BentinPartner Weekly
Dear Reader,
Over the past week, stocks rallied across the board on the same outcome that had them worried a few weeks with the perspective of a Democratic President but a gridlocked government whereby the Senate would remain in the hands of Republicans. Traders pushed a sigh of relief with some pulling out some stops at the idea that they will soon be able to stop worrying about the “killing” 3AM twitter feed.
The fresh positive narrative was also centered on the unlikely risk of big tax increases or adverse regulatory developments for big US tech companies. Chances are the movement was also accelerated by (panic) short covering. The rally was broad based and EM markets performed equally well, including with their currencies and securities markets alike. Equity Indices rose 11.0% in Poland, 6.9% in Russia, even 7.2% in Turkey, 6.9% in Chile, 5.8% in India, 4.2% in Mexico, and 7.4% in Brazil.
The dollar was fairly weak and across the board. Gold, silver (and bitcoins) performed very strongly as well.
While the election of J. Biden to the Presidency makes little doubt with the advance secured on the electoral college, D. Trump behaved as expected, contesting the outcome of the elections which leaves the nation facing the prospect of a contested election, and another institution and tradition (the concession speech) damaged by D. Trump’s scorched earth strategy. Without a proper concession speech, America will remain profoundly divided, facing a class and a race war.
President elect Biden has a wide enough Electoral College lead, and a wide lead in enough states, that it is nearly impossible to imagine D. Trump litigating his way to reversing J. Biden’s victory unless a major failure occurred in vote counting across multiple states. D. Trump has plenty of claims he can bring. But the claims will not amount to anything substantial. He will ask a recount in Wisconsin, inter alia, where the chances of overcoming a 20,000-vote deficit are practically impossible when the average state-wide recount moves numbers by about 300 votes.
Attention will now have to focus on the spiraling pandemic.
Last week's summary...
Over the past week, the S&P500 rallied 7,2% (8,8% YTD) while the Nasdaq100 rallied 9,4% (38,6% YTD). The US small cap index rallied 6,9% (-1,2% YTD).
Cboe Volatility Index sold off by -34,6% (80,4% YTD) to 24,86.
The Eurostoxx50 rallied 8,3% (-12,3%), outperforming the S&P500 by 1%.
Diversified EM equities (VWO) rallied 7,0% (5,4%, Z-score 2,4), outperforming the S&P500 by -0,2%.
The Dollar DXY Index (UUP) measuring the USD performance vs. other G7 currencies dropped -1,9% (-4,2%, Z-score -2,1) while the MSCI EM currency index (measuring the performance of EM currencies vs. the USD) gained 1,4% (0,8%). The Brazilian real jumped 6.8% while the rubble and Mexican peso rallied +2.7%.
10Y US Treasuries rallied -6bps (-110bps) to 0,82%. 10Y Bunds climbed 1bps (-44bps) to -0,62%. 10Y Italian BTPs rallied -12bps (-77bps) to 0,64%, outperforming Bunds by -5bps.
US High Yield (HY) Average Spread over Treasuries dropped -67bps (106bps) to 4,42%. US Investment Grade Average OAS dropped -11bps (23bps, Z-score -3,0) to 1,24%.
In European credit markets, EUR 5Y Senior Financial Spread dropped -16bps (17bps) to 0,69%.
Gold rallied 3,9% (28,6%, Z-score 2,3) while Silver rallied 8,3% (43,5%, Z-score 2,1). Major Gold Mines (GDX) rallied 10,5% (41,5%).
Goldman Sachs Commodity Index rallied 2,5% (-29,8%). WTI Crude rallied 3,8% (-39,2%).
Overnight...
Global equity markets rallied across the board overnight with Japan and China both up +2%; S&P+50points
“Joe Biden is moving forward as the president-elect, launching his transition effort and preparing a plan to curb the coronavirus pandemic while President Donald Trump weighs legal challenges “, Bloomberg reported this morning.
Berat Albayrak, the son-in-law of Turkish President Recep Tayyip Erdogan, unexpectedly resigned as the country’s economy czar a day after the central bank governor was fired. The lira rallied 1.7% against the dollar in early trading on Monday, indicating investor optimism that the changes might presage a return to economic orthodoxy.
Have a nice week ahead and stay safe.
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Marc Bentin, BentinPartner GmbH
Founder, Chief Investment Officer
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