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“It’s unbelievable how much you don’t know about the game you’ve been playing all your life.” – Mickey Mantle

Below is a snippet of commentary from today’s Morning Lineup. Start a two-week trial to Bespoke Premium to view the full report.  

The government remains shut down this morning as the stalemate between the two parties nears the start of its fourth week. As has been the case nearly the entire time, though, the markets seem indifferent as the S&P 500 will open today pretty much right where it was when the shutdown started. Interest rates are little changed this morning as the 10-year yield remains right at 4%. Crude oil is trading about 1% lower, right at $57 per barrel, and as has been the case for seemingly every day, gold prices are 1.5% higher, but still over 2% off record highs after Friday’s sharp reversal lower. Along with higher gold prices, crypto is also strong this morning with Bitcoin back above $110K and Ethereum back above $4,000. There’s not much economic data due to the shutdown, but the pace of earnings this week will really fill the void.

In Asia overnight, Japan surged more than 3% to new record highs after the LDP and Innovation Party agreed to form a coalition government, paving the way for Takaichi to become Prime Minister effective tomorrow. Elsewhere in the region, Chinese GDP rose more than expected, while Unemployment in Hong Kong rose more than expected.

Japan’s rally overnight pushed the index’s ‘marathon’ gain over the last 12 months to 26.2% in local currency terms, and interestingly enough, for all the fluctuations in global currencies this year, the dollar and yen haven’t moved much relative to each other, so on a dollar-adjusted basis, the Nikkei is up slightly less at 25.1%.

European markets aren’t as strong as Asia this morning, but they have a positive bias nonetheless. The STOXX 600 is up 0.6% to start the week. The CAC-40 is the only major benchmark not in the green as S&P lowered the country’s credit rating and an adverse legal ruling against BNP Paribas has that stock trading down over 5%.

Not only is Europe up less than Japan in early trading today, but the STOXX 600 is also lagging over the last year. As shown in the chart below, on a local-currency basis, Europe’s benchmark index is up a relatively modest 8.5% and trading just shy of new highs. After accounting for the weakness in the dollar this year relative to the dollar, though, it’s up nearly twice that at 16.3%. Depending on which side of the Atlantic you’re on, the performance of European stocks looks a lot different.

The weakness in the dollar against currencies like the euro has helped to drive the rally in gold, but in addition to being so strong lately, gold has also been volatile. Over the last 200 trading days, gold’s average daily move has been just under 1% which is the most volatility over a trailing 200-day period since Covid, but nowhere near historical extremes like we saw in the 1980s.

In the equity markets, volatility and large daily moves tend to occur during periods of market weakness, but for gold, that hasn’t necessarily been the case. In periods when gold has rallied 30%+ in 200 days, its average daily change was 1.27% whereas in all other periods, its average daily change was much less at just 0.76%.