Macro Perspectives
Monday 27 July 2020
We ended last week with the clock ticking on the July 31st expiration of the unemployment subsidy (the extra $600/week), and a significant step closer to action against China, whether it be a U.S. led coalition that puts China in the economic penalty box, or something bigger (military action).
With this, gold is getting momentum from two sources. It is already well on the path to new record highs, on the bet that trillions of dollars of new money floating around the world will inflate the price of all assets. We now have global capital moving to gold as a flight to relative safety, as the probability of war with China has risen.
Gold has crossed $1,900...
Next, not surprisingly, with an imminent risk to the economy (the expiration of the unemployment subsidy), and the rising risk of geopolitical instability, stocks ended the week in a technically vulnerable position.
The S&P sits on, what can be construed as an important diagonal trendline, representing the recovery from the March lows. If you consider the strong correlations between the equity indices, this line has already given way in the Nasdaq and may be a prelude to what’s to come.
With the above in mind, the week ahead will likely come with less than comforting price action in markets. But, even though Congress is very unlikely to come to an agreement on a new stimulus package (not next week, not before the election), I suspect/hope the White House will find a way to extend the unemployment benefits, in the current form (faults and all).
That should keep the economic recovery intact.