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Super Mario Warns...

BentinPartner Weekly



All major equity indices finished the week with gains and the spread between the tech heavy Nasdaq and the small cap index continuing to widen as investors seek the relative safety (and momentum) behind large cap tech stocks.


The equity rally occurred despite a selloff on Thursday triggered by a very poor 30-year auction that drew the largest tail ever, some liquidity problems in the Treasury markets seemingly caused by a Chinese Bank being hacked and Fed Chairman saying the Fed may not be done hiking rates this year which contrasted with what was said in the previous two weeks as Treasury yields spiked.

This confluence of events created an anti-climax in bonds which did not adversely impact stocks which rallied and squeezed across the board, throughout the week.


M. Draghi warned about the economic situation in Europe and the fact that Europe needs a deeper integration to express common foreign and defence policy aside from economic policies if it wants to survive “other than being a single market”.


Gold traded weaker last week as yields (and defiant bitcoin) rose but as we referred to on Friday, all the reasons to own Gold in the coming years were coinned in the latest version of the “2023 In Gold We trust Report” from Incrementum.


News (after the US close on Friday) that the Moody’s kept the US rating unchanged but revised its outlook to negative (from stable) citing downside risks to the US fiscal strength in the context of higher interest rates and the continued political polarization in the US Congress, led to a mall setback overnight.


In particular, Moody’s noted that the US lacks of an institutional focus on medium term fiscal planning, either through legislated fiscal rules aimed at improving the fiscal balance, or a general bipartisan consensus on the need for fiscal consolidation.


Treasury Secretary J. Yellen who already had to push back against hedge fund managers blaming her for not lengthening the duration of the US debt (like most other governments and …all caddies they know) had to push back on Friday against Moody’s warning and basically said she disagrees. “The American economy remains strong and Treasury Securities are the world’s preeminent safe and liquid asset”, she objected, adding that “Biden administration has demonstrated its commitment to fiscal sustainability…”.


Geopolitics continued to be ignored by markets last week as well.


Over the week end, French President E. Macron said to the BBC that “Israel must stop killing babies and women”, urging a ceasefire that was summarily rejected. At the same time, Israeli forces said they were closing in on Gaza’s main hospital which they have said they need to control because there is a Hamas command center located in tunnels underneath it.


Overnight, Senior officials in Israel and the US suggested that talks on securing the release of Hamas-held hostages were intensifying after President J. Biden spoke with Qatar’s leader about “the urgent ongoing efforts to secure additional releases.” Israeli Prime Minister B. Netanyahu said there “could” be a deal in the offing. Israeli President Isaac Herzog expressed caution, Bloomberg reported.


Tens of thousands gathered across large French cities on Sunday to protest against the rise of antisemitism. The largest protest was in Paris, with the participation of ministers, politicians from the left to the right, and celebrities.



 

Over the past week, the S&P500 gained 1,4% (15,2% YTD) while the Nasdaq100 rallied 2,9% (42,1% YTD, Z-score 2,0). The US small cap index sold off by -3,1% (-3,0% YTD). AAPL rallied 5,5% (43,5%, Z-score 2,5).

Cboe Volatility Index sold off by -5,0% (-34,6% YTD) to 14,17.

The Eurostoxx50 gained 0,5% (14,0%), underperforming the S&P500 by-0,8%.

Diversified EM equities (VWO) dropped -0,3% (1,0%), underperforming the S&P500 by-1,7%.


The Dollar DXY Index (UUP) measuring the USD performance vs. other G7 currencies gained 0,8% (7,3%) while the MSCI EM currency index (measuring the performance of EM currencies vs. the USD) was unchnaged (1,5%).


10Y US Treasuries underperformed with yields rising 8bps (78bps) to 4,65%. 10Y Bunds climbed 7bps (15bps) to 2,72%. 10Y Italian BTPs underperformed rising 6bps (-14bps) to 4,58%, outperforming Bunds by -1bps.

US High Yield (HY) Average Spread over Treasuries dropped -3bps (-77bps) to 3,92%. US Investment Grade Average OAS dropped -4bps (-14bps, Z-score -2,1) to 1,29%.

In European credit markets, EUR 5Y Senior Financial Spread dropped -4bps (-12bps) to 0,87%.


Gold sold off by -2,6% (6,4%) while Silver sold off by -4,1% (-7,0%, Z-score -2,3). Major Gold Mines (GDX) sold off by -7,5% (-4,9%, Z-score -2,6).


Goldman Sachs Commodity Index sold off by -2,6% (-2,5%). WTI Crude sold off by -4,1% (-3,8%).


 

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Marc Bentin serves as Economic Advisor to Blue Lotus Management,

a specialist multi-manager investment firm, which seeks to provide investors a compelling alternative to the traditional 60/40 equity and bond portfolio by targeting higher returns without amplifying equity risks.


BentinPartner GmbH is Advisor to the Phi Funds AIF, an umbrella Alternative Investment Fund registered and regulated in Lichtenstein, specializing in the management of Funds focused on physical precious metals.

 

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