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S&P 500 Flirts with Record

USD/JPY – Daily Candlesticks
Source: GKFX / MT4 August 12, 2020)

USD/JPY is trapped in a down-sloping price channel that has the odd exception of the breakdown and immediate rebound in the March market panic. If the channel continues, a test of the upper channel trendline is expected.
 

TAKEAWAYS


•    S&P 500 narrowly misses record closing high
•    Gold and silver snap back
•    3rd day of US debt auctions
•    PREVIEW: NetEase earnings
•    DAY AHEAD: Australia Unemployment, Germany CPI, US jobless claims
 

MARKETS


It was a broadly good stay for global stock markets. European shares closed higher for a 4th day with bank shares doing well thanks to rising bond yields and positive implications for net lending margins. Wall Street was powered higher by tech stocks as Apple and Microsoft rose 3%, while ‘cyclical’ shares dropped back after recent outperformance. 

Gold and silver prices bounced back after the worst daily drop in seven years. Near term volatility is likely to be elevated as traders position for either a deeper pullback for a resumption of the uptrend. 

The rebound in US treasury yields; including a 1-month high in 10-year Treasuries helped USD/JPY to head higher. More broadly the dollar softened however as the chance of a new US stimulus package seemed to drop. House of Representatives Speaker Nancy Pelosi described the two sides as “miles apart”. The British pound dropped following GDP data that showed the UK entered a recession with a shocking-20.4% decline in Q2 GDP.
 

GURU WISDOM


Know what you own, and know why you own it." - Peter Lynch


Gold & Auctions


The inter-market relationship between gold and bond yields – more specifically real bond yields - has been stark. Specifically, falling real yields = rising gold price. It was the move higher in yields this week that seemed to unsettle precious metal prices. Put simply, the US Treasury is adding supply into bond markets via very large debt auctions this week. They are selling bonds to pay for the coronavirus stimulus bills. When you have higher supply that normally translates to lower prices. In the case of bonds – yields trade inversely to prices and so yields have jumped and gold has dropped because it has had a good inverse correlation with real yields. 
 

NetEase Earnings


Chinese internet and gaming tech company NetEase has been one of the most popular COVID trades and as such the shares are higher by 53% this year – contrasting wildly with big declines in other sectors. The main appeal of NetEase has been its computer gaming segment- but the company also recently signed a deal to stream Warner Bros music too. The shares already reflect the fact that during lockdown, gaming was a popular pastime. Subscriber growth should have seen substantial increases but top and bottom lines might have been restrained by the weaker advertising environment in China. 
 

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