Derisking Intensifies...
- Marc Bentin
- Mar 23
- 7 min read
BentinPartner Weekly
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Please find below our latest Weekly Trend Report.
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Marc Bentin,
Bentinpartner GmbH
Risks to global markets and the global economy significantly increased last week with little sign of the TACO or central bank put surfacing.
De-risking intensified, leading to cross asset selling in stocks, bonds, precious metals and even certain commodities except oil and gas.
Major US equities broke key support levels last week at the same time as credit markets underperformed and the CDS of major US banks also spiked 15bps to their highest since last April.
The bond selloff was particularly noteworthy last week with 10Y US Treasury yields climbing 23 bps while European bond yields suffered a similar increase. The move index measuring the bond volatility also increased to 109 from 64 prior to the war). A conflict that widens and lasts longer than expected could magnify the wider damage to the global economy and risks undermining governments’ fiscal position, the BIS warned.
This was without considering the relentless rush to the exit from private credit funds as distrust into these funds NAV grew.
Contributing to fragilize bonds last week, US inflation numbers for February (before the war had started) also came worse than expected last week with wholesale prices climbing 0.7% (+0.5% for core PPI).
Fed Chair Powell also commented in the post FOMC meeting press conference that the Central Bank remained concerned about inflation that was still stubbornly elevated (pre-war), contributing to further reduce rate cut expectations for this year.
While Treasuries added 21bps (to 4.41%) on the week, MBS yields rose 20bps on Friday alone to 5.47%, forcing GSEs into purchases to keep mortgage spreads contained.
J. Powell at the same time as left interest rates unchanged at last week’s FOMC meeting said he had no intention to leave the Fed as governor (of which the term ends only in 2028), until the investigation on Eccles building is “well and truly over”.
European bond yields also rose across the board, albeit slightly less than the US.
The FT reported that BoA withdrew an earlier recommendation to bet against European companies “exposed to private credit shocks” with “30% more downside risk than their US rivals”, including Deutsche Bank and Partners Group, saying it made “factual inaccuracies”…and apologized…
Iran’s attacks last week already knocked 17% of Qatar’s LNG export capacity, causing an estimated USD20bn in lost annual revenues and threatening supplies in Europe and Asia with repairs expected to last years, Reuters wrote. This came in retaliation to Israel striking Iran’s crown jewel and giant South Pars gas field from Iran.
The Iran war is dealing significant blows to the Gulf’s biggest economies including Saudi Arabia, UAE and Qatar.
At the same time, Israel initiated a ground invasion on Lebanon, saying it was prepared for a prolonged campaign and a new front in a widening Middle East conflict, with Israel defense minister I. Katz saying the operation would be similar to the Israeli campaign in Gaza.
The US showed little sign of backing down on its military efforts, asking Congress for more money (initially USD200bn) to continue the war and accelerate the production of weapons systems.
Elsewhere in Ukraine, attacks deeper in Russia with long range missiles constituted an aggravated threat for Russia which boded poorly for appeasement and which will likely accelerate and widen Russia’s ambition in this conflict.
As if it was not sufficient, The US President escalated his rhetoric against Cuba saying he expected to have the “honour” of “taking Cuba in some form” and “that I can anything I want” with it. A Russian super-tanker is arriving today near Cuba to challenge the US embargo aimed at strangling Cuba economically until he can have “the honor” to take it.
The impact of higher priced (and scarcer) energy will have far-reaching consequences, including on food prices (due to declining yields on crops). China reported last week that it tightened curbs on fertilizer exports, with the government asking exporters to halt outbound shipments of nitrogen-potassium fertilizer blends.
D. Trump must now contain his rage and frustration (how many times will Iran get “obliterated” before he can declare victory and leave?) for markets to stabilize with the political, economic and financial consequences of this operation already sure to leave lasting scars. And if the pressure builds further in the Middle East, massive intervention on important financial markers will also be required to keep them afloat (which I think is going to happen and likely already ongoing). Many markets are rapidly becoming un-investible as a result of ongoing developments that leave investors with no place to hide (as precious metals got crushed in a var liquidation event). The effects of intervention on (equity) futures market can still be expected to fall short of any subsequent and material TACO moment and D. Trump might remain one obliteration short of that of the entire electrical and water complex in the Middle East which Iran has promised in retaliation of any potential attack on its electrical grid, over the week end.
