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  • Marc Bentin

From Fang to Ag (Daily Close)


European stocks stood out in the latter part of the week, rallying strongly, supported by a de-escalation in trade tensions between Trump and Europe. At the same time however, FB disappointed and its share price was clipped off 19% on Thursday souring what should have been a positive session. With Netflix falling out of favor earlier last week, Facebook disappointment meant the FANG locomotive became a AG sputtering engine. While US stocks held a straight face on Thursday with the S&P closing only 3 points lower and the Dow eking some minor gains, Friday was a different ball game. Twitter also gapped down by 20%, on disappointing earnings and Intel shed -11% on poor earnings with slowing growth, and ballooning inventories. This overshadowed Friday’s positive macro news of US Q2 GDP growing at the fastest pace in 4 years by +4.1%. The US President was “thrilled” by the number but stocks were not. D. Trump later celebrated an economic turn of HISTORIC proportions calling the growth rate “amazing” but stocks remained unimpressed with the S&P, Nasdaq and Russel2000 closing down by -0.7%, -1.4% and -1.9%. respectively with weakness coming from tech and biotech (-2.7%), taking their cues perhaps from US consumer sentiment falling to a 6-month low in July amidst trade tensions. Europe outperformed for a second day with the Dax closing +0.4%. EM currencies recovered for a second day as well and the whole EM complex including stocks and bonds performed decently well and posting their best week in 2 months while US tech stocks took the bulk of the heat on Friday (US Stocks Equity sector performance). Brazil was particularly strong in our Leaders and Laggards report gaining +1.6% (bringing the MTD gains to a whopping +14.6%, still YTD -9.2%). The MSCI Europe stood at the top of our Z-score report with India, Thailand, Japan and the Brazil real standing as close second with +2.3, according to our z-score report (used to track breakout conditions on a wide investment universe). MXN rallied strongly after US trade representative said it is possible a tentative agreement will be reached on Nafta next month. The Chinese stimulus measures enacted this past week may have helped sentiment as well but China’s weakness on the currency and stocks side remained a concern. EUR was broadly stronger (against GBP, CHF) which coupled with EM strength meant the dollar was weaker across the board on Friday. Gold was initially supported but finished largely unchanged again. Bonds strengthened as well despite a GDP number that in theory should support the Fed case for more rate hikes irrespective of D. Trump’s own preference It should be emphasized that the stock market was propelled over the past couple of years pulled by a narrow list of FANG stocks (FB dip buyers were not rewarded on Friday either) that are now spinning and for some, losing wheels. This warrants a more cautious attitude towards stocks in general, all the more so that a cratering of 20% on over owned and overvalued names means owning individual stocks has become more dangerous with risks more difficult to hedge (with large gaps on the downside) for those who own them and the risk of getting trapped by gaps on the downside such as those that affected Twitter, Facebook and now Intel. Geopolitically last week, Trump said he would impose large sanctions against Turkey and lashed out on Iran that said it might block oil passing through the strait of Ormuz if the US pursues a policy of preventing it to sell any oil. The BoJ (Tuesday) and Fed (Wednesday) meet next week. 


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