Global Market Commentary & Outlook – August 2020

The Global Stock Market rally continued through July with the exception of Japan. The EU agreed to a 1.82 Trillion Budget of which 750 billion Euros is Coronavirus Aid, 390 billion Euros in grants & 360 billion euros is loans. Meanwhile, US stimulus negotiations seem to yet to result in any deal.

All of this talk of stimulus and investors realizing the gravy train has just begun has led to gold rallying to $2000 an ounce. With more and more trading houses coming out with even more bullish forecasts for gold. The outperformer however was Silver which went up 25% in July beating Gold which 9.63%.

We also got to see the impact of lockdowns on the economy. US Q2 GDP declined by a whole 32.9% which is now being considered the worst drop in history with the previous one being in mid-1921.

The Eurozone was no different with the economy contracting by 12.1% in Q2 2020 which is the lowest since 1995. Thus, the impact of lockdowns on GDP becomes clearer.

Overall S&P Global Ratings forecasts a decline in Global GDP of 3.8%. This is obviously a moving target because of uncertainty related to future coronavirus lockdowns.

The main story of the month is undoubtedly the US dollar Index reaching a low of 92.55 before recovering to 93.35 levels. This is the biggest 1-month drop (-4.15%) in the index in a decade, meanwhile, euro rose by 11% from its may levels with its best monthly performance in a decade. This can be the start of the dollar deprecation cycle and thereby lead to rotation of liquidity flows into value from growth and Emerging markets equities from developed world.

Monthly Market Indices

US Reserve Currency status at Risk, as gold surges: Goldman Sachs

As governments are debasing their currencies and real interest rates are reaching all-time lows, gold has had a record-breaking rally.

Goldman Sachs commodity strategist Jeffrey Currie wrote that “real concerns around the longevity of the US dollar as a reserve currency have started to emerge. “The argument is along the same lines that the US Debt to GDP ratio has exceeded 80% which may lead to government, federal reserve allowing inflation to accelerate. Its because inflation allows central banks and governments to reduce the accumulated debt burden.

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