The number of significant fundamental factors impacting the markets continues to grow as tensions with China heat up. Meanwhile, market participants are also focused on the spread of coronavirus and the stimulus that is being provided by governments across the world to combat it.
The declining relationship between the U.S. and China could become a significant factor in how economies and markets perform in the months ahead. Both countries have reasons not to push their relationship to the point of long-term damage, but the current challenges could back leaders into a corner and make a policy mistake possible. Although governments around the world continue to do what they can to support their economies with both fiscal and monetary stimulus, such a policy mistake could disrupt the current situation.
Stimulus will be closely watched in the U.S. this week, as Republicans and Democrats negotiate a next round of fiscal stimulus. I expect a deal between $1 trillion and $2 trillion to be reached in early August. The Federal Reserve also meets this week and will likely reiterate its support for economies and markets. As the amount of stimulus continues to rise, the price of gold is closing in on $2,000/ounce. I will be watching this development closely, as it comes at a time when real yields are also making new lows at negative rates.
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