US equities were stronger overnight with the S&P up 0.4% after a very choppy but August like trading session.

In US equity markets, it was one of those days where a close look under the surface is needed to see what is going on.

Indexes are all higher, and there is a lot of focus on earnings, but there is a bit of broader rotation out of Growth/Momentum into Value/Cyclicals despite rates moving lower.

Mega cap tech was mixed with retail investors renewed love for Apple brimming over and clearly visible once again. Still, regulatory headline risk seems to be growing by the day now for the overall sector and could temper bullish sector ambitions over the short term.

Asian stocks looked set for modest declines Wednesday as local investors mull the progress of stimulus talks in Washington amid reports of the White House plan to review the U.S.-China trade deal likely driven by concerns Chinese imports of energy products are only 5% of where they need to be by year-end under the terms of the agreed trade deal.

But taking on a more positive tact to the Trade talks US Trade Representative Robert Lighthizer and China’s Vice Premier Liu He will participate in talks on August 15 to assess China’s compliance with the ‘Phase 1’ trade deal.

Rising trade tensions between the US and China could open up an unwelcome can of worms. The market’s primary thesis on what ultimately matters for growth assets is whether a US-China geopolitical escalation morphs into an economic dustup.

Of course, this could be little more than US administration browbeating as quashing the P1 trade deal before the election as the last thing the US economy needs amid the Covid-19 recession.

Ultimately rolling back the P1 trade deal would dent stock market sentiment, a causality that one would think President Trump would vehemently oppose in a run to the 2020 elections.

But one would have to believe this is all part and parcel to the Republican election platform, which is the blame game and how the US administration views China’s role in the spread of the coronavirus.

It seems President Trump continues to peer around the curtain waiting to rush the podium at any opportunity to denounce China, which will continue to keep Asia risk markets on edge throughout the run-up to the 2020 US elections.

Gold breaches $2,000 level

Concerns remain around a second wave in Europe as daily case growth has started to accelerate from shallow levels in most countries.

However, the levels are nowhere near that seen in the US, which is now on a downward trajectory.

Still, markets fear a second Covid-19 surge into winter (northern hemisphere), and the associated rise in volatility still favours gold as a defensive strategy.

But the economic damage is done, and even a vaccine is not going to bring back 80 billion in Global GDP that when up in smoke. The only real cure to claw back some of that lost GDP is global interest rates low for as far as the eye can see and even redoubled amounts government stimulus, which is highly favourable for gold.

Drilling this fact home overnight, Federal Reserve Bank of San Francisco President Mary Daly said that the US economy needs more support than initially thought as a resurgence in the coronavirus pandemic weighs on growth.

Indeed, there was an impressive rally in Treasuries Tuesday, seemingly without a catalyst, as economic data was robust, and stocks finished positively.

The angst of what lies ahead is driving the US yields lower and propelling gold higher. It is only the first week of August, and traders are already pivoting to the September Fed bazooka, where its expected Chair Powell will introduce some form of inflation targeting possibly through yield curve control, which will be sure to serve the yellow metal well.

From a hedging perspective, gold investors care about the level of inflation, not necessarily the changes in inflation.

With oil stabilising and commodities ripping higher on better China data, from an absolute level perspective, gold as an inflation hedge will look a lot cheaper today than when inflation arrives after its all systems lift-off after the vaccine arrives.

The Ringgit

The Ringgit continues to climb primarily due to the weaker US dollar and favourable divergence between local MGS real yields and US real yields, making all-time lows. The ringgit rally is being stoked by the global market unquenching chase for yield. While adding positively to that narrative, the monetary policy debate is centring on whether the BNM will offer up a cut or a dovish pause at the September 10 policy review.

Also, oil prices are stabilising, which is always a positive thing when views through the lens of Malaysia depleted government coffers.

International markets analysis and insights from Stephen Innes, Chief Global Market Strategist at AxiCorp