Intraday Market Thoughts

Sic Transit Gloria Mundi

by Adam Button
Nov 25, 2020 23:15

The death of Maradona saddens us and it's a reminder that even the greats fall, whether it be in football or FX. On that note, the dollar lagged again Wednesday despite a risk averse tone while the kiwi led the way. A wave of US economic data ahead of the holiday highlighted several continuing trends, which we explore in today's note. The chart below raises doubts over gold's direction in absolute and relative terms.

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Sic Transit Gloria Mundi - Gold Spx Nov 25 2020 (Chart 1)

1) Housing boom

The boom in housing isn't a uniquely American phenomenon but it's heating up quickly there. New home sales in October rose 999K compared to 975K expected. The prior was also revised higher and sales are up 41% y/y.

This is a secular trend but also highlights the greatest power of all in financial markets: interest rates.

2) Trade

One of Donald Trump's most powerful promises was to improve US trade but the October trade balance report showed that even Presidents can't break the rules of economics. There was an $80.2B deficit, which was nearly in-line with estimates but the larger picture is a declining trend from roughly $65B monthly deficits when he took office. That steady flow of money out of the US is a powerful force and a long-term dollar drag.

3) The power of government spending

The US, UK and Canada are the three biggest spenders during the pandemic with outlays of 14-18% of GDP. That spending kept a human tragedy from turning into an economic one but in the US at least, the money is beginning to dry up. Wednesday's PCE report showed income dropping a surprise 0.7% versus +0.4% expected. On the flipside, there's renewed talk of US student loan forgiveness.

4) Manufacturing strength

We're still in the dark about the underlying strength of the manufacturing sector. We recently got two Fed reports that showed some softening but core manufacturing orders and shipments in the October durable goods report were strong. One of the big surprises of the pandemic has been how well that sector has held up but whether it continues is an equally big question mark.


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