BentinPartner Weekly
Dear Reader,
Please find below our latest Weekly Trend Report.
Have a nice start of the week.
Marc Bentin,
Bentinpartner GmbH
US stocks dropped last week, depressed by growth concerns (lower payrolls and ISM manufacturing), concerns about the consumers’ health, the continued re-pricing of the AI theme and tariff fatigue which led to a further steep selloff in previous momentum plays. A steep selloff in European bonds also played its part in forcing deleveraging.
Bloomberg MAG 7 index sank 4.5% on the week, bringing its YTD decline to 11%, dragging down the Nasdaq (and SP500) at or briefly below their respective 200dma long term trend. At the same time, Chinese tech megacaps this year continued on their powerful rally.
Rotation towards more defensive (value) sectors such as Cable and Telecom services persisted with Momentum Longs suffering the biggest setback (-9%).
In a week when the ECB cut rates by 25bps, German Bund yields surged 43 bps to 2.54% (up 47bps ytd) with similar moves observed across other European bond markets, while 10Y US Treasury yields rose only 10 bps to 4.30% (down 27bps ytd) as the market responded logically but violently to the change in paradigm in Europe concomitantly to drastic efforts to reduce US borrowing needs at the time when both economies are clearly heading lower.
The most important development last week was German Chancellor in waiting Friedrich Merz, announcing a far-reaching plan (to be voted this week) to effectively exempt defense spending from the country’s constitutional fiscal restraints… ‘In view of the threats to our freedom and peace on our continent,’ Merz said…, the motto ‘whatever it takes’ must now apply to the country’s defense… ‘The political developments in Europe and the world are evolving faster than we anticipated just a week ago… Germany and Europe must now undertake extraordinary efforts to ensure our defense capabilities’, he said. “Germany also called for the EU to exempt defense spending from its fiscal rules for longer than Brussels had proposed.
That was for the substance. The talk (and theater) came from French President E. Macron’s address who delivered an emphatic dramatization of the military threat of Russia for western Europe. I could only assume that he was intentionally aggravating a narrative for political reasons (raising his profile to become “President” of Europe) and for the exact opposite reason than securing long term peace in Europe. I will offer my opinion on E. Macron’s policy, psyche, and intentional mixing of facts, realities and self-serving propaganda in a later post.
Next to the European bond markets biggest correction since the fall of the Berlin wall, the US Dollar Index dropped -3.4% (down 4.2% YTD), going into the direction of fulfilling one the objectives of the current US administration to reduce the value of the dollar in order to help correcting trade imbalances that it vows to suppress (last week’s record US trade deficit was mostly due to incoming gold shipments from Switzerland). Some of those who always vowed under J. Biden’s administration that the position of the USD as the dominant and unquestionable anchor of the monetary system remained unquestionable (despite the steady rise of the Global South, the weaponizing the dollar and totally out of control budget deficits) rushed to politicize the correction of the dollar, saying that current US policies were threatening the status of the USD (and then some…). At least for the week, containing or lowering bond yields by seeking to reduce fiscal imbalances and getting the dollar to drop (without collapsing) was likely a better market outcome (and policy objective for the US) than seeing them soar despite an interest rate cut after taking out all stops on the fiscal orthodoxy side, even if it meant taking out some of the froth away from an overeating US equity markets and bolstering European equity markets performance where investors need to correct a decade+ of benchmark under-investment.
That said, on the US economic side, stagflation risks were also discussed with President Trump’s decision to dramatically raise tariffs (“on and off” but mostly up) accompanied DOGE efforts to drastically cut government headcount and reduce defense spending, by stopping to fund and support the war Ukraine, seeking to end it instead, and get economic retribution for past (financial) efforts.
The US economic news flow was mixed to weak. The number of Americans filing new applications for unemployment benefits fell more than expected last week (by 21k), suggesting that the labor market remained stable in February. However, private sector job creation (measured by the ADP) slowed to a crawl in February, fueling concerns of an economic slowdown, (77,000 new workers for the month, well down from upwardly revised 186,000 in January and below the 148,000 expected). At the same time, the nonfarm payrolls published on Friday increased by a seasonally adjusted 151,000 on the month, better than the downwardly revised 125,000 in January, but less than the 170,000-consensus forecast…The Institute for Supply Management’s monthly manufacturing index released last week also suggested factory activity is edging closer to stagnation.