I came across this enlightening video over the week end featuring two Jewish reputed analysts’ (Yakov Rabkin and Prof. Jeffrey Sachs) observations on the war (and the “clean break doctrine”). P. Lottaz, the Swiss moderator, concluded the exchange by saying that Judaism is a wonderful, peace-loving and wise religion while Zionism is a highly problematic political movement.
Precious metals offered no safe haven last week, with the selloff that precipitated silver lower bringing its cumulated drop to 50% in matter of a few weeks. Gold also shed -10% on the week (still +3% YTD), while silver shed all ytd gains for now.
There was some hope, later dimmed on Friday, of another TACO moment when D. Trump said he was considering “winding down” US military efforts (after “achieving the war’s objectives”) but the late Friday respite was short lived as Trump subsequently delivered a 48h ultimatum for Iran to free the entire Strait of Hormuz (which is currently only closed to so called “enemies” of Iran).
Over the past week, the S&P500 sold off by -2,1% (-4,9% YTD, Z-score -2,4) while the Nasdaq100 dropped -2,0% (-5,2% YTD, Z-score -2,7). The US small cap index dropped -1,8% (-1,6% YTD). AAPL dropped -0,9% (-8,8%).
The Equally Weighed SP500 dropped -1,6% (-0,6% YTD), outperforming the S&P500 by 0,5%. The median SP500 YTD return closed the week at -2,3%.
Cboe Volatility Index dropped -1,5% (79,1% YTD) to 26,78.
The Eurostoxx50 sold off by -3,6% (-4,9%), underperforming the S&P500 by-1,6%.
Diversified EM equities (VWO) sold off by -2,7% (-2,2%), outperforming the S&P500 by -0,6%.
The Dollar DXY Index (UUP) measuring the USD performance vs. other G7 currencies dropped -0,8% (2,4%) while the MSCI EM currency index (measuring the performance of EM currencies vs. the USD) dropped -0,2% (-0,6%).
10Y US Treasuries underperformed with yields rising 10bps (21bps, Z-score 2,1) to 4,38%. 10Y Bunds climbed 6bps (19bps) to 3,04%. 10Y Italian BTPs underperformed rising 18bps (41bps, Z-score 2,1) to 3,96%, underperforming Bunds by 12bps.
10Y French OAT's underperformed rising 8bps (19bps) to 3,76%, outperforming Bunds by 2bps.
US High Yield (HY) Average Spread over Treasuries climbed 1bps (46bps) to 3,12%. US Investment Grade Average OAS dropped -5bps (10bps ) to 0,94%.
In European credit markets, EUR 5Y Senior Financial Spread climbed 9bps (23bps, Z-score 2,6) to 0,78%.
Gold sold off by -10,5% (4,0%, Z-score -2,9) while Silver sold off by -15,7% (-5,2%, Z-score -2,6). Major Gold Mines (GDX) sold off by -14,1% (-6,6%, Z-score -2,1).
Goldman Sachs Commodity Index gained 0,8% (29,4%). WTI Crude dropped -0,5% (71,1%).
Overnight in Asia…
Ø S&P future -33 points; Hong Kong -3.5%; Nikkei -4.1%; China -2.4%
Ø The Iran’s war escalation with D. Trump latest ultimatum that Iran must “fully open the Strait of Hormuz, without threat,” drove Asian markets sharply lower while US futures saw a more contained drop of -0.5%. Oil futures swung, so far up only 1%.
Ø The US and Israel continued to target sites in Iran on Sunday, including around the capital, Tehran. The Islamic Republic is firing missiles and drones at Israel and Arab Gulf nations, Bloomberg reported.
Ø After a choppy opening, Gold and Silver are lower by -3% (to USD4’320), driven by forced selling to cover losses elsewhere (most likely).
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