Weekly Trend Status Update
US stocks started weaker on Friday after Intel drastically lowered its guidance, driving its share price lower by 10% on the day. Xilinx had a problem too which led to a major reversal in the SOX semiconductor index. Still, the overall market recovered, supported by a stronger than expected US Q+ GDP report, closing at the highs of the day with a 0.25% to 0.5% gain. For the week, the S&P500 gained 1,2% (17,4%) while the Nasdaq100 added 1,7% (23,6% YTD). Fangs led the charge again; FB rallied 7,4% (46,1%, Z-score 2,1). AMZN rallied 4,8% (29,9%, Z-score 2,4). NFLX rallied 4,0% (40,0%) and GOOG rallied 2,9% (22,8%). MSFT rallied 5,3% (27,9%, Z-score 2,5) but INTC sold off by -10,4% (11,7%, Z-score -2,2). The Eurostoxx50 added 0,9% (16,4%). Diversified EM equities (VWO) dropped -1,2% on the week (14,1% YTD), underperforming the S&P500 by-2,4% mainly as a result of a stronger dollar. CSI300 Chinese equity index (ASHR) saw some solid profit taking on the week shedding -4,4% (32,6%) although Chinese shares showed signs of wanting to strike back on Friday. The Dollar DXY Index (UUP) measuring the USD performance vs. other G7 currencies gained 0,7% (3,4%, Z-score 2,1) while the MSCI EM currency index (measuring the performance of EM currencies vs. the USD) dropped -0,7% (1,5%). Bonds were strong last week, driven by central banks conveying a general sense of dovishness (conveyed sequentially by BoJ, SNB, Reserve bank of Australia and the Swedish central bank). 2Y US Treasuries rallied -10bps (-21bps, Z-score -2,1) to 2,28% while 10Y US Treasuries dropped -6bps (-19bps YTD) to 2,50% while 10Y Bunds dropped -5bps (-26bps) to -0,02%. 10Y Italian BTPs underperformed with their yield only dropping -2bps (-16bps) to 2,58%. Italian bonds will likely outperform next week after S&P Global Ratings maintained the nation’s debt rating late on Friday. Credit markets underperformed slightly last week with US High Yield (HY) Average Spread over Treasuries climbing 5bps (-167bps YTD) to 3,59%. US Investment Grade Average spread was unchanged (-50bps) at 1,22%. In European credit markets, EUR 5Y Senior Financial Spread climbed 3bps (-39bps) to 0,71%. Thanks to the USD9 rally on Friday, Gold ended the week with a gain of 0,8% (0,3%) while Silver gained 0,4% (-2,6%). Major Gold Mines (GDX) dropped -0,2% (1,0%). Goldman Sachs Commodity Index dropped -1,2% (16,7%). While agricultural commodities DBA sold off most by -3,2% (-4,4%), WTI Crude also dropped -1,1% (39,4%) on a “knee-jerk” reaction following the suspension of some Russian exports on quality concerns. Announcing the fresh oil sanctions against Iran, the White House said that its move is meant to “bring Iran’s oil exports to zero” and deny the government “its principal source of revenue.” China’s oil imports from Iran have hit a seven-month high in March… What we think that we are thinking... Last quarter unexpectedly strong US GDP (Q1 GDP printed at 3.2% vs. 2.3% expected) bolstered sentiment on Friday although a big part of it pointed at an inventory build-up, meaning that we’ll have wait another quarter to see what is really going on. This report helped sentiment however. Or else it was US economic adviser L. Kudlow bragging about the strength of the US economy whilst at the same time urging the Fed ... to cut rates. The plan is to prolong a sugar high in stock markets to facilitate the President(ial) Re-Election and it might well work... Hedge funds are also betting big that market volatility won't return with large speculators being net short 178,000 VIX futures contracts, the largest such position on record, according to CFTC data. The VIX rose last week, but still remained more than 30% below its 20-year average. A Short volatility blow up “2.0” may not be too far away if what follows is not the melt up phase that L. Fink (Blackrock CEO) recently prognosticated. The mounting danger and dislocation potential of the stock market was in some ways illustrated on Friday by Intel dropping 10% just one day after MMM drooped 12%, its worst performance since the 87 crash. Troubles also hit at the periphery of EM markets in Turkey and Argentina as the peso sank 8.8% last week to an all-time low (-17.9% YTD). Lebanese local bond yield also rose 31bps to 9.84%. Central banks and algos may be driving a relentless grind higher but seeing such names getting bombed out at the same time as other apparent no brainers such as MSFT, AMZN , AAPL and US High Yield bonds keep attracting the mass of disorientated and running behind the market investors, was a reminder that we may be entering a more dangerous phase. Investment flows still suggest that investors remain ‘behind’ the curve or rather behind the 45 degrees angled stock market rally. Many investors are now left trying to make up for lost time, seeking concentrated beta exposure in the same mammoth US tech names that have become to stocks what Tbills used to be for fixed income markets; a safe haven (or perhaps perception thereof). Their performance last week contrasted with FedEx, 3M, and UPS struggling, which rather spelled trouble for the economy. Most government bonds look like a worn-out car shock absorber to us, more dangerous than anything. We still and increasingly prefer the shock absorbing characteristics of gold and precious metals, especially when most currencies start to look suspect including JPY with its unique set of problems linked to an aging population, unsustainably high and rising debt levels and what increasingly looks like a reckless monetary policy. However, and with many investors still running behind this market, it might still be too early to get off the raging bull.
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