MACRO SETTING OVERVIEW:
- US Treasury interest rates rise sharply – above rise?
- Goldthe downside is with the second big step higher Bitcoin
- The fund’s interest rate ratios and the shape of the US yield curve are supportive US dollar
TRANSITION? OR TIP TIME?
In this week’s edition Macro tuning with Dan Nathan and Guy Adamiwe discussed the impact of rising US Treasury yields on various asset classes, including gold, cryptocurrencies and equities.
U.S. corporate earnings have been strong – 88% of companies have reported, 87% have exceeded both their earnings forecasts and earnings forecasts – and both Nasdaq 100 and S&P 500 has reached a record high. Concerns about the delta variant may, however, prevent a heavy-duty heavy Russell 2000.
While rising US Treasury interest rates make stock indices less attractive on margins, there are some groups that are doing well: banks, industry and utilities. Now, in the middle of the second year of the bull market – which usually produces the most difficult trading environment for equities – it is possible that we will see more distribution and fragmentation as the distribution of assets takes place during 3Q’21.
In keeping with US Treasury returns, the move as a result of the US non-farm payroll reports in July has also led to an increase in Fed interest rate expectations. Last week, by the end of 2023, 65 basis points had been written down; now the price is 95 bps. Fed interest rate hikes, coupled with delta problems, have ostensibly hit “growth” assets; goods continue to fight, especially oil last week’s prices.
The biggest benefit of all this has been the US dollar. Historically, the combined effect of rising US Treasury interest rates and Fed interest rate growth rates has created a more favorable trading environment for the US dollar. – as it has been The emerging shape of the US yield curve, which reflects its development in 2013/2014 “Taper Tantrum”.
Finally, last week we asked, “if gold prices cannot rise in this environment, then what does it take to light a fire under precious metals?” The sharp turn of gold is not surprising, given that it was unable to capitalize during a significant headwind. Properly stated, Bitcoin will charge extra dollars for gold as cryptocurrency becomes a more widely accepted asset class.
* For comments on Dan Nathan, Guy Adam, and me on the U.S. dollar (via the DXY index), the U.S. S&P 500, and the price of gold, among others, please see the video at the top of this article.
CARDS OF THE WEEK
TECHNICAL ANALYSIS OF THE GOLD PRICE: DAILY CARD (MARCH 2020 – AUGUST 2021) (TABLE 1)
TECHNICAL ANALYSIS OF THE DXY INDEX PRICE: DAILY MAP (SEPTEMBER 2020 – AUGUST 2021) (TABLE 2)
EUR / USD RATE TECHNICAL ANALYSIS: DAILY CARD (MARCH 2020 – AUGUST 2021) (TABLE 3)
– Written by Christopher Vecchio, CFA, Senior Strategist