Overnight, various overseas assets have undergone significant reversals and changes: on one side of the coin, gold has plunged nearly 6 per cent to nearly $1900 per ounce, while the NASDAQ index, which represents growth stocks, has also been relatively weak; on the other hand, interest rates on US debt have risen rapidly, while the Dow Jones Index, which represents value stocks, is relatively ahead, while European stock markets, which are lagging behind, have risen sharply.

In fact, the above combinations are familiar and appeared at the end of May. Behind the seemingly chaotic and disorderly performance, apart from the short-term event catalyst, it is closely related to the background against which the recent epidemic in the United States has gradually peaked and declined, and this is also the "future tense" that we have repeatedly emphasized recently, positive changes and affecting the future trend of the market.

Since July, the most prominent change in overseas markets and assets has been the "flying" of gold as a traditional "risk aversion and anti-inflation" gold with the stock market as a risky asset, especially the growth stocks with high valuation and high elasticity. This comprehensively reflects the sharp weakening of the dollar since July (mainly reflecting epidemic control, growth and the widening policy scissors gap between Europe and the United States), abundant liquidity and falling interest rates (real interest rates fell to a low of-1%) and periodic risk aversion.

So, after yesterday's plunge in gold and rising interest rates, will there be another round of risk aversion and growth value style?

With regard to this issue of general concern to investors, we comment on the latest market conditions and changes as follows for your reference.

I. a direct catalyst for drastic changes in overseas assets overnightIt may come from: on the one hand, reports on the progress of Russian vaccine development (President Putin announced that Russia had registered the world's first COVID-19 vaccine and approved its actual use); and the expectation that the two parties in the United States would continue negotiations on a new round of fiscal stimulus (US Treasury Secretary Mnuchin and House Speaker Pelosi sent a positive signal that they were willing to return to the negotiating table).

However, from a purely trading and technical point of view, the overnight change is not a complete surprise. Our recent reports continue to suggest that gold is still significantly overbought. Last week, there was a large outflow of interest-rate bonds in the low-interest-rate environment, which was supported by gold's rise, while GLD, the largest gold ETF product, saw a large outflow at one point on Friday.

Ii. But a more important background and change is the recent continued decline in the epidemic in the United States.Over the past two weeks, despite uncertainties such as renewed friction between China and the United States and the stalemate in a new round of US fiscal stimulus talks, the overall trend in overseas markets remains positive. it is mainly supported by the continued decline of the epidemic, economic data and improved corporate profits, in which the marginal changes in the epidemic are particularly critical and important.

Last week, the number of new confirmed cases in the United States dropped to 56000 (7-day average), further down from the previous high, and there was a significant decline in several states with severe outbreaks; at the same time, the mortality rate was basically the same, while the positive rate dropped slightly, continuing the trend of the epidemic peaking and falling as a whole.

The marginal change in the epidemic is important because although the stagnation in work resumption caused by the recurrence of the epidemic from June to July is bound to be reflected in the economic data released for some time in the future, these data reflect the "past tense" of the previous situation. therefore, unless it is much lower than expected, it will not have too much impact.

In contrast, the change in the epidemic is the "future tense", and its logical chain is:

1) if the current peak of the epidemic continues, although it will not be reflected so quickly in economic data and progress in resuming work, it could prompt markets and asset prices to reflect ahead of time expectations of a resumption of work in the future (the number of states suspended from work in the United States last week was reduced from 14 to 13).

2) the rise in the expectation of resumption of work can be translated into the expectation of improved economic data, even the recently released US July PMI and non-farm data are still significantly better than expected; 3) this, in turn, will have a positive effect on interest rates, value style, and even the trend of the dollar, similar to the situation at the end of May; in fact, in the past week or two, the internal value style of US stocks has begun to lead the growth sector.

4) even President Trump's approval rating is closely linked to this. Recently, the approval ratings of Trump and Biden have narrowed to 60.7%, which is highly consistent with the inflection point of the epidemic.

Iii. Looking ahead, looking forward to August, we maintain the view in the August overseas Asset allocation monthly report and the recent weekly report, that is, under the neutral background of basically unchanged overseas monetary policy, fiscal policy (there is still the possibility of reaching an agreement under the political pressure of the general election) and the topping of the epidemic may bring positive marginal changes.Unless there is more negative pressure on epidemic data and election variables than expected. Based on this consideration, we still maintain a positive view of risky assets, safe haven assets (gold and US Treasuries) do not rule out some pressure in this context, and the dollar may also repair in the short term after a sharp fall.

In addition, we report "when did gold rise with the stock market in history?" "combing the seven stages of the long-term rise of the international gold price and the NASDAQ index as the representative of growth stocks since the 1970s, it is found that monetary easing (downward interest rates or liquidity) and the weakening of the dollar are common at all stages, while the inflation and growth environments are different, so the co-rise of gold and growth stocks may more reflect the financial attributes of low interest rates and loose liquidity. Therefore, on the other hand, it is not difficult to fully understand that the change of interest rate environment will bring periodic negative impact on both. In fact, most of the previous six stages ended in the same decline in the short term, so the follow-up changes deserve continued attention.