems to have been a  bit less jittery than the one before, despite its being August.There were more gains for equities in the US and China but also for new rising stars South Korea and Germany and a ‘guest appearance’ from the UK’s FTSE 250. Bond investors were still willing to settle for negative and nugatory yields while tucking away anything that offered a bit more. Profit-taking in FX markets meant that the dollar ended within a range of plus or (mainly) minus 0.5% vs. almost all other currencies except those of COVID-stricken Brazil, South Africa and Mexico. Perhaps an eyebrow could be raised at the one-week 15% surge in Silver futures and more gains for Oil.

Despite the apparent calm I would return briefly to my previous theme of a ‘Gold Rush’ in 2020. In fact, the yellow stuff itself seems to be emerging from the shadows of ‘Big Tech’ as it is increasingly seen to offer similar benefits. For Momentum investors, it just keeps going up: another 3% last week to make gains of 34% in 2020 and 80% from five years ago. For those nervous of future inflation it still represents a store of value. For those fearful of deflation and economic collapse it might well be the last asset standing. Finally, it is losing its stigma of zero yield vs. Cash and US Treasuries. Meanwhile, the ‘Big 5’ of Facebook, Amazon, Apple, Alphabet and Microsoft are doing just fine. Even some modest profit-taking will dismay those holding them defensively nor the ‘Robinhooders’ who are still on a roll. The other and much less glamorous destinations of the ‘Gold Rush’ are ‘weaker’ Euro Area (Italy, Spain, Portugal) and China sovereigns and investment grade corporates) that offer at least a positive nominal yield if not after inflation is taken into account. ‘Chacun à son goût’, springs to mind but one should not forget that gold rushes have not always ended badly.

The latest economic data also seems to look different to different people. Perhaps the most striking is the July US Labor Market data. The headlines show 1.8 million new jobs filled and the Unemployment dropping again to ‘only’ 11.2%. However, if one takes into account the Federal emergency schemes the Unemployment rate is 19.2% and more than half the 20.7 million jobs reported lost in April have yet to be replaced. Other economies have their own methodologies but most are also understating unemployment, as will the UK in the coming week. It is true that Retail Sales have bounced back in most countries but Consumer Confidence remains subdued (except in Germany) as does Consumer debt. Genuine good economic news is in short supply in the advanced economies and exports from developing economies are in less demand. Meanwhile, Mr Trump seems determined to escalate his quarrel with China with consequences that go far beyond the election in November.