Mixed messages at start of 2021

Many signs of weakness, but some growth-sensitive assets continue to do well

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2021 got off to a mixed start, which was particularly evident in the precious metals market. Amid signs of nerves elsewhere, such as the 1.5% declines in the S&P 500 and Nasdaq, safe-haven gold rose by 2.7%. Sticking to the script, platinum and palladium - which tend to be driven to a greater extent by industrial demand - performed poorly. Yet silver, which sits somewhere between the two groups, was the outperformer with a rise of 3.6%. It is now up by over 50% since the start of 2020. Other growth-sensitive commodities, including copper and iron, also rose. Perhaps a unifying macro trend will become clearer as the week progresses.


The November US macro data showed a continuation of the divergence between residential and non-residential construction spending, as people are forced to spend more time at home and concerns about commercial demand remain elevated.

Some good news from the manufacturing sector in Sweden, which as a small, open economy often acts as a bellwether for manufacturing demand elsewhere. The PMI there continued to rise in December and implies manufacturing activity is recovering strongly.


The US equity indices made a weak start to the year, although the S&P 500 remains within its range from December.

The large rise in the VIX, to 27.0, shows investors are getting nervous. The MOVE index of bond-market volatility has not risen by as much.

There were some mixed messages from the currency market. The USD rose against most currencies, which is typically a risk-off sign, but nevertheless depreciated by near 1% against the CNY and EUR.

The USD is now the weakest against China’s currency since mid-2018 - that will likely result in some upward pressure on consumer goods prices in the US.

Oil prices matched the weakness in equity markets, though likewise remain within their recent trading ranges.

By contrast, copper and iron prices, and grain prices, generally rose or were little changed. Soybean and corn prices are now at their highest since late 2014. The recent moves are similar to those that occurred following the extraordinary monetary policy support delivered by global central banks following the Great Recession.

Amid those moves, the 10-year US Treasury inflation breakeven rate yesterday rose above 2% for the first time since 2018, though it had been close to that level at the end of last week.

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