Chart of the Month

September 2020

Data source: Eikon Reuters

Over recent months, there has been a propensity for strength in the S&P500 index to accompany, or even induce, weakness in the broad US Dollar index, and vice-versa.  As we enter a season when equities have often suffered corrections, sometimes severe ones, Dollars should be considered a protective asset. For investors who are sceptical of the robustness of the equity rally since the March slump, US Dollars offer a  hedge against a sudden reversal.   

August 2020

Data source: Eikon Reuters
Gold and silver prices have risen sharply as US real yields have dived further into negative territory, but the 2012-13 experience warns that the relationship is not straightforward. An additional source of optimism for precious metals today is the scope for a spike in US inflation.

July 2020

Data source: Eikon Reuters, SIFMA, EP 

While the price of the 5Y5Y inflation swap has been falling in the past two years to 1.8%, on the back of a collapse in oil prices,  Michigan consumer surveys reflect an expectation of a higher inflation rate (2.9%). This arises from the fact that the 5Y5Y is used as a trading instrument and is very sensitive to the change in oil prices. There is no reason why long term measures of inflation expectations should be sensitive to current oil shocks, given the capacity for subsequent monetary policy adjustments.

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