BentinPartner Weekly
Over the past week and after starting with China’s PMI entering contraction territory, several US indicators subsequently confirmed the case for a slowing US economy starting with the manufacturing sector that contracted into recession, the August job number which last Friday showed lower than expected non-farm payrolls job creation (118k vs. 140k expected) and down revisions for the previous month job creation. The ADP (private job survey) published one day earlier showed 99k job creation in August vs. 145k expected while the JOLTS available job report published on Wednesday also came in weaker than expected (at 7673 k vs. 8100k expected and 8188k for July). To make matters worse, the inflation component of the ISM service showed some resuming pressure on inflation.
Stocks took it on the chin this time, looking at the risk of a double top formation after failing to retake the highs of July, leaving investors to face the prospect of lower earnings from a slowing economy. Follow through selling on AI market darlings led the Nasdaq to drop over 4.7% this week (and -10% since the peak seen in July) while the IT segment shed -6.2%. Nvidia dropped -13% on the week with most of the MAG7 (reported below) posting steep losses as well including GOOG which shed -6.9% on the week and INTC which erased the previous week’s gain to print fresh lows. Accelerating losses on Friday was the -8% drop in AVGO (Broadcom) another AI supported tech best performer of the year which returned to its lows from last July on very high volumes.
Defensive sectors (consumer staples and utilities which gained 1% on the week) did best in this context while energy also shed -5.7% last week, following a sharp drop in oil price.
Bonds rallied strongly last week with US 10Y yield dropping -10bps to 3.73% along with a notable normalisation of the US yield curve as the 2/10 yield spread turned positive to +6bps on heightened expectations that the Fed will deliver an accelerated (FF futures are now pricing nearly 250bps of rate cuts between now and the end of next year and 75bps for this year) easing program which will start this month with 25bps and quite possibly a 50bps cut if the market does not play ball going into the next Fed decision on September 18th. While the curve inversion itself is a forward-looking indicator of a recession panning on the horizon, the normalisation of the yield curve from the inverted situation that has prevailed for more than a year now, has historically been an accurate indication for “when” past recessions actually started…
Commodities were particularly weak last week with oil dropping -7%.
Gold was unchanged while silver dropped -2%. The situation of silver seems quite interesting with the gold/silver staying around the highs for the year (at 88) as central banks accelerate their gold purchases while silver gets lumped down as a commodity, notwithstanding being in deficit for the 4th year and silver industrial demand rising steadily due to AI, robotics and solar panel demand. While industrial demand for silver is now 70% of demand (and increasing sharply this year with a market in its fourth year in mining deficit according to the silver institute, investment demand for silver has been lagging (and prices artificially depressed in the futures market) and it would not take much demand from that side to propel silver higher.
The ECB will probably cut interest rates on Thursday in a prelude to a US move the following week.
Over the past week, the S&P500 sold off by -3,2% (13,7% YTD) while the Nasdaq100 sold off by -4,7% (9,6% YTD). The US small cap index sold off by -5,0% (3,6% YTD). AAPL dropped -3,9% (14,7%).
The Equally Weighed SP500 sold off by -2,3% (8,0% YTD), outperforming the S&P500 by 0,9%. The median SP500 YTD return closed the week at 9,1%.
Cboe Volatility Index rallied 43,0% (79,8% YTD, Z-score 2,2) to 22,38.
The Eurostoxx50 sold off by -4,4% (7,5%), underperforming the S&P500 by-1,2%.
Diversified EM equities (VWO) sold off by -2,5% (5,8%), underperforming the S&P500 by0,8%.
The Dollar DXY Index (UUP) measuring the USD performance vs. other G7 currencies was unchanged (4,0%) while the MSCI EM currency index (measuring the performance of EM currencies vs. the USD) gained 0,4% (1,5%).
10Y US Treasuries rallied -20bps (-17bps, Z-score -2,2) to 3,73%. 10Y Bunds dropped -13bps (15bps) to 2,17%. 10Y Italian BTPs rallied -8bps (-8bps) to 3,62%, underperforming Bunds by 5bps.
US High Yield (HY) Average Spread over Treasuries climbed 17bps (-1bps) to 3,22%. US Investment Grade Average OAS climbed 6bps (2bps) to 1,07%.
In European credit markets, EUR 5Y Senior Financial Spread climbed 4bps (-4bps) to 0,64%.
Gold dropped -0,1% (21,0%) while Silver sold off by -2,1% (17,5%). Major Gold Mines (GDX) sold off by -6,6% (17,1%).
Goldman Sachs Commodity Index sold off by -4,9% (-3,5%, Z-score -2,4). WTI Crude sold off by -7,2% (-4,7%).
Overnight in Asia…
S&P500 +11 points; Nikkei -2.1%; CSI300 -1%; Hang Seng -2%
Asian shares are dropping on the heels of lower US markets and a disappointing job report on Friday. US futures are trying higher but there is a lot of technical damage to repair before the Fed meeting.
Ø VP Harris and D. Trump will exchange sword today in their first (and likely last…) public debate. Republican Presidential nominee Donald Trump leads Vice President Kamala Harris by a point in a new national poll by the New York Times and Siena College, as the US election enters its final stretch, Bloomberg reported. 28% of likely voters said they felt they needed to know more about Harris.
PBOC still did not report more gold buying for a fourth month in August, Bloomberg reported, interpreting this as …weak central bank demand. Since China said (and financial media believed) that it paused its gold buying, four months ago, the price of Gold rallied 8% with Gold ETFs barely budging and physical demand in Europe stagnating. There must be a lot of Gold bought by those who have given up reporting their activities (or else by the Holy Spirit himself). In a speech over the week end in Wisconsin, D. Trump said he would apply a 100% tariff on countries that would reject the dollar as the dominant currency. A looming currency war is no reason to sell gold either… nor the steep coming interest rate cuts.
China’s consumer prices rose less than expected last month (+0.6% yoy from +0.7% previously).
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