Questions questions but I have no answers

The first week of the second quarter has not been good for US equities in particular. Yesterday was a classic risk-off day, with treasuries up equities down

A rise in political tensions, along with one Fed minister last night suggesting she felt that US interest rates may not need to be cut at all this year, appeared to be the catalyst to push stocks lower on Thursday. Generally, these blowoffs are often helpful in the scheme of things, and with positive sentiment continuing to build it probably would not take much for a correction. As we have often highlighted before, geopolitical tensions tend mainly to impact riskier assets when the price of oil is directly affected, and so oil hitting 90 dollars a barrel yesterday was enough to add further nervousness to stock markets. In fact, the way asset prices behaved elsewhere would suggest the recent rise in black gold was more to blame than one non-voting member of the FOMC comments for yesterday’s sell-off.

The one asset price move I have struggled to get my head around so far this year is the price of gold, recently hitting all-time highs. Gold is a negative-yielding asset, as you pay to store it, so when all other assets were offering nothing owning gold made some sense. I have never been a gold bug, and never understood its lustre, but I understand for those who own it, the asset offers a warm and cuddly feeling inside the sock draw. Gold is an inflation hedge, apparently, so why, when inflation is heading lower, is gold heading higher? I am afraid I pose a question I cannot answer when one can get 5% in short-dated treasuries; chasing gold makes no sense, to me at least.

Later today, the monthly payroll report is due. Will good economic news be good or bad news for stocks? In other words, will a stronger-than-expected employment report provide further evidence of a strong underlying economy sending stocks higher, or will that concern others that the Fed may back further away from cutting in June? A weaker-than-expected number may conversely help stocks. The reaction from asset prices will all depend on the deviance; if there is any from the expected number and any revisions to previous months, there may be. In the short term our fortunes may also be governed by the oil price.