Capital Markets: "Gold and the Dollar are Sold while Stocks March Higher"

From Marc to Market:

Overview: A rotation of sorts seems to be unfolding. The euro posted its second back-to-back loss in over a month. The Canadian dollar, which has been an under-performer among the major currencies for the past six weeks, gained, while most fell. The Dow Industrials and S&P 500 rose, the high flying NASDAQ fell for the second consecutive session for only the second time since May. However, today, the "rotation" seems to be only impacted gold, which is off for the third consecutive session, its longest decline in three months, helped by sales from the ETFs, which have been significant buyers. The yellow metal is off almost 2% to around $1983. The technical target we suggested was $1950 on a break of $2000. Equities are rallying. Japan returned from yesterday's holiday and took the Topix up 2.5% (Nikkei 1.95%) and Hong Kong's Hang Seng tacked on 2.1%, amid optimism Beijing is preparing new tourist visas to Macau. European shares are up for a third consecutive session, and the Dow Jones Stoxx 600 has advanced around 2.0% through the European morning. US shares are firmer with the S&P 500, about 0.65% better. Benchmark bond yields are a little firmer, though the European periphery bonds are more resilient (likely owing to the Eurosystem purchases). The US 10-year yield, which had flirted with 50 bp last week, is approached 60 bp now. September light sweet oil is confined to about a 50-cent range above $42. US inventories are expected to have fallen again. Key resistance is seen near the 200-day moving average (~$43.70).

Asia Pacific
The US is continuing to ratchet pressure higher on China. Following the latest sanctions and actions against two Chinese apps, the US has indicated that after late September, goods made in Hong Kong will be labeled "made in China" and subject to the same tariff schedule as the mainland. This measure, like sanctioning HK Chief Executive Lam, is about signaling, as there is little real substance in terms of inflicting pain or disruption. As we have noted before, most goods the US imports from Hong Kong have been re-exported from China, and the goods actually made in Hong Kong are less than 1.5% of US imports from it.

Meanwhile, China appears to be reining in the strong lending seen earlier this year. Indeed, the July lending figures were weaker than expected. New yuan loans, which is what the formal banking system generates, rose by CNY992.7 bln, and economists were looking for something closer to CNY1.2 trillion after CNY1.8 trillion in June. Aggregate financing, which includes non-bank financial institutions (shadow banking), rose by CNY1.69 trillion, less than half of the CNY3.43 trillion in June....

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