Global stocks hold up despite latest China-U.S. escalation

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Good morning. U.S. futures are holding steady despite growing trade tensions between the U.S. and China. There’s more choppy trade in the dollar as gold soars for another day.

Let’s take a look at what’s moving markets.

Markets update

Asia

• The major Asia indexes are mixed in afternoon trade with the Shanghai Composite leading the way higher, up 0.7%.
• China has drawn up a list of Americans to sanction in retaliation for similar moves imposed on Friday by the Trump White House. The list includes senators Marco Rubio, Ted Cruz, Tom Cotton and Pat Toomey; Congressman Chris Smith and Human Rights Watch Executive Director Kenneth Roth.
• Hong Kong Media tycoon and pro-democracy advocate Jimmy Lai was arrested under Beijing’s contentious new national security law. Shares in his media network Next Digital fell as much as 16.7% to the lowest level on record Monday morning following reports of the arrests.
• Saudi Aramco had a rough first half, with net profits crashing by 50%. The world’s biggest oil producer did manage to pay its second-quarter dividend of $18.75 billion, and plans to pay it this quarter too.

Europe

• The European bourses were gaining out of the gates this morning, before falling. Germany’s Dax was down 0.2% two hours into the trading session.
• A wave of mass unemployment is expected to hit the U.K. this quarter as one-third of employers say they plan to cut payrolls, according to a new survey by human resources specialists CIPD and Adecco Group.
• It’s not just Britain. A rising number of Europeans are heading for a household debt crisis, even in wealthy EU countries such as Germany where the economy is rebounding strongly.

U.S.

• The major indexes look to start the week off in positive territory as U.S. futures are trading higher, though they’re off their early highs. The Dow and S&P 500 finished last week week in the green after a stronger than expected jobs report.
• With Congress failing to agree on a fiscal stimulus package, President Trump over the weekend signed a quartet of executive orders, including an extension of the unemployment benefit supplement to a reduced 400 bucks. “The details, however, are not as generous as he made them sound,” The Washington Post reports.
• Warren Buffett’s cash-rich Berkshire Hathaway was busy in Q2, buying a record amount of its own shares. Buffett famously scans the marketplace looking for bargains in a downturn, but settled on his own shares instead.

Elsewhere

• Gold has been climbing all morning.
• The dollar is trading sideways at the moment.
• Crude is climbing with Brent up 1%.

***

Dollar daze

For dollar bulls, July was rough, the worst monthly performance in a decade. The greenback is off 10% since March, a stunning collapse. It’s unlikely to rebound any time soon, and that means you should think about how that will impact your portfolio.

Ben Carlson, the director of institutional asset management at Ritholtz Wealth Management, writes in Fortune that currency fluctuations like this are not uncommon. Currency strength is a cyclical phenomenon. And, he notes, we appear to be entering a new weak-dollar cycle after a decade of strength.

What does that portend for the markets? Carlson dug into the history books and pulled up data that shows a weak dollar most impacts these three assets: gold, foreign stocks and emerging markets.

“In years of dollar weakness,” he writes, “foreign stocks have risen 85% of the time, gold is up 80% of the time, and emerging markets have advanced 65% of the time.

“On the other hand, in years of dollar strength, foreign stocks are up just 62% of the time, gold is only up 42% of the time, and emerging markets rose just 50% of the time.”

Here’s the data, spanning back to the Nixon years.

A weak dollar is good news, in general, for the S&P 500—particularly for multinationals that got a currency boost for their products and services sold abroad.

Gold does even better in these years. But the best performers of the bunch are foreign stocks and emerging markets, also big beneficiaries of the favorable FX swing. It’s simple math, actually. “If the dollar falls, that means your foreign stocks are worth more once they’re converted to our currency,” Carlson writes.

There’s an added factor—politics—at play with overseas stocks at the moment. A wave of money managers are betting on a Biden victory in November, anticipating that a change of the guard in the White House would lead to smoother trade relations and more climate-friendly policy, thus boosting, for example, European clean-energy stocks and cyclicals.

A lot can happen between now and November, but it’s unlikely the dollar will mount a comeback any time soon.

***

Postscript

A few years ago, I found myself on a business trip in the Bay area. There was nothing particularly notable about that trip except that, on my final day there, my wife called me with surprisingly big news. “The hospital just rang,” she told me. “We might be getting a kidney. We’ll know tomorrow morning.” 

This was December, 2017, and my daughter had been on the waiting list for a new kidney for just a few weeks. The news floored me. I went from dumbfounded to excited to an emotional wreck in the span of about three seconds. 

How was I going to get from San Francisco to Rome in time for the transplant?, I instantly fretted. 

I got an Uber to the airport and Googled every flight connection possible that would get me to Rome in under 15 hours, hoping that might buy me enough time to be there when my daughter came out of surgery. Just as I was determining my best route—fly direct to Zurich, then to Rome—I got a call. It was the home number. 

It was my M., my daughter, (the twins were 7-years-old at the time). She had overheard all the commotion about her twin sister, T., and she had one very important question for me. 

The exchange went something like this:

M.: Dad, is T. going in for surgery? To get a kidney?

Me: We’re not sure yet. But, yes, we might have a match. And that would be good news—

M.: Dad, do you remember what you promised us? 

Me: Huh?

M.: That after the transplant we can have a dog. 

M.: You promised!

I don’t remember how exactly I wiggled out of that phone call. But I remember negotiating for time in as firm a voice as possible, which wasn’t very firm at all.

A few minutes later I got to the airport, and, as luck would have it, I was able to change flights to get a seat bound for Zurich. The next 12-ish hours were among the longest of my life. The in-flight wifi was buggy the entire trip, and the Swiss Air crew was unable to help me get a line down to Planet Earth, to my wife and daughter at the hospital. Somewhere over the Atlantic, I had a momentary patch of reception and got the news, via WhatsApp, that the surgeons and nephrologists were in disagreement over the fitness of the organ. That only got me more anxious. 

Hours later, I landed in Zurich, dashed across the airport and was still unable to get anything resembling an update. Too late. My gate was closing. I crammed into the last seat of the plane for a 90-minute flight that somehow felt longer than the San Fran-Zurich leg. 

Once my plane touched down in Rome, I frantically checked my phone. I could see all kinds of WhatsApps messages. I exhaled, and was about to tap the app when the phone rang. It was the house number. 

Me: Hey, I just landed.

A voice: Dad.

Me: M.?

M.: Does this mean we can’t get a dog!?

And that’s how I learned the docs had rejected the kidney, and that there would be no surgery, no transplant that day.

T. eventually got her kidney. From her super-hero mom. And, just a few days ago, I made good on our promise: the girls now have a new puppy. This is Scilla. 

She has a story too. That’s for the next Postscript.

***

Have a nice day, everyone. I’ll see you here tomorrow. 

Bernhard Warner
@BernhardWarner
Bernhard.Warner@Fortune.com

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