BentinPartner Weekly
Dear Reader,
Last week was chaotic and weird.
It started with D. Trump being diagnosed with Covid-19 and flown to Walter reed Medical center over the week end only to see him return with much fanfare on Monday to the White House declaring that he was feeling better than 20 years ago and later, referring to his infection as a “blessing from God”.
On Tuesday, D. Trump abruptly called off stimulus negotiations “until after the elections”, blaming the Democrats for not negotiating “in good faith”. This did not go without equity markets cratering on the news, and the following morning on Wednesday, he was back pursuing piecemeal negotiations.
On Thursday he called for a skinny stimulus package (the original bone of contention is that Republicans called for a smaller additional stimulus than the Democrats).
Then on Friday morning, he said he was open for something bigger and on Friday afternoon, that he “would like to see a bigger stimulus package, frankly, than either the Democrats or the Republicans are offering”.
In between we were treated with a civilized VP debate and J. Biden subsequently extending his lead in the polls, suggesting the possibility for a “blue wave” (whereby Democrats would take the Presidency, the Senate and the House).
We’ll trust the polls like we would any Covid vaccine between now and election day. What was interesting was the (moving) opinion that a sweep vote would be supportive to risky assets with a planned corporate tax cut unwind and redistribution policies expected to be more than compensated by the perspective of an eye-popping fiscal stimulus (USD2trn to USD3trn).
Fed Chair Powell added his voice to Corona virus relief talks, urging Congress on Tuesday to pass “more policy intervention, both fiscal and monetary”, and warning that “too little stimulus is worse than too much”.
On the health front, the WHO reported a one-day record of 350’766 new Covid infections with the rate of new cases doubling in a week in the UK and Germany or Italy also reporting their highest increase since March, and Madrid going back into an emergency lockdown. This all pointed at a troubling trend going into the winter months. The only positive is the fact that the lethality of the virus seems to be only 1/10th of what it was in March and that hospitals are much better prepared.
The net outcome for the week were strong equity markets coupled to a resumption in dollar weakness and mirror like rallies in commodities and precious metals.
Last Week's recap...
Over the past week, the S&P500 rallied 3,9% (7,8% YTD) while the Nasdaq100 rallied 4,2% (34,4% YTD). The US small cap index rallied 6,4% (-1,8% YTD).
CBOE Volatility Index sold off by -9,5% (81,4% YTD) to 25.
The Eurostoxx50 rallied 2,5% (-10,5%), underperforming the S&P500 by-1,4%.
Diversified EM equities (VWO) rallied 4,0% (0,9%), matching the S&P500.
The Dollar DXY Index (UUP) measuring the USD performance vs. other G7 currencies dropped -0,9% (-3,2%) while the MSCI EM currency index (measuring the performance of EM currencies vs. the USD) gained 1,2% (-0,6%).
We continue to think (along with S. Roach and JPMorgan analysts over the week end) that the dollar is going to suffer a further setback this year and next (in the order of 20% devaluation), based on hemorrhaging finances, the persistence of super low interest rates, deteriorating twin deficits dynamics combined and a sharp decline in domestic savings (which the FT estimated dropped to -1.2% in Q2, a 4.1% decline from the previous quarter).
It will not question the status and even the dominance of the USD for a few more years but it should be part of a long-term secular trend that will lead to a transition towards a more multipolar anchoring of the monetary system and a fast-growing CNY accumulation into the world reserves mix that will occur primarily to the detriment of the USD.
The dollar decline that is in the cards will be all but a straight line because it will be fought (it will not be possible in my mind to cap both interest rates and the dollar decline over time) but as a harbinger of things to come perhaps, USDCNY which dropped -6.1% over the past 1 year, dropped another 1.4% on Friday upon returning from the Chinese Golden week and also took the bottom of Friday’s Z-score report.
10Y US Treasuries underperformed with yields adding 7bps (-114bps) to 0,77%. 10Y Bunds climbed 1bp (-34bps) to -0,53%. 10Y Italian BTPs rallied -6bps (-69bps) to 0,72%, outperforming Bunds by -4bps.
Bond yields rose slightly as the Congressional Budget Office released the unofficial 2020 number for the just completed fiscal year, saying the deficit equaled 15% of the US economy, the largest fiscal gap since WWII. A similar deficit is highly likely for 2021 and a 10% deficit for a few more years after that, most of which will be monetized.
US High Yield (HY) Average Spread over Treasuries dropped -41bps (133bps) to 4,69%. US Investment Grade Average OAS dropped -9bps (34bps) to 1,35%.
In European credit markets, EUR 5Y Senior Financial Spread dropped -8bps (17bps) to 0,68%. S&P reported that “the covid shock will double company default rates over the next 9 months to 12.5% (from 6.2%) in the US and to 8.5% (from 3.8%) in Europe.
Gold rose 1,6% (27,2%) while Silver rallied 6,0% (40,9%). Major Gold Mines (GDX) rallied 4,6% (39,3%).
Goldman Sachs Commodity Index rallied 6,1% (-27,3%). WTI Crude rallied 9,6% (-33,5%).
Have a nice week ahead and stay safe.
For a Timely receipt of this report and daily updates and to access our intra-day Alert system, join the BentinPartner Daily Free Trial List. You won't regret it.
Marc Bentin, BentinPartner GmbH
Founder, Chief Investment Officer
BentinPartner GmbH is a Swiss registered independent financial adviser.
We deliver transparent, professional, tailor-made, and competitive portfolio management services. We help our clients build and manage their wealth, resting on the three pillars of our business values; integrity, competence, and responsibility.
Our premium research blends macro economic, political, monetary and technical analyses to produce an actionable 360 degrees daily review of Global Financial Markets on a daily basis.
If you like our Weekly, you will love our Daily. Take a free trial to the BentinPartner Daily or visit our web site http://BentinPartners.ch
Bentinpartner GmbH is Advisor to the Phi Funds AIF, an umbrella Alternative Investment Fund registered and regulated in Lichtenstein, specialized in the management of Funds focused on physical precious metals.
Important Disclaimer
© Copyright by BentinPartner llc. This communication is provided for information purposes only and for the recipient's sole use. Please do not forward it without prior authorization. It is not intended as a recommendation, an offer or solicitation for the purchase or sale of any security or underlying asset referenced herein or investment advice. Investors should seek financial advice regarding the suitability of any investment strategy based on their objectives, financial situation, investment horizon and particular needs. This report does not include information tailored to any particular investor. It has been prepared without any regard to the specific investment objectives, financial situation or particular needs of any person who receives this report. Accordingly, the opinions discussed in this Report may not be suitable for all investors. You should not consider any of the content in this report as legal, tax or financial advice. The data and analysis contained herein are provided "as is" and without warranty of any kind. BentinPartner llc, its employees, or any third party shall not have any liability for any loss sustained by anyone who has relied on the information contained in any publication published by BentinPartner llc. The content and views expressed in this report represents the opinions of Marc Bentin and should not be construed as guarantee of performance with respect to any referenced sector. We remind you that past performance is not necessarily indicative of future results. Although BentinPartner llc believes the information and content included in this report have been obtained from sources considered reliable, no representation or warranty, express or implied, is provided in relation to the accuracy, completeness or reliability of such information. This Report is also not intended to be a complete statement or summary of the industries, markets or developments referred to in the Report.