Disclaimer: this is not investment advice. Some of the content in this email is generated with the help of Artificial intelligence. For the love of all things robotic, please do your own due diligence.

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Happy Friday! I’ve added something new to today’s post

It’s a 100% original “chart of the day” - only seen by you and the 238 other Wall Street Robot subscribers.

I made it using historical data from investing.com which I inputted into ChatGPT Code Interpreter. A couple prompts later, and we found some interesting patterns.

Let me know if you guys like this kind of content by rating today’s post (see the poll at the bottom of the newsletter) and I’ll make sure to do more in the future.

— Reuben

P.S. I read all your feedback. Please continue to suggest improvements by voting in polls and providing additional comments in the feedback box provided.

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 💸 TL;DR

The US Dollar has fallen massively with the USD index below 100 as a result of risk-on market sentiment and expectations of lower US rates. A weak US PPI print provides further support to the narrative while the UK economy shrinks.

Historical analysis shows that gold has a strong negative correlation with 10yr US Treasury yields.

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📰 What’s moving markets?

• There were very large moves in the FX market yesterday with USD falling against all other major currencies as risk-on sentiment drove stocks higher and US treasury yields lower following the weak inflation print on Wednesday. The USD index has fallen below 100 to 99.8 and GBPUSD has rallied above 1.31.

• US Core Producer Price Index (PPI) fell to 2.4% YoY, lower than the expectations of 2.6%.

• The UK economy shrank by 0.1% in May following a 0.2% decline in April. Extra bank holidays for the King’s coronation contributed to the decline in GDP as most usual business activity was halted.

• UK prime minister Rishi Sunak announced that millions of UK public sector workers will get pay rises of about 6%.

• Coinbase stock price was up 24% after Ripple won an SEC lawsuit saying that XRP is not an investment contract.

• Google announced the rollout of their chatbot Bard in EU and Brazil; the stock rallied 4.7% on the news.

• Pepsico’s Q2 earnings beat expectations with EPS at $2.09, exceeding the estimated $1.96. The stock was up 2.4%.

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📊 Chart of the day

In yesterday’s post, I mentioned that the price of gold has rallied significantly as US treasury yields have eased.

Conventional wisdom tells us that gold prices and treasury yields move inversely because of the opportunity cost of investing in gold, which pays no interest, versus investing in treasuries, which can sometimes play a lot of interest. But how does this hold up empirically?

US 10yr treasuries and gold have a strong negative correlation

Date range: 01/01/2005 to 12/07/2023 sourced from investing.com

The correlation coefficient is -0.72 with an R squared of 0.52. This means there is a strong negative correlation between the price of gold and treasury yields and that 52% of the variability in the gold price can be explained by its linear relationship with US 10-year Treasury yields.

You can see the relationship visually in the price chart above (yellow - Gold price; blue - US 10yr Treasury yield).

However, before you buy an algo bot to trade this relationship, be conscious that it is very volatile; as shown by the 30-day rolling average correlation below.

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FYI - based on the results of yesterday’s poll I removed the “coming up this week” and “markets at the glance” sections of this newsletter. If anyone misses it, similar data is readily available online here and here.

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