Prophets

The Daily Prophet: The Markets Suddenly Seem Very Nervous

Connecting the dots in global markets.

Gold may be the hottest market right now, which says a lot about how investors view the world. The precious metal is the ultimate haven for investors and tends to rise in times of crisis or when the global state of affairs looks particularly uncertain.   

That’s why it’s worth paying attention to gold’s surge to a three-month high. Holdings in the SPDR Gold Shares ETF rose 8.3 metric tons to 827 tons as of Tuesday, the most since Dec. 20, data compiled by Bloomberg show. Stan Druckenmiller, the billionaire investor with one of the best long-term track records in money management, said he bought gold in late December and January, reversing the sale he made after the U.S. election.

“The momentum is behind gold at the moment,” said Bernard Sin, head of precious metals trading at the refiner MKS (Switzerland) SA. “The trend from a technical perspective is healthy and there is a lot of demand globally.”

BONDS ARE BACK
It would easy to dismiss the move in gold if other markets with reputations as havens weren’t sending similar signals. U.S. Treasuries are staging an impressing rally, with yields on the benchmark 10-year note falling for four straight days. That hasn’t happened since June, offering a stark contrast to the painful selloff in the final months of 2016 that was sparked by then President-elect Donald Trump’s proposed policies that were based on debt and deficit spending. BlackRock Inc. Chief Executive Officer Laurence D. Fink said Wednesday there’s a growing probability that yields fall below 2 percent amid delays in U.S. fiscal spending.

 

YEN BECALMED
Then there’s the yen. Volatility in the currency has collapsed in recent weeks as it rose to some of the highest levels since early December against a basket of developed market peers. Japan’s current-account surplus makes the yen a favorite of traders during times of strife. The gains are coming even though Trump said Japan was gaming foreign-exchange markets to win favorable trade terms. Trump and Prime Minister Shinzo Abe of Japan are scheduled to meet Feb. 10. Japan has one of the largest trade gaps with the U.S., at about $69 billion.

 

BITCOIN SURGES ANEW
Even though it has been around for less than decade, bitcoin has gained a reputation as a haven. That’s because it’s not tied to any one country or correlated with many markets other than gold. What’s notable about bitcoin’s sharp move higher is that it comes even though concerns are rising that Chinese regulators will tighten their oversight of trading in digital currencies. China’s central bank held a closed-door meeting with several domestic bitcoin exchanges on Wednesday, people familiar with the matter said. Bitcoin rose by 120 percent over the past year as investors made purchases to hedge against yuan depreciation.

 

EM SOARS
To be sure, not all assets are showing elevated levels of anxiety. The MSCI Emerging Markets Index of stocks has risen almost 7 percent this year and is on the cusp of reaching its highest level since mid-2015. Although much of the move can be tied to weakness in the dollar, which makes their currencies more valuable, improving fundamentals can’t be ignored. Profit estimates for EM companies are rising twice as fast as forecasts for developed markets, according to Bloomberg News’s Srinivasan Sivabalan. The average profit forecast for members of the benchmark has jumped 5 percent this year to a 15-month high, compared with a 2.4 percent increase in the MSCI World Index. The gap is the widest since 2012.

 

TEA LEAVES
It may surprise many to hear that the world’s best performing currency since mid-January was Mexico’s peso, which gained 5.3 percent. It may also come as a surprise that Trump probably isn’t Mexico’s biggest problem right now. The country is losing a battle against inflation. As a result, the central bank is set to raise interest rates by 50 basis points to 6.25 percent when it meets Thursday, after increasing them by 150 basis points in the last six months, according to the median estimate in Bloomberg’s survey of economists. Inflation probably accelerated to 4.7 percent on an annual basis in January, up from 3.41 percent a year ago, according to a Banxico survey released on Feb. 1. That compares to the central bank’s target of 2 percent to 4 percent.

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