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A Long Laundry List...

Updated: Sep 26, 2020

BentinPartner Weekly

Dear Reader,

In the early part of last week, equities squeezed further going into a Fed meeting of which the outcome of promising low rates for longer and to be patient with inflation, was widely anticipated. However, in the second half, solid profit taking ensued, affecting primarily the tech sector.

Going into last week’s selloff, Bank of America’s survey of investors showed more than 80% of respondents citing tech as the most popular asset class (from 59% in August), leading BoA to conclude that tech is currently the most crowded trade. Triple-leverage ETF on the Nasdaq (TQQQ) (with currently USD7.8bn in total assets), attracted USD1.5bn in the week prior to last, the biggest weekly increase since 2010.

M&A deals approached USD2trn so far in 2020, also exceeding previous highs dating from 2009. This is fair enough and logical when money is free but what was more emblematic of torrid excesses was US private equity groups (TPG and Apax) taking advantage of demand for corporate debt (fueled by Fed buying at the first place…) to issue fresh loans and using the cash to grant themselves “dividend recapitalizations” that have become a feature of loan markets in the last few weeks for 24% of fresh VC loans (from 4% over the past two years), according to a report from S&P Global market Intelligence.

Some will question the role of regulation if this is allowed to continue as VC companies already benefit from extraordinary financing conditions that allow them to keep their profits private for longer, allowing valuation to arrive to the market completely bloated for the gullible, greedy (and yield starved) public to swallow. Snowflake best illustrated animal spirits remaining well alive last week despite the tech stocks correction after this cloud-based software company seeing its shares prices double after its offering last week.

The BIS issued a warning in its quarterly report last week, saying it was “hard not to see a certain amount of daylight between the risky asset prices and economic prospects”, adding “We do not really know how exactly these tensions are going to be resolved”.

Elsewhere in the laundry list of things to worry about last week…

  • US economic reports came out weaker than expected with the number of Americans filing for new jobless claims falling less than expected and applications for the prior week being revised up, suggesting the labour market recovery shifted into low gear, Reuters reported on Thursday. US consumer spending also slowed in August as extended unemployment benefits were cut for millions of Americans (hence the push for a new fiscal deal).

  • D. Trump tried hard for a 6th large fiscal deal, that was actually much closer to the Democrats’ target (USD2trn) than the Republicans' (USD300bn) target. US Treasury Secretary Mnuchin said that lawmakers should not allow fear over the size of the nation’s deficit or the Federal Reserve Balance sheet to delay additional Covid relief. D. Trump tried equally hard to get a vaccine before the election that nobody in his right mind will take. Half of all Americans including a majority of Republicans were already polled to not wanting to take the vaccine if it was available today.

  • China sharply escalated its tensions in the Taiwan Straight on Friday, approaching Taiwan with multiple jets at three different locations as the country’s President was about to receive a senior US official, the FT reported. D. Trump believes he can win at poker and sell another USD7bn worth of guns to Taiwan but he likely cannot win the war for Taiwan (or any war for that matter as it seems) if China’s patience is drawn to an end.

  • Earlier in the week, India’s defense minister told parliament that the current border tensions with China were serious and the result of Beijing violation of boundary agreements.

  • The WHO warned that the weekly corona case numbers are rising in Europe at a higher rate than during the pandemics peak in March with the number of new cases exceeding 300’000 last week. The largest growth rate remained with India, the United States and Brazil, the WTO reported.

Last week's recap…

Over the past week, the S&P500 dropped -1,0% (2,7% YTD) while the Nasdaq100 dropped -1,3% (25,5% YTD). The US small cap index rallied 2,8% (-7,5% YTD).

As regards the Trend Status as per the end of last week, the S&P and Nasdaq closed respectively 1% and 2.3% below their 50dMa (still 6.3% and 13% above their 200dMa). Value fared better, closing 0.5% over its 50dMa but -1.4% below the 200dma, consistently with the recovery story of value witnessed last week.

There is some weight lifting required to repair the technical damage inflicted on tech last week which lost between 2% (Microsoft) and 5% (FB, AMZN) for the bellwether large tech names.

CBOE Volatility Index nonetheless dropped -3,9% (87,4% YTD) to 25,83, suggesting more call selling than put buying.

The Eurostoxx50 dropped -0,9% (-10,3%), outperforming the S&P500 by 0,1%. The (defensive) Swiss market was favored closing the week with a 1% gain despite Wall Street losses, ending respectively +2.0% and +3.8% above its respective 50dma and 200dMa.

Diversified EM equities (VWO) gained 1,4% (-0,8%), outperforming the S&P500 by 2,5%. The outperformance and better technical outlook for China and India’s equity markets was noteworthy again, accompanied by gains in CNY. China closed 2.6% and 15.6% above its 50dMa and 200dMa and India 4.9% and 11.6% above the same averages, suggesting a firm positive trend with a well-balanced momentum as both markets closed near the middle of their Bollinger band. Chinese and equity markets continued to outperform, supported by stronger economic data (and investment flows).

The Dollar DXY Index (UUP) measuring the USD performance vs. other G7 currencies dropped -0,3% (-3,3%) while the MSCI EM currency index (measuring the performance of EM currencies vs. the USD) gained 0,9% (-0,9%).

The dollar remained in “bear trend” but won some respite from market stress and some unusual trading going through the Fed meeting that enabled the dollar to recoup despite (or because?) a rising cohort of super bear analysts (speculators were already short) calling for the end of the dollar supremacy. In this context, a temporary reprieve extending a little longer seemed nearly inevitable which led us to retreat, as we indicated early last week, away from our bearish dollar outlook to a neutral stance over the near term.

10Y US Treasuries dropped 3bps (-122bps) to 0,69%. 10Y Bunds climbed 0bps (-30bps) to -0,49%. 10Y Italian BTPs dropped -2bps (-45bps) to 0,96%, matching Bunds.

US High Yield (HY) Average Spread over Treasuries dropped -6bps (154bps) to 4,90%. US Investment Grade Average OAS dropped -3bps (35bps) to 1,36%.

In European credit markets, EUR 5Y Senior Financial Spread dropped -3bps (10bps) to 0,62%.

Gold gained 0,5% (28,6%) while Silver gained 0,2% (50,0%) with both metals closing above their 50dMa and 200dMa. Major Gold Mines (GDX) gained 0,5% (41,3%). India reported it was planning a new law banning the trading in crypto currencies. Turks, known for their long preference for gold were reported to be buying more of it, despite the price of gold being at record high, as the country’s financial system unravels, the WSJ reported.

Goldman Sachs Commodity Index rallied 4,5% (-27,3%). WTI Crude rallied 10,1% (-32,7%) despite major producers forecasting a bleak future for the worldwide fuel demand. Copper also rallied 1.9% last week, and the entire sector (except oil) ended the week in bull trend.

Over the week end…and this morning

Ø Asian shares are mixed with the Nikkei gaining 0.2% and CSI300 dropping -0.4% and the S&P500 futures starting 15 points lower but …now trading -7 points) as traders look for direction.

Ø HSBC’s (Europe’s largest bank) shares dropped below its financial crisis lows amidst political tension and renewed Brexit tensions.

Have a nice week ahead and stay safe.


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Marc Bentin, BentinPartner GmbH

Founder, Chief Investment Officer

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