Stocks and the US dollar were softer whilst gold and Bitcoin continued to drive higher as markets look ahead to the G20 meeting.

Stocks have eased as markets look ahead to the G20 meeting – optimism is fading a little and we would expect investors to perhaps take some risk off the table ahead of the meeting, particularly given the recent bump. Bear in mind also this is a weekend meeting that implies gap risk. 

Equities

The S&P 500 eased 5pts yesterday to finish on 2,945. Asia has been softer overnight. Futures indicate European shares are lower today since there is really little fresh catalyst for bulls before we learn more about the Trump-Xi meeting in Osaka and what this means for global trade, tariffs et al.  

US trade supremo Robert Lighthizer spoke to Chinese Vice Premier Liu He on Monday, at least paving the way for talks to take place in Japan. The FTSE 100 might struggle to hold the 7400 level today.

The US has hit Iran with more sanctions. No sense of de-escalation, but also no material worsening in the situation. The tensions offer short-term support for oil still with Brent steady around $64 and WTI shade below $54. 

Gold

Gold firmed again overnight as we see the path to more gains being cleared. Gold hit a fresh six-year high amid a perfect blend of supporting factors. Four things are really driving gold – falling yields, a weaker dollar, a soft macroeconomic outlook and geopolitical risks rising in the Middle East. 

Prices hit $1438, breaking resistance on $1433 before paring those gains to trade around $1426 at send time. Looking to break $1446 next. 

Gold has huge negative correlation with real yields, which have come right down. US 10yr around 2%, now back to where they were in 2016 – if it goes lower, we would expect further gold strength. The surge in negative-yielding debt is undoubtedly key to the rally, and can be viewed as similar to the rise in gold prices and negative yield assets in 2016. 

Forex

The dollar remains on the defensive. The dollar index has dropped further to trade around 95.50. 

Sterling can’t catch much bid – GBPUSD remains off its lows around 1.2750 but is failing to make real inroads versus the greenback as Brexit uncertainty weighs heavily. Short positioning has eased but this remains a crowded trade. 

We have the no-deal exit risk of course – Boris Johnson has said he is prepared to take Britain out without a deal come October 31^st. But we also have General Election risk – chatter about a no-confidence vote being supported by a dozen or so Tory rebels could lead to the government falling and inevitably an election. Boris Johnson could end up the Lady Jane Grey of Downing Street if that were the case. This introduces risks of a) Brexit delay and ongoing political uncertainty, b) a hung parliament with no clear route out of Brexit, and c) a Corbyn-led Labour government that would be very risky for UK assets and equites. 

The euro is faring better, with EURUSD up to regain the 1.14 handle, trading at 3-month peaks. 

Cryptos

Bitcoin firmed again, cementing the gains above $11k. I would reiterate the comments from yesterday – it’s a hard market to stand in front of when it builds momentum like this. The buzz and the hype has returned. You can talk about Libra, or the halving next year, more and more institutional interest and so on, but ultimately this is a bubble again. Look for $11,600, the highs from Feb last year as offering the big test.