Two senior Fed officials (Fed President J. Williams and Fed Vice Chairman Richard Clarida) grabbed the headlines last week, as they reinforced the signal given by Fed Chair Powell the previous week, on the need to act quickly if the US economy looked likely to stumble. This reinforced bets that the Fed could cut rates by as much as 50bps at its July 30-31th meeting (or before…), propelling stocks higher on Thursday following a week start and before some backpedalling on rate cut expectations resurfaced on Friday… which brought stocks back down and close to their lows for the week. The S&P500 initiated a correction last week, dropping -1,2% (18,9% YTD) while the Nasdaq100 shed -1,3% (23,8% YTD). The US small cap index dropped -1,5% (14,9% YTD). In the tech space, NFLX sold off by -15,6% (17,7%, Z-score -3,1). Adding to the end of week caution, investors who have been notoriously shy to espouse this year’s equity market rally reportedly took advantage of soaring stocks to purchase USD8.8bn into US ETF’s in the week that ended last Wednesday, Lipper data said. Although it did not transpire much in the major tech index, last week was a poor week for the “big 5” in general which lost more than the tech index as they posted results that were not encouraging. Facebook was grilled on its crypto plans and with the Fed and the Treasury issuing stern warnings on money laundering and insisting on the role of the USD, we would not be the least surprised if Libra was de facto laid still on this occasion. Amazon seems set to face a frontal assault at least in the EU and Google was blamed in the US for its ambition in China. The Eurostoxx50 dropped -0,5% (18,1%), outperforming the S&P500 by 0,7%. Diversified EM equities (VWO) closed the week unchanged (12,2%), outperforming the S&P500 by 1,2%. CSI300 Chinese equity index (ASHR) gained 0,2% (26,9%) maintaining its lead for the year. Indian shares (EPI) dropped -1,6% (1,4%, Z-score -2,1). Russian shares (RSX) dropped -1,1% (26,2%). The Dollar DXY Index (UUP) measuring the USD performance vs. other G7 currencies gained 0,4% (3,3%) while the MSCI EM currency index (measuring the performance of EM currencies vs. the USD) gained 0,2% (2,5%). EURUSD dropped -0,4% (-2,1%) while elsewhere in FX, EURCHF dropped -0,6% (-2,1%, Z-score -2,7). While risk appetite remained buoyant (with the notable exception of Friday’s session), the Swiss Franc with no second thought kept trending higher vs. EUR last week. Switzerland offers the most punitive negative rates …but has very little debt. This is just another signal that excessive debt is the problem going forward. 10Y US Treasury yield dropped -7bps (-63bps) to 2,06%. 10Y Bund yield dropped -11bps (-57bps) to -0,32%. 10Y Italian BTPs rallied -13bps (-114bps) to 1,61%, outperforming Bunds by 2bps. Jan Loeys from JPMorgan compared the USD13trn pile of negatively yielding bonds to a ‘quicksand’ that risks engulfing much of the fixed income universe including the US and said he expects Fed funds to go to zero over the next two years. Reflecting the insanity that has now grappled fixed income markets, there are now more than a dozen European junk bonds (deemed typically risky) yielding negative. For those still interested in the annual theatre show of the US debt ceiling that Congress needs to raise, US treasury Secretary Mnuchin said that “increasing the USD22trn debt limit needs to be done this month to avert any risk of US default…”. US High Yield (HY) Average Spread over Treasuries climbed 13bps (-142bps) to 3,84%. US Investment Grade Average OAS was unchanged (-49bps) at 1,23%. In European credit markets, EUR 5Y Senior Financial Spread climbed 2bps (-49bps) to 0,61%. Gold gained 0,7% (11,1%) while Silver rallied 6,4% (4,5%, Z-score 2,3) breaking out on very high volume (about 4 times its 50d average volume over the past few days). The Gold/silver ratio who made a recent high earlier this month dropped back to 88.2. Major Gold Mines (GDX) rallied 6,8% (32,7%, Z-score 2,3). Bitcoin sold off by -11,6% (186,6%). Ray Dalio (founder of Bridgewater) said he thinks the current era of low interest rates and quantitative easing might be coming to an end, and his answer to a new market paradigm that could see escalating conflict between capitalists and socialists is simple -- gold. ‘I believe that it would be both risk-reducing and return-enhancing to consider adding gold to one’s portfolio,’ he said. Silver remains the tail that wags the dog but there are trading opportunities in this metal right now. Goldman Sachs Commodity Index sold off by -4,3% (9,5%) while WTI Crude sold off even more by -7,6% (22,5%). 

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