Silver as an investment

July Jolts: Tech Tops, Trannies Trounced, Dollar Demolished, & VIX Vaporized

Just seemed appropriate…


July was a month of extremes across asset classes…

  • Nasdaq Composite surged over 3.5% – best month since Feb 2017 (up 11 of last 13 months)
  • FANG Stocks spiked 10% – best month since Oct 2015 (up 11 of last 13 months)
  • Dow Transports tumbled over 3.5% – worst month since Brexit (June 2016)
  • VIX hit a record intraday low of 8.84
  • 30Y Treasury Yields rose 6bps – the biggest monthly rise since Nov 2016
  • WTI Crude spiked 9%, back above $50 – best month since April 2016
  • FX 'VIX' surged – biggest spike since Nov 2016
  • Dollar Index weakest since Dec 2014 –  worst month since Jan 2017 – longest losing streak since 2011

And finally

  • US Economic 'Hard' Data slumped for the 4th month in a row – longest losing streak since Sept 2010, lowest monthly close since Feb 2009

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Quite a divergence between Tech and Trannies this month… (record highs former and two-month lows latter) – Trannies are down 9 of the last 11 days for the biggest drop since Brexit (June 2016)


Ugly close though…


5th record close in a row for The Dow… Thanks to Boeing!! (on the month Boeing accounted for 310 of The Dow's 570 point gain)


VIX crashed to an all-time record intraday low during the month after The Fed statement…but after last week's modest turmoil in tech, VIX has remained elevated…


However, as Nasdaq has soared  – SOMEONE has been buying downside protection…

To its most extreme level since November


The Tech sector outperformed on the month with retailers bouncing back from an early month bloodbath to end green…


FANG Stocks exploded higher by over 10% in July – the best month since Oct 2015 thanks to a yuge 22% gain in NFLX (and AMZN briefly helped). However, the last three days have started to show some strains (worst since the last week of June)


And this happened…From $29.44 to $13.10 in 5 months


The dollar index suffered its fifth monthly loss in a row (worst since Jan)

This is its longest losing streak since 2011… (lowest monthly close since Dec 2014 for Bloomberg Dollar Index)…

The Dollar Index broke below 93 for the first time since May 2016

  • EURUSD  (up 5mo in a row) – best month since Mar 2016
  • GBPUSD (up 4 of last 5 mo) – highest monthly close since July 2016 (right after Brexit plunge)
  • USDJPY biggest monthly drop since Jan 2017
  • USDCAD (down 3 mo in a row) – lowest monthly close since May 2015

As BofA notes, the DXY is now off more than 9% from the highs of December and is not that far from the lows of May last year. Meanwhile positioning has completely flipped around with investors having gone from long to short the USD and EUR positioning having gone the other way.

The main reason for the USD weakness, in our view, is the downgrading of US growth expectations both care of a sluggish Q1 (a mixed Q2), a reduced probability of big tax cuts, soft inflation prints and more robust growth elsewhere.

The risk reward on the USD therefore seems to be shifting. Expectations on US in terms of growth, inflation and fiscal policy are now pretty low, while positioning is clearly the other way around. For the catalyst, we probably need to see stronger US growth and/or some better inflation prints to bring a December Fed tightening back on the cards. Interestingly the US economic surprise index has started to turn. Bond yields also seem to have found a floor too suggesting that it requires more negative surprises to drive them lower. Catching turning points in currencies is always tricky as they tend to trend but we are inclined to think we are not that far away for the USD.

Furthermore, Dollar 'VIX' soared in July…decoupling from the rest of the world's assets…


And as the dollar tumbled so the long-end of the yield curve was dumped with 30Y yields up 6bps – the biggest monthly rise in yield since Nov 2016…but notice that the short-end rallied…


July saw the biggest steepening in 2s30s since Nov 2016…


WTI Crude briefly tagged $50 handle in overnight trading but ended lower on the day, fell during the day, then ripped back above $50 as NYMEX closed.

After 4 straight down months, this was Crude's best month since December – up over 7%…

As the dollar free-falled (free-fell?) in July, so Gold gained – having its best month since February with its highest monthly close since Oct 2016

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So what happens in August?