Hope you had a relaxing weekend, because the markets are back to full volatility this morning. There are just so many different narratives playing out right now as investors frantically readjust their portfolios.
Some great production numbers came out of China this morning, which is good, but we also saw a fresh spike in new coronavirus cases in Beijing, prompting a return to lockdown and mass-testing regimens. It’s really a mixed bag over there.
The situation is no less heterogeneous in Europe, where today they’ve resumed travel between many different countries. Still, this is not taking place without strict social distancing, required PPE, and frequent temperature checks.
In the U.S., we have much of the same, with new outbreaks in some places, and restrictions easing in others, as well as the racial injustice unrest that just refuses to go away. All this leads to uncertainty, which leads to volatility, and that usually translates into downward pressure on risk assets.
The weird thing is, it’s not just risk assets that are falling today. Traditional safe havens like gold, silver, and even the U.S. dollar are all down today. Click to tweet
Where’s the money gone?
This is a question that often comes up during broad multi-asset sell-offs, but is being felt particularly harshly today.
As we know, when people sell off risk assets, the money has a tendency to flow toward the safe havens. While this is usually true, it’s a bit of an oversimplification.
If we zoom out and think of it from a macro perspective, economies don’t really rise and fall, so much as they expand and contract. So, while we’re in an expansion mode, the value of everything will rise, and vice versa.
Zooming back in to the short term, we can still see the dollar dichotomy playing out on the charts. Here, for example, we can see the U.S. dollar in green and the S&P 500 stock index in blue.
Notice how they tend to move in opposite directions in the short term, and even mirror each other at times, even though the overall direction of both assets is down.
Just as I’m writing to you, it seems like we saw a nice bounce and some kind of bottom forming just after the New York opening bell.
The bounce is coming in across the asset classes, and occurred at the same time for bitcoin, stocks, and many more. There’s no telling at this point if it will hold, or if we will end the day lower. As we said, markets are really volatile right now.
Here we can see bitcoin, the U.S. stock market, gold, and the U.S. dollar, in that order, on super short-term charts where each candle is set to 1 minute. The vertical dotted line shows where the bounce came in. I know it’s a bit faint, but you should be able to make it out from the image.