THE MACRO SETUP OVERVIEW:
- Stocks’ earnings data was strong; rocky 3Q’21 may be underway
- US economic data begins to sour, but the delta variant gives the Fed cover
- US Treasury yields, US real yields drop to new lows, dragging down the DXY Index
INTO THE DOG DAYS OF SUMMER
This week’s The Macro Setup, featuring Dan Nathan and Guy Adami, recapped the latest round of earnings from US companies, which came in better than expected. But there may be troubles ahead with the delta variant surge that could upend forward earnings expectations for at least 3Q’21, which is broadly consistent with seasonality data that suggests that the middle four months of year 2 of a bull market produces the most difficult trading environment.
Speaking of the delta variant surge, it’s becoming clearer that the Federal Reserve will use the developments as a tool to keep stimulus flowing in the near term. The July FOMC meeting hinted that a taper may eventually come down the pipeline, but rates markets appear convinced that this doesn’t mean an accelerated timeline for interest rate hikes any time soon. Declining commodity prices – from lumber, to copper, to oil – suggest that inflationary pressures are duly subsiding.
All of this makes for a trickery situation for the US Dollar. A failed breakout at the end of July, coupled with lower US Treasury yields – as well as US real yields at record lows – suggests that more tough sledding may be ahead for the greenback. Which makes gold’s situation all the more concerning: if gold prices can’t rally in this environment, what will it take to light a fire under bullion?
*For commentary from Dan Nathan, Guy Adami, and myself on the US Dollar (via the DXY Index), the US S&P 500, gold prices, among others, please watch the video embedded at the top of this article.
CHARTS OF THE WEEK
GOLD PRICE TECHNICAL ANALYSIS: DAILY CHART (AUGUST 2020 TO AUGUST 2021) (CHART 1)
DXY INDEX PRICE TECHNICAL ANALYSIS: DAILY CHART (AUGUST 2020 TO AUGUST 2021) (CHART 2)
GBP/USD PRICE TECHNICAL ANALYSIS: DAILY CHART (DECEMBER 2020 TO AUGUST 2021) (CHART 3)
— Written by Christopher Vecchio, CFA, Senior Currency Strategist