President Donald Trump addressed Congress last week acknowledging to Americans there could be more discomfort ahead but defending his plan to remake the world’s largest economy through the biggest tariff increases in a century, saying it would levy ‘trillions and trillions’ in revenue and rebalance trading relationships that he deemed unfair.
Shortly after President Trump’s latest tariffs took effect, the Chinese government said… it was imposing its own broad tariffs on food imported from the US and would essentially halt sales to 15 American companies. China’s Ministry of Finance put tariffs of 15% on imports of American chicken, wheat, corn and cotton and 10% tariffs on other foods, ranging from soybeans to dairy products. Lou Qinjian, a spokesman for China’s National People’s Congress, criticized the US for violating the World Trade Organization’s free trade rules.
The European Commission condemned the tariffs imposed by U.S. President Donald Trump against Canada and Mexico, as tensions over trade and the war in Ukraine intensified. ‘We call on the United States to reconsider its approach and work towards a cooperative, rules-based solution that benefits all parties,’ the European Union executive said.
Over the past week, the S&P500 sold off by -3,1% (-1,7% YTD) while the Nasdaq100 sold off by -3,2% (-3,8% YTD). The US small cap index sold off by -4,1% (-6,8% YTD). AAPL dropped -1,1% (-4,5%).
The Equally Weighed SP500 dropped -1,9% (0,8% YTD), outperforming the S&P500 by 1,1%. The median SP500 YTD return closed the week at 1,0%.
Cboe Volatility Index rallied 19,1% (34,7% YTD) to 23,37.
The Eurostoxx50 gained 0,1% (11,8%), outperforming the S&P500 by 3,2%.
Diversified EM equities (VWO) rallied 2,7% (4,4%), outperforming the S&P500 by 5,8%.
The Dollar DXY Index (UUP) measuring the USD performance vs. other G7 currencies sold off by -3,4% (-3,5%, Z-score -2,2) while the MSCI EM currency index (measuring the performance of EM currencies vs. the USD) gained 0,8% (1,7%).
10Y US Treasuries underperformed with yields rising 9bps (-27bps) to 4,30%. 10Y Bunds climbed 43bps (47bps, Z-score 2,4) to 2,84%. 10Y Italian BTPs underperformed rising 42bps (44bps, Z-score 2,4) to 3,96%, outperforming Bunds by -1bp.
US High Yield (HY) Average Spread over Treasuries climbed 11bps (4bps) to 2,91%. US Investment Grade Average OAS was unchanged (9bps) to 0,96%.
In European credit markets, EUR 5Y Senior Financial Spread climbed 1bps (-6bps) to 0,58%.
Gold gained 1,8% (10,8%) while Silver rallied 4,5% (12,6%). Major Gold Mines (GDX) rallied 4,8% (22,8%).
Goldman Sachs Commodity Index dropped -0,2% (2,7%). WTI Crude sold off by -3,9% (-6,5%).
Overnight in Asia…
S&P future -28 points; Hong Kong -2.1%; Nikkei +0.2%; China -0.8%
Asian markets are mostly lower this morning.
China's CPI tumbled back far more than expected to fall below zero for the first time in 13 months (-0.7% YTD), an assessment skewed by seasonal distortions. At the annual parliament session Wednesday, China announced an ambitious economic growth goal of about 5% for 2025, despite the threat of an intensifying trade war with the US. Beijing also laid out plans to boost fiscal stimulus and domestic consumption.
According to intelligence analysts, Ukrainian soldiers around the Kursk region are in imminent peril of being encircled, according to open source intelligence analysts. The crisis comes as President Zelensky came under increasing US pressure to reach a negotiated end to the war and the loss of captured Russian territory promises to make his already-deteriorated bargaining position even weaker.
Ex-Bank of Canada and BoE governor and globalist, Mark Carney, won the race to become Canada's next Prime mMinister, replacing Justin Trudeau. M. Carney does not currently hold a seat in Parliament. He holds British and Irish citizenship and said he has begun the process of renouncing both citizenships. His last post was UN Special Envoy on Climate Action and Finance. “We have made this the greatest country in the world and now our neighbors want to take us,” Carney said in a brief speech before the results were announced on Sunday. “No way.”
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