Over the past week, the S&P500 gained 1,6% (17,6% YTD) while the Nasdaq100 rallied 3,2% (22,2% YTD) with AAPL rallying 3,1% (26,0%) despite mounting trouble in China. The US small cap index gained 1,5% (15,0% YTD). D. Trump seemed satisfied and tweeted three times on Friday about the stock market action saying “S&P opens at Record High”, then “S&P closes at all-time highs”, then saying that “if his opponent had won there would have been a market crash, plain and simple”, ending the day saying “Stock Market on track to have the best June in over 50 years. Thank you, Mr. President.” This is getting pathetic (after taking offense the week at the Dax going up…), especially as the sole driver of this rally last week was the Fed taking out the word “prudence” from its FOMC statement (nearly forced by the market to do so …else….just as “inflation expectations” which are nothing else than market prices force the ECB to vow ever more unnecessary easing), with talks heating up that the next Fed move in July could be a 50bps rate cut with a theory also flying that with interest rates not much above zero, central banks must be ready to cut more aggressively. This was indeed theory rather than research as the current global experiment has very little empirical data… Until Wednesday (date of the FOMC meeting), “people familiar with the matter” told on Bloomberg that “the President believes he has the authority to demote J. Powell to be a board Governor …but that he is not planning to do this right now…”. Evidence is mounting that we are witnessing the mature phase of an indiscriminate melt up caused by excessively loose monetary policies that constitutes a threat to Capitalism itself. It is a threat because this global liquidity push is aimed at bailing out everybody and stop worrying about debt everywhere. It is a threat to capitalism because bitcoin rallying 25% in three days might be signalling a thing or two about a growing lack of trust in traditional currencies. It is also a threat because organized equity markets are stopping to respond to normal stimuli as they keep being manipulated by USD7bn daily worth of share buy-back that takes out the substance of organized listed US equity markets that everybody still considers as benchmarks worth marking to market oneself to. It is a threat also because the accelerating rush into private equity is a sign that big money is leaving traditional exchanges to focus on off market transactions that will subsequently consider exchanges but only as dustbins to let go “mature” (read bloated) Unicorns (like they have done this year) that will only be allowed to grow and create illusions, supported by debt without any plans to make money… The Eurostoxx50 rallied 2,5% (17,4%), outperforming the S&P500 by 0,9% but let’s keep this quiet to avoid a nefarious tweet. Diversified EM equities (VWO) stormed ahead gaining 3,9% (11,1%), outperforming the S&P500 by a larger 2,2%, mainly on the back of broad-based USD weakness and strength in recouping Chinese stocks. CSI300 Chinese equity index (ASHR) rallied 5,9% (27,6%, Z-score 2,2) as there were some good news from China with new home prices rising at the fastest pace in 5 months. Russian shares (RSX) rallied 3,8% (+26,2%), supported by RUB strength (backed 50% by Gold), and higher oil prices. The Dollar DXY Index (UUP) measuring the USD performance vs. other G7 currencies dropped sharply by -1,4% (2,0%, Z-score -2,0) while the MSCI EM currency index (measuring the performance of EM currencies vs. the USD) gained 1,3% (1,8%). Although EUR rallied broadly, the exception was vs. CHF as the Swiss franc rallied despite soaring equity markets and general EUR strength. EURCHF by dropping -0,8% (-1,4%, Z-score -2,1), broke its Bollinger Band on the downside. 10Y US Treasuries rallied -3bps (-63bps) to 2,05% while the 2Y US Treasuries rallied -7bps (-72bps) to 1,77%, clearly supported by the Fed volte face and indications provided last week by the FOMC which also dropped the word “prudent” from its statement…Expectations rose sharply that the Fed will act more aggressively in July (rather than the usual 25bps)…. to sustain market bubbles perhaps as it seems to fail to appreciate that markets have stopped being orderly on the upside. A prime example of the liquidity push driving financial markets these days the return of an investing mania US High Yield (HY) Average Spread over Treasuries shed -34bps (-165bps) to 3,61% with US Investment Grade Average OAS dropped -12bps (-45bps, Z-score -2,7) to 1,27%. In European credit markets, EUR 5Y Senior Financial Spread dropped -11bps (-43bps) to 0,67%. Gold rallied 4,3% (9,1%, Z-score 2,2) while Silver gained 3,2% (-1,0%) but still lagged behind. Major Gold Mines (GDX) rallied 8,1% (19,5%). Goldman Sachs Commodity Index rallied 4,1% (10,6%). WTI Crude rallied 9,4% (26,5%). In Geopolitics, it was all about the sequence of events in the Trump standoff with Iran. Trump called the downing of the drone a grave mistake…vowed to strike back, then downplayed the incident saying it was probably not made on purpose…supposedly calling off some military action at the last minute, showing his gentleness as he refused the equation of one drone down vs. 150 Iranian casualties. Then over the week end, he announced more severe sanctions against Iran to start today (those destined to lead to either war or a regime collapse whichever happens first). The biggest risk might be that Trump tries to strike by fear of otherwise looking on Iran like he looks on Syria, North Korea and in Venezuela, largely unsuccessful. As this article (in French) from Swiss newspaper Le temps wrote in substance, Trump is giving signs of not being able to bring anything to its term, having arrived at the bottom of his contradictions and incompetence displayed “live” in his (compulsive) tweets, having created emptiness around him and atomised in a decisive way the game of nations.
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