Slow Monday morning for equities, gold higher on real yield slide

Reopening day in Britain – today is a big step forward for the economy, not so big for the stock market. Markets move well in advance, of course. Reopening trades have performed well this year, but the real test comes as the reopening process proceeds – do people get out and spend, do they take on more debt and do banks lend more? These are questions for policymakers, but also for investors. 

After a very choppy week, global stock markets were up on Friday, apparently surviving the big test of the previous few sessions. European stock markets are a tad weaker in early trade, whilst US futures indicate a slightly soft open on Wall Street, with the S&P 500 currently seen opening about 10pts off Friday’s close. Vixx trades higher in the 21-22 range this morning, which could indicate stress for equity markets.  

Asian shares were mixed as Chinese retail sales figures missed expectations. Year-on-year sales rose 17.7% in April, missing the +24.9% expected. It was also a sharp slowdown from the +34% in March. Industrial output rose 9.8%, in line with expectations, whilst fixed asset investment rose 19.9%, slightly ahead of forecast. Rising cases in Singapore and Taiwan are a worry. 

Last week was all about inflation. Various Fed speakers sought to calm speculation as breakevens broke higher. Yields were kept in check, with the benchmark 10-year Treasury yield retreating from 1.70% at its highest point last week to around 1.62% this morning. That pop in real yields left gold on the back foot but the subsequent drop in nominal rates against persistently high inflation expectations has seen real yields plunge with 10yr TIPS back to –0.88%, whilst 30yr TIPS have flipped negative again. This has helped gold rally to fresh 3-month highs above $1,850. Next stop $1,880 – the 50% retracement of the downtrend since Aug, with support around the 38.2% retracement at $1,832. Looking ahead to this week, minutes from the latest FOMC meeting will be watched for any signals policymakers are worried about inflation and/or financial stability. Likewise, the Bank of England’s Bailey, Ramsden and Broadbent will face questions about the impact of QE and risks to financial stability when they appear before the House of Lords Economic Affairs Committee on Tuesday. 

Finally, I thought Donald Trump’s ban from Twitter would mean markets would suffer less ‘noise’. I was wrong. First meme stocks came along, now we have Elon Musk moving crypto prices with his missives. The latest in the drama saw Bitcoin jump about $2.5k this morning after Elon Musk denied Tesla had sold its Bitcoin holdings. A nice pop, but this is small versus the Musk-induced selling that has been taking place lately. In addition to Tesla saying it would stop accepting Bitcoin as payment, Musk indicated in a reply to a tweet that the company was dumping or had already dumped all its Bitcoin. Prices fell sharply over the weekend and at $44k the crypto asset is still down by around a third from the all-time high near $66k set in April. There is nothing new I can say about Bitcoin – volatile, highly speculative, easy to manipulate; a bubble.