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Buy falling gold but not stocks, Citi’s global strategists say



It was a tough September for the stock market with the S&P 500
SPX,
+ 0.29%

so far down by more than 7%.

In its comprehensive look at the markets, Citi’s global asset allocation team doesn’t expect navigation to get any easier as it fears for the upcoming US election. “A political process that cannot accurately ascertain its leader, parties that refuse to accept results and potential social unrest, all damage credibility and reduce investor confidence, especially in light of everything else happening in the background. The challenge to the rule of law would lead to a revaluation of historically “safe”

; US assets (including US Treasuries and the US dollar) even if only temporary, “strategists say.

The next stage of the COVID-19 stimulus is likely to be a victim of the vacancy of the Supreme Court, the strategists add (more on that later). As the Northern Hemisphere enters the colder autumn period, an increase in cases is becoming evident, which can alter both human behavior and government reactions, both of which could weigh on economic activity.

The Citi team acknowledges that “the central bank put remains intrinsically tied to the stock market” and that there will be more purchases of Treasury and credit and a desire to keep inflation-adjusted interest rates well below. 1%.

With all of this as a backdrop, the Citi team says it “makes sense to reduce some specific developed market risks at a time when short-term odds are skewed on some. [economic surprises] turning negative again, led by Europe. ”He recommends moving from European equities to emerging markets
EEM,
-0.46%
,
where he is overweight for the first time since the COVID-19 crisis. Fundamentals for the dollar
DXY,
+ 0.23%

it will remain unsupported over the medium term, which will be another positive for emerging market equities, strategists add.

They are buying the dip in gold
GCZ20,
-0.83%
,
with a target of $ 2,200, due to increased macroeconomic uncertainty, which is “likely to push investors back into alternative liquidity conservation assets.”

The buzz

Seemingly dead, there is talk of a new U.S. stimulus package again, after House Democrats began drafting a new $ 2.4 trillion stimulus bill, down from $ 3 trillion previously. House Speaker Nancy Pelosi said “we hope to be at the table with them soon,” while Treasury Secretary Steven Mnuchin said the two sides have agreed to continue talks.

New York Federal Reserve Chairman John Williams concludes a week of Fedspeak with a speech. On the economic front, data on durable goods orders are also expected for August, with expectations of a modest increase after an 11% jump in July.

Costco wholesale
COST,
+ 0.68%

Thursday finally beat fiscal fourth quarter earnings estimates for same-store sales growth, excluding gasoline and currency exchanges, by 14%. CFO Richard Galanti has not pledged to use his approximately $ 30 per share in cash and equivalents for repurchases or dividends, other than that the board will review it at its next meeting. He also said the discounter will continue to pay workers an extra $ 2 per hour for at least the first eight weeks of the first fiscal quarter.

The European Union has filed an appeal against a tax ruling in favor of Apple
AAPL,
+ 1.02%
,
which holds about $ 17 billion of the tech giant’s money on deposit.

FTSE Russell says Chinese government bonds will be included in its global government bond index next year, another step towards integrating China into global financial markets. Deutsche Bank analysts estimate the move will bring $ 120 billion in inflows by September 2022.

The market

After the back and forth session on Thursday. US Stock Futures
ES00,
-0.64%

NQ00,
-0.32%

fell once more. The dollar rose and gold fell.

The graph

UBS tried to break out what raised the S&P 500 this year, starting April 10, when mobility hit rock bottom. Their analysts conclude that the main driver is the increase in liquidity, which they believe has stabilized over the past month. Improved mobility and hope for vaccines also helped, while high uncertainty was a drag. Their strategists recommend a rotation period of one to three months away from the US, particularly for emerging market equities.

The tweet

This is a letter of cessation and desistance.

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