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A Tale of Two Markets...

BentinPartner Weekly

Last week delivered a contrasting picture with US markets posting fresh records (the equal weighed SP500 dropped -0.5% on the week, however), driven by narrow but strong gains in tech (in particular for AAPL on share buy backs which triggered a massive momentum bid) and Europe selling off on the political turmoil that followed the European elections and big wins posted by the extreme right in France and Germany. The decision of French President Macron to dissolve the national assemble and call for snap elections raised the spectre of more political instability and was particularly detrimental to the CAC40 which dropped -6.2% with steeper losses seen for banks as BNP and Credit Agricole both shed -11% on the week.

The euro also traded lower and the OAT/Bund spread widened by more than 20bps while the European High Yield crossover CDS jumped 42bps, the largest jump since the latest banking crisis.


Lots of treasons were observed to accommodate the new political reality, ending up with three groups political groups; a right-wing alliance, a left-wing alliance and the rest still gathered around E. Macron whose Poker bet created consternation and revealed much about his gambler’s mentality and hubris. The President’s expectations is that the electorate will get afraid, change its mind and vote for him to avoid chaos, a strategy which is widely believed to be doomed to fail this time. The problem is that he is seen by many as a vector of chaos himself, including with war escalation tactics that genuinely scared off voters at the first place.


While the selloff in French (and European) assets was impressive, chances are that some French companies that have wide presence abroad and are not too dependent on the domestic economy (such as Schneider electric or Air Liquide) will offer attractive opportunities between now and the coming elections, although buying them now may still be a bit premature as investors still prefer the safety of momentous Fangs to handle the wait…

The perspective of a “cohabitation” (power sharing) is crystalizing between French President and the RN far-right party as E. Macron excluded the possibility of an early resignation and the organisation of early Presidential elections as well. Those interested in French politics may have an interest in listening to H. Guaino, (starting on min 24’ and 35’) a former adviser of French President N. Sarkosy and student of history. He warns about Manicheism (simple and rigid opposition between good and bad) and the incapacity at  negotiating of the new generation of politicians (that have no or very little understanding of history and whose sole “courage” so far is to lead and escalate a war “by proxy”).


US treasury yields dropped 20bps last week, following two strong bond auctions (10 and 30 year) in a move that was initially contradicted by the Fed which dropped the dot plots, expecting only one rate cut vs. two so far. However, Fed Chair J. Powell addressed these initial concerns in the post FOMC meeting press conference, saying  the dot plots remains a moving target which could change as early as in the next meeting (on July 31st) or in September depending on data which he recognized showed signs of weakness, noting in particular, that employment was kind of overstated which was a big thing given all the controversy surrounding the credibility of BLS calculations used to produce the Non-Farm Payrolls report. At the last meeting, Fed chair had said that one thing that could cause him to change his mind on the need to cut rates was a potential surprise on the employment front. The observation that J. Powell made last week of the likely overstated US job creation could easily be the prelude to a “surprise” next month...which could easily lead to an interest rate cut, all the more so that signs of a weakening economy are gathering pace in the US and abroad.  


Many investors wonder where Nvidia might go next but the news late last week that the USD71bn XLK tech fund that owns 20% in AAPL and 20% in MSFT might soon go from 6%  to 20% in NVDA as well, likely means that the passive bid going into Nvidia shares is not drying up and that the next rebalancing will require instead another USD10bn purchase worth in Nvidia shares, something that would not get investors too worried over the (very) near term (at least). That said, the lack of breadth in the US market was noticeable last week as well, but not sufficiently so to offset momentum and fear flows out of Europe into the US.


Last week saw the second largest buyback ever in the last 4 weeks but the earnings season starts in two weeks (with expectations good but to be led by the top ten stocks and the buy-back bid will hit a compulsory pause over the next three weeks.






Over the past week, the S&P500 gained 1,6% (14,2% YTD) while the Nasdaq100 rallied 3,5% (17,0% YTD, Z-score 2,3). The US small cap index dropped -1,2% (-1,0% YTD, Z-score -2,0). AAPL rallied 7,9% (10,4%).

The Equally Weighed SP500 dropped -0,5% (3,7% YTD), underperforming the S&P500 by -2,2%. The median SP500 YTD return closed the week at 2,9%.

Cboe Volatility Index rallied 3,6% (1,7% YTD) to 12,66.

The Eurostoxx50 sold off by -4,2% (9,6%, Z-score -3,1), underperforming the S&P500 by -5,9%.

Diversified EM equities (VWO) gained 1,2% (6,5%), outperforming the S&P500 by -0,4%.


The Dollar DXY Index (UUP) measuring the USD performance vs. other G7 currencies gained 0,8% (7,0%, Z-score 2,3) while the MSCI EM currency index (measuring the performance of EM currencies vs. the USD) dropped -0,3% (-1,0%).


10Y US Treasuries rallied -21bps (34bps) to 4,22%. 10Y Bunds dropped -26bps (34bps, Z-score -2,7) to 2,36%. 10Y Italian BTPs dropped -3bps (23bps) to 3,93%, underperforming Bunds by 23bps.

US High Yield (HY) Average Spread over Treasuries climbed 17bps (-3bps, Z-score 2,4) to 3,20%. US Investment Grade Average OAS climbed 5bps (-4bps, Z-score 2,9) to 1,01%.

In European credit markets, EUR 5Y Senior Financial Spread climbed 16bps (7bps, Z-score 3,7) to 0,74%.


Gold gained 1,7% (13,1%) while Silver gained 1,4% (24,2%). Major Gold Mines (GDX) dropped -0,4% (7,7%).


Goldman Sachs Commodity Index gained 1,4% (4,7%). WTI Crude rallied 3,9% (9,5%).




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