Stock markets across the globe continued their downward price trend last week amidst higher volatility as US/China trade rhetoric continued
US tech stocks were hit the hardest, dropping by 2.7% on the week and 6.6% month-to-date, as President Trump’s decision to ban Huawei has had a ripple effect
European stocks fell by 2% and Chinese stocks by 1%
Commodity prices also fell, led by oil which dropped 6.6% on the week and a cumulative 7.4% m-t-d
As uncertainty increased, investors looked for high-quality assets, pushing US Treasury bond yields lower and flattening the 2s/10s curve further (lowest level for the curve since the December stock market selloff, and the lowest absolute level in the 10y since Q3 2017)
The US 3m/10y curve is once again negative as well, at levels seen during the financial crisis. Bond investors now expect an 80% chance of a rate cut by the end the year
In Europe and Japan, front end yields rose, but long-term ones well, which can be interpreted as a bearish view on long term growth. This flight to quality also supported gold (see below)
During this holiday-shortened week, investors will continue to focus on US/China trade discussions and insights into the choice for Britain’s next prime minister.
Gold
Gold rose last week as global markets were ‘risk-off’ and the US dollar fell 0.4% (LBMA 0.1%, XAU 0.6%)
COMEX net longs decreased meaningfully from 400t to 248t after increasing for three straight weeks after net speculative longs fell to nearly flat again
May gold trading volumes increased last week and are now averaging $113bn a day in May; levels in line with the ytd average, but 9% over April averages
Gold remains flat on the month and year, which is reflected by extremely low implied and realized volatility.
Globally, gold-backed ETFs experienced inflows of US$33mn last week, coming from North America; the second week in a row of inflows for North America this month
Asian funds had outflows again last week, having lost 7% of its assets this month and 18% of assets this year
On, the month, Europe is the only region with positive flows, with an increase of 1% of assets
Year-to-date there have been global outflows of $923mn or 1% of assets, again with European funds having the only net inflows globally.
Gold continues to trade below the psychological level of $1,300, which coincides with the 200d moving average, and below the downtrend resistance line
The 50d moving average at $1,275 should act as intermediate support, and we would not expect gold to move sharply either direction unless it is able to close above the 200d or below the 50d.
