• US/China relations drove global markets across asset classes last week, with back and forth positive/negative chatter, primarily from the US, which culminated with the US adding additional tariffs against China; Stock markets were meaningfully lower last week (US: -2.5%, Europe: -3%, EM -5%, China -5%). The significant short futures’ exposure in the VIX we discussed, and its potential impact on stock markets, played a role in market behavior; the move lower in stocks drove the VIX 50% higher at one point, near the long-term average level of 20. The VIX futures curve also inverted, something we see during times of significant stress (this happens less than 5% of the time historically). Rates fell across the globe last week, although there was no major impact on the yield curves. Agriculture commodities were lower (largely a function of increased tariffs) as the broader commodity index lost 1.5% last week. Over the weekend, China retaliated imposing tariffs on the US and increased its negative rhetoric toward the US in their state-owned media. Stock markets are sharply lower this morning (particularly those with the most China exposure, like Apple and semi-stocks); Treasuries are bid; the US 3m/10y is nearing negative territory again, and the German 10yr is back to negative. Despite the risk-off move today, the US dollar is lower, while gold is bid. Bitcoin broke out of its resistance level and is currently up 17% this morning (~7,400); that puts it up 30% over the past week.
• Gold is at an important technical level.
1. It is trying to break back above the neckline of the head and shoulders bearish break it made in April
2. It is trying to break out of the downtrend resistance line that began in February,
3. It is trying to close above the 200-day moving average of $1,295 and:
4. It is trying to close above the psychological level of $1,300. Any or all of these confirmations would be bullish for the price of gold.