US stocks rallied last week, initially jolted by a US/China truce (with D. Trump making unexpected concessions on the Huawei front). There were some “flip flop” later in the following days on the matter with the US administration saying that the company remains on the black list and has not been offered “general immunity”. The global backdrop remained one of expected additional central bank easing which was only marginally dented by Friday’s stronger than expected US June job report. New records were broken last week on stocks….and bond yields. Over the past week, the S&P500 rallied 2,4% (19,4% YTD) while the Nasdaq100 posted similar gains 2,4% (23,8% YTD). GOOG rallied 5,2% (9,3%, Z-score 2,0). The US small cap index gained 2,0% (17,0% YTD). CBOE Volatility Index sold off by -16,1% (-47,8% YTD) to 13,28. The Eurostoxx50 added 1,8% (19,8%), underperforming the S&P500 by-0,6% while European (and US) financials stood out. EUFN (ISHARES MSCI EUROPE FINANCIA) rallied 2,6% (9,3%) and KBE (SPDR S&P BANK ETF) rallied 3,0% (17,8%, Z-score 2,3). Diversified EM equities (VWO) gained 0,6% (12,4%), underperforming the S&P500 by-1,8%. The Dollar DXY Index (UUP) measuring the USD performance vs. other G7 currencies gained 1,1% (3,3%) while the MSCI EM currency index (measuring the performance of EM currencies vs. the USD) was largely unchanged ending -0,1% (2,0%). USDINR dropped -0,9% (-1,9%, Z-score -2,2). 10Y US Treasuries dropped 3bps (-65bps) to 2,03%, mitigating gains of the week after Friday’s job report saw 10y yields backing up 9bps. For the week, 10Y Bunds also dropped -4bps (-61bps) to -0,36% while French OAT yields dropped by -13bps to -14bps and collapsed at the periphery with 10Y Italian BTP yields shedding -36bps (-100bps) to 1,75% translating into a stellar performance vs. core Europe. Most bonds (with any kind of yield attached to them) were bought with reckless abandon in a powerful “melt up” and self-reinforcing manner. There is something crazy to see investors getting dragged into riskier and riskier credit just because reasonable credit risk is offered at unreasonably negative yields, now covering 13.5trillion worth of securities and 25% of their grand total. After the debt jamboree will come the debt jubilee perhaps. But we are not counting on it and we are not playing ball. US High Yield (HY) Average Spread over Treasuries dropped -11bps (-160bps) to 3,66%. US Investment Grade Average OAS dropped -2bps (-49bps) to 1,23%. In European credit markets, EUR 5Y Senior Financial Spread dropped -4bps (-50bps) to 0,60%. Despite a frail trade war “truce” (D. Trump added tariffs against Vietnam and EUR4bn against Europe last week) and a snapback in US job creation, expectations remain for the Fed to cut rates at the end of the month. In the context of melting yields, the selloff in precious metals was all we could expect to prevent some gold futures delivery on the excuse of a “stellar” job report. We stopped trading NFP reports “beats and misses” a long (long) time ago as we consider them as economic noise (and more often than they should be a good “tape painting” excuse), subject to endless revisions and too large “plug in” theoretical assumed job creations, preferring jobless claims and private surveys. Gold took a step back overall for the week, dropping-0,7% (9,1%) while Silver sold off by -2,1% (-3,2%). Major Gold Mines (GDX) ignored the metals’ correction adding 0,2% (20,4%). The 4% selloff in platinum was violent on Friday as the initial “bottoming out” enthusiasm was flushed out but the price change was immaterial on the week overall with PPLT dropping -0,4% (1,8%). The backwardation in palladium (suggesting scarcity of supply in the near term) and the extreme dearness of palladium in relation to platinum (and gold) which can be used as a substitute to palladium for its industrial use to a large extent (it is also a “must” in the truly ecological hydrogen cars), leaves palladium only in the hands of speculative shorts for now but with reasonably good prospects in our view (as for the entire precious metals complex). Bitcoin dropped -9,7% (200,3%). Goldman Sachs Commodity Index dropped -2,0% (10,8%) and WTI Crude sold off by -3,2% (26,6%), leaving commodities as the only boat not being lifted with the tide of excess liquidity and the sole asset class still currently underweighted in our trend following model. Over the week end… Congrats to team USA for winning the soccer World cup (now you have to visit the White House!). Turkish President Erdogan fired the Central Bank Governor over the week end, bringing another example of how a growing number of central banks are brought back under guardianship of the executive power with expectations of lower rates, QE and possibly also soon competitive currency devaluations which will all contribute to dilute unsustainably high stocks of debt, contain social unrest but (or and perhaps) likely also lead to an inflation rebirth. The US is asking Germany to send troops to Syria to backfill a diminishing US presence (even though Berlin rules out any intervention in that war). Libya’s UN backed government is contemplating shutting down slave migrant detention centres and releasing detainees for their own safety after air strikes targeted one such centre last Tuesday. 

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