Monthly Market Monitor – July 2020

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China, where the virus started and where economic recovery first appeared, has been outperforming since early February.

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And technically, it looks as if the long-term downtrend of China vs the US may be ending:

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Europe has been outperforming since mid-May:

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But it’s going to have to move a lot more than that to reverse the long-term trend:

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Asia ex-Japan outperformed the US in June:

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Commodities have outperformed stocks since late April:

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Copper has outperformed stocks during the virus crisis:

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Crude oil has been in a long-term downtrend versus stocks:

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But has outperformed since late April:

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And the copper:gold ratio has been in a short-term uptrend, reflecting optimism about economic recovery:

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The ratio has been a good leading economic indicator and the 10-year Treasury yield usually tracks it pretty well. Today a gap has opened with the ratio rising and bond yields stagnant. That gap will be closed, but how is the $64,000 question.

There is also a growing divergence between gold and the dollar. The yellow metal has been in a steep uptrend since late 2018. Is gold leading the way for the dollar index?

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And gold has been outperforming stocks since about the same time:

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Despite this near two-year uptrend of gold over stocks, the long term view shows that this only reverses a small fraction of the previous decline. If this is the beginning of a long-term trend, it could have a long way to run:

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Gold and the dollar are inevitably entwined, gold rising as the dollar falls. But it isn’t a perfect correlation and there are plenty of other factors that impact the price of gold. Nevertheless, I think it is wise to pay attention when two normally closely related price trends diverge. This is a plot of gold versus the inverse of the dollar index. How will that gap be closed?

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Disclosure: This material has been distributed for informational purposes only. It is the opinion of the author and should not be considered as investment advice or a recommendation of any ...

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