BentinPartner Weekly
On the heels of sharp loses witnessed the previous Friday after a surprisingly weak US job market report, stocks opened sharply lower on Monday accompanied by a cascade of hurried carry trades liquidation, funded out of JPY, in the FX space (mostly EM) but also in equity and credit markets. Triggering the so called Sahm rule that Friday was also supposed to be the claxon for a (US) hard landing which compounded the risk-off sentiment on Monday leading to a 12% selloff in the Nikkei (the hardest 2-day correction in 40 years), a 5% decline in the Kospi (short circuits were activated), a further appreciation in JPY and a subsequent global selloff in European and US equity markets.
In the immediate aftermath of this Black Monday 2.0, several notable analysts started requesting intermeeting Fed rate cuts, a policy response which we wrote on Monday was highly unlikely, with policy makers likely to prefer direct action to stem or slow JPY gains, accompanied by (covered or not) intervention on SP500 and Nasdaq futures (and HYG ETF’s), similarly to what was happened in March 2020…letting the market reprice higher interest rate cuts expectations for September and the rest of the year.
Nobody knows what happened for sure but a miraculous rebound occurred immediately thereafter that left most equity indices end a tumultuous week mostly unchanged. The BoJ played its part by quickly backpedalling on the intention to further normalize (raise interest rates) which stopped the JPY rally in its tracks and stocks miraculously recovered immediately on Tuesday after Monday’s selloff despite Super Micro Computer (one of AI wonder boys of 2024) posting sharp losses on growth concerns even after announcing a 1/10 stock split.
There was a bit of a relapse on Wednesday with lacklustre earnings reports and investors also flocking into consumer staples at the expense of discretionary stocks, flashing another cautious signal on the economy and equity markets.
(Mostly US) Equity markets fought back on Thursday with 11 of 11 SP500 sectors closing in the green with the index itself squeezing 2.5% (and tech 3.75%). J. Siegel, Professor of Finance at Wharton, who on Monday frantically urged the Fed to go for an emergency rate cut (of 75bps followed by another 75bps cut in September) backed off from that call on that day…
Helping the market on Wednesday were better than expected results from Eli Lilly, which featured a powerful comeback on stronger than expected earnings for its weight loss drug and management raising its full year guidance enabling the stock to rally for another day on Friday.
Every now and then, I commit to read the mainstream newspapers I subscribe to (even the Economist!) and this WSJ article caught my attention so much so that I was left wondering how much money the journalist (or the wsj) received to publish what looks, walks and kwacks 100% as a paid drug promotion article.
The article started with a “teaser” …
“Jacqueline Smith had a healthy sex life until she began taking Ozempic to lose weight. That’s when she noticed some dramatic changes. Smith, 35, and her husband of seven years went from having sex several times a week to doing so daily, sometimes more than once.” … “Smith, who lives in Greenville, Ohio, has lost 67 pounds (30kgs) and says she’s now taking the drug on and off. When she stops, she says, her sex drive slows down a bit.”
Maybe that is how the drug works after all… Have sex until you drop.
The article continues with a dollar story (so I do not have to write one)
“Dollar has lost 85 pounds to date, and hopes to lose another 40. “The last eight months of our marriage is better than the last about 12 years of our marriage,” she says.
If, as the article also states, ‘studies show’ that taking the drug reduces the risk of kidney and heart disease, the best posology perhaps is to take it after breakfast, lunch, dinner … and before going to bed…
Forget couples therapy or trying to get a six pack (other than a six pack of beers)...or simply exercising or eating healthier to get a better cardio and positive side effects…There is a better (and above all easier) solution to make pharma companies richer and turn those who take it into sex bombs!
Where the story gets hilarious is when it warns (for all intents and purposes…)
“While the popular medications from drug makers Novo Nordisk and Eli Lilly indicate there is potential risk for pregnant women and those hoping to conceive, they do not indicate sexual side effects on their labels.”
So just make sure all this sex drive is not targeted at anything else than ‘recreational’ purposes…
That was a mouthful…but in any case, I would rather own Roche now…
More seriously perhaps, equity markets are in a stronger position because of the price action alone and likely to squeeze further (which CTA, trend followers and risk parity traders exclusively care about) but not off the rails as the economy (and the job market) are clearly heading in the wrong direction, on a slippery road with building momentum and because of the strenuous geopolitical situation (awaiting Iran’s and witnessing Russian responses to most recent serious aggravating events) and because the deteriorated technical situation has not (completely) cleared yet.
Market expectations for Fed rate cuts are rapidly adjusting. Dec 24 Fed Funds expectations are at 4.5% (implying 2 rate cuts of 50bps before year end) and at 3.25% for Dec 25. These expectations found their justification in the market unrest itself and more elevated recession risks which JPMorgan raised last week as well (to 35%).
Portfolio were “stress tested” last week and I am not sure that risk managers were all entirely happy about the results which could still herald a period of de-risking, deleveraging and trimming of risks overall which a possible further squeeze this week could make a bit easier.
Over the past week, the S&P500 gained 0,0% (12,1% YTD) while the Nasdaq100 gained 0,4% (10,0% YTD). The US small cap index dropped -1,2% (2,9% YTD). AAPL dropped -1,6% (12,3%).
The Equally Weighed SP500 dropped -0,1% (5,6% YTD), underperforming the S&P500 by-0,1%. The median SP500 YTD return closed the week at 6,2%.
Cboe Volatility Index sold off by -12,9% (63,6% YTD) to 20,37.
The Eurostoxx50 gained 0,7% (6,0%), outperforming the S&P500 by 0,7%.
Diversified EM equities (VWO) gained 1,1% (6,0%), outperforming the S&P500 by 1,1%.
The Dollar DXY Index (UUP) measuring the USD performance vs. other G7 currencies was unchanged (5,5%) while the MSCI EM currency index (measuring the performance of EM currencies vs. the USD) gained 0,5% (0,1%).
US High Yield (HY) Average Spread over Treasuries dropped -20bps (16bps) to 3,39%. US Investment Grade Average OAS dropped -3bps (6bps) to 1,11%.
In European credit markets, EUR 5Y Senior Financial Spread was unchanged (3bps) to 0,70%.
Gold dropped -0,5% (17,9%) while Silver shed -3,9% (15,4%). Major Gold Mines (GDX) dropped -1,8% (15,6%).
Goldman Sachs Commodity Index gained 1,4% (0,8%). WTI Crude rallied 4,5% (7,2%).
Overnight in Asia…
S&P500 +4 points; Nikkei +0.5%; CSI300 unch.
In response to the Ukrainian incursion into Russian territory last week, Russia struck several regions of Ukraine overnight with four North Korean ballistic missiles and 57 Shahed drones. Explosions were heard from the nation’s west to east, Bloomberg reported. Ukraine’s leading allies have endorsed the Kursk incursion. The Pentagon said the move is consistent with Washington’s policy on the use of US-supplied weapons, while the EU has said Ukraine has a legitimate right to defend itself, including with attacks on Russian territory, Bloomberg also reported.
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