Cautious Optimism After the Recent Rally

After an eventful week, U.S. stocks shot back up in an impressive rally yesterday, However, gold—a popular safety asset—also surged, achieving its highest close in over five years and indicating that many investors may lack faith in the bounce and are hedging their bets. The trade war may be playing a large part in that uncertainty, and there’s likely more to come as the White House postpones its decision on whether to allow U.S. companies to restart business with Huawei Technologies. And it looks like things will get much worse before they get better as damage from the conflict is estimated to peak in 2021. The bond markets have rallied and seem to be stabilizing after plummeting earlier this week, despite a ~$4 billion outflow from high-yield bonds into “safer” assets. However, negative-yielding debt hit an all-time high of $15 trillion dollars on Wednesday—should we expect to see this number surge even higher given the ongoing dovish bent of the world’s Central Banks?

1. Given how the world economy has changed over the past 20 yrs, perhaps Semis will begin to fill the historical role of transports as being a good leading indicator on broad economic activity.

Source: Macrobond and Nordea, as of 8/9/19

2. Hard to say increased globalization hasn’t benefited the US substantially when you look at these disparities

Source: Aoris, as of 8/9/19

3. The tit-for-tat retaliations continue…

 Source: Bloomberg, as of 8/9/19

4. And a look at the estimated cost to the world economy.

Source: Bloomberg, as of 8/9/19

5. We think it’s worth keeping an eye on the credit markets amid all this trade uncertainty.

Source: Refinitiv, as of 8/9/19

6. But on a risk-adjusted basis, bond returns have been exceptionally strong.

Source: Arbor Research & Trading, as of 8/9/19

7. Despite the bond recovery, negative-yielding debt is still growing and we are still seeing Central Banks worldwide cutting rates.

Source: Bloomberg, as of 8/7/19

8. Homeowners are taking advantage of falling interest rates.

Source: WSJ Daily Shot, as of 8/9/19

9. An update on the state of the U.S. consumer’s level and type of debt…

Source: WSJ Daily Shot, as of 8/6/19

10. If you think the equity markets have been volatile, take a look at crude oil!

 Source: WSJ Daily Shot, as of 8/9/19

11. Gold often thrives during times of economic and/or political uncertainty, and often has an inverse relationship with the equity markets. However, it has risen this week in line with the market recovery. Are investors hedging their bets with safety assets?

 Source: WSJ Daily Shot, as of 8/9/19