Financial markets have already had an unusual year, but recent price action lately has been especially bizarre, according to Robin Brooks, a senior fellow at the Brookings Institution.
In a Substack post on Tuesday titled “Super weird markets since Jackson Hole,” he traced the path of key assets since Federal Reserve Chairman Jerome Powell opened the door to rate cuts in a speech at the annual central bank symposium last month.
“You’d have thought that would weigh on the Dollar, lift the S&P 500 and boost commodity prices across the board. But that hasn’t happened,” Brooks wrote. “The only thing that’s moved is gold, with a massive price rise of almost 10 percent.”
To be sure, stocks have rallied since his post as benign inflation data cleared the way for Fed rate cuts when policymakers meet on Tuesday and Wednesday. Gold prices have also marched higher, setting fresh highs along the way and closing Friday at $3,680.70 per ounce.
But the bond market has behaved more unexpectedly. Brooks noted the 30-year Treasury yield didn’t fall right after Powell’s speech but only turned lower after another bad jobs report was released two weeks later.
“The fact that the 30-year Treasury yield didn’t fall immediately is weird and worrying,” he added. “It took very weak payrolls to finally do that.”
In addition, while the dollar index has had some ups and downs, it has returned to about where it was before Powell’s speech, with Brooks calling that “counterintuitive” as expectations for Fed easing would typically bring it lower.
Meanwhile, bitcoin sold off after Jackson Hole but is also back where it started, even though cryptocurrencies have generally acted like risk assets in the past and previously rallied on rate-cut hopes.
“What does all this mean? Recent market moves suggest gold is the ultimate safe haven,” Brooks said. “Bitcoin is proving too volatile and speculative, so — as political pressure on the Fed mounts — markets gravitate to gold.”
Fears of a debt crisis in France and the U.K. have jolted global bond yields higher in recent weeks. Political gridlock in France in particular has dimmed hopes that Paris will rein in deficits anytime soon.
On Friday evening, Fitch downgraded France’s credit rating from AA- to A+, the lowest level ever for the eurozone’s second-largest economy, saying a major shift to fiscal discipline is unlikely.
It’s possible the crisis in France sent more investors looking for a safe haven toward the dollar, potentially explaining why the greenback has been stable, Brooks said.