No need to hedge
November 25, 2020
–The dollar index is probing the year’s low. The Dow hit 30k and Russell closed at a new record high. Copper made a new high for the year, grains are strong, crude has recovered levels last seen in March when covid fears were storming and the Saudis threatened to flood the market (CLF1 45.50). Financial markets suggest solid growth and an increase in inflationary expectations. However, tens only rose 2.8 bps yesterday to 88.3. The curve steepened slightly with 2/10 just above 72. Implied vol is soft. Gold has seen a vicious 2-day bloodletting, now around the 200-day moving average. Friday’s close in GCZ0 was 1872, yesterday 1804.60. Some had substituted gold for bonds in a search for non-correlated safety in the event of a renewed stock market decline, as bonds yields are so low that price gains are thought to be capped. Apparently gold hedges were jettisoned given the stock rally. Who needs a hedge anyway? For some reason, bonds just dip their toe into the water of higher yields, perhaps because the Fed is mopping up all the supply. A Powell/Yellen team only strengthens that perception.
–A lot of data out today: Job Claims, Q3 GDP, Durables, Core PCE prices (expected 1.4% yoy vs 1.5%). Fed releases the Nov minutes.
–Happy Thanksgiving! Beware of reduced liquidity this afternoon as many will start long weekends early.
