Doubling Buybacks? Will it be Enough?
BentinPartner Weekly
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Please find below our latest Weekly Trend Report.
Have a nice start of the week.
Marc Bentin,
Bentinpartner GmbH
The S&P 500 dropped 1.4% last week despite recovering 0.4% on Friday, ending a week marked by mixed retailers and tech earnings reports, and rising bond yields which occurred despite a surprise intervention from the US Treasury in an effort cap long term yields, announcing a potential doubling in the existing bond buyback program.
When that didn’t work, Scott Bessent announced the next day that the buyback could be larger… When asked about the $40 trillion debt milestone that is about to be crossed, he said there was nothing magic about this number and that the US economy would grow out of it.
At the end of the week, long-term yields closed 4bps higher, showing the market remained skeptical, as the dollar closed lower and precious metals sharply higher.
In terms of overall risk appetite, we will remember how “Situational Awareness” was bailed out by Citadel a couple of weeks ago, which also helped stabilize and even revive the AI trade. In a rather ominous sign, about its lack of long-term commitment, Citadel announced that it had dumped almost all of the stocks, acquired from this operation last week.
Bond markets remained pressured in Japan but also in Europe which remains in a very tight spot, having severed its links to Russia and being constrained on its oil supply from the Middle East conflict. More evidence of Europe’s industrial decline was provided last week with Germany’s largest manufacturer by revenue, Volkswagen, expected to provide employees and union representatives with new details about the plan to shed 50,000 jobs. The CEO of the company, Oliver Blume, warned that “the global car industry is in the middle of a massive crisis, and the Volkswagen group is right in the thick of it. Geopolitics, trade barriers, regulation, weak markets and fierce competition are all taking their toll”, he said. In a further sign of times, perhaps, Volkswagen is holding “concrete negotiations“ with Chinese auto makers about assembling their vehicle at German factories. When that happens, you know Europe is facing serious competitiveness problems.
Ray Dalio also warned of a looming US debt crisis that could hit within three years as deficits and interest cost surge, recommending to underweight bonds and to allocate 10 to 15% to gold and a small position in bitcoin. We cannot agree more with that assessment although we would rather bring that up to 25%, assuming technical conditions remain supportive, considering that we would not want to own any bond with a duration exceeding one year.
While precious metals stood out as the clear winners from last week’s shenanigans in the bond market, the bitcoin rally was equally impressive reclaiming the price of above $70,000 after President Trump renewed efforts to pass a new legislation that crypto players (and soon voters) have been calling for.
Late on Friday, Canadian Prime Minister Mark Carney walked out of discussions about a trade deal with Donald Trump, saying that last minute US term changes were “unfair and economic, and called into question the reliability of any deal” which included banning the use of French on US products targeted for Canada…
This was a rather ominous way for Trump to end the week as he was seen cutting more bridges with former allies.
While US strategic oil reserves are said to have 60 days left before depletion, and despite the US pumping a lot of (dirty) shale oil, it is running short in terms of refining capacity, which Canada could help alleviating if both countries remain in good terms.
Earlier in the week, Donald Trump threatened to “bomb” another long-term strategic ally, Oman, if it was to collaborate with Iran for the control of the SoH. He also threatened any country who would keep collaborating with Iran to alleviate the consequences of the US further sanctions against Tehran. This was a thinly veiled attack against China (not to speak about Russia), the former of which can easily retaliate with a further ban on rare earth, among others.
At the look of it, D. Trump is trying to “gamble to resurrection” but is now facing a humiliating defeat on many fronts.
Looking over to this week, Donald Trump is expected to announce details of an economic plan to further economically constrain Iran.
After the disappointing earnings report from Walmart which sent its share price down 10%, other retailers will report this week, which should shed further light on the health of the US consumers, following some initial evidence that they are trading down. Consumer confidence data will also be reported on Tuesday.
Then on Wednesday comes the all important PCE price index to help the Federal Reserve assess underlining inflation pressures with further food for thought for its next rate setting.
Most importantly, Nvidia, the last of the Mag7 and the poster child of the AI trade will report on Wednesday, following mixed reports from other tech giants. Expectations are high but not nearly as much as valuation. This stock is not part of our recipe for caution, although another leg higher is certainly possible, especially if the company announces efforts to expand its customer base from a small group of the biggest and well financed companies in tech to companies feeding open source AI, as it appears clear that open source AI is taking the momentum lead over so called “frontier” models providers.
By the end of the week, Central Bankers will converge to Jackson Hole Annual Fed Economic Symposium where K. Warsh statement will be eagerly for possible further guidance on what lies ahead for Fed policy.
Over the past week, the S&P500 dropped -1,4% (12,3% YTD) while the Nasdaq100 sold off by -2,4% (16,1% YTD). The US small cap index dropped -1,7% (21,9% YTD). AAPL gained 1,1% (13,8%).
The Equally Weighed SP500 dropped -0,5% (15,7% YTD), outperforming the S&P500 by 0,9%. The median SP500 YTD return closed the week at 10,4%.
Cboe Volatility Index rallied 6,2% (1,2% YTD) to 15,13.
The Eurostoxx50 dropped -1,2% (13,8%), outperforming the S&P500 by 0,2%.
Diversified EM equities (VWO) gained 0,6% (12,4%), outperforming the S&P500 by 1,9%.
The Dollar DXY Index (UUP) measuring the USD performance vs. other G7 currencies dropped -0,7% (3,2%) while the MSCI EM currency index (measuring the performance of EM currencies vs. the USD) gained 0,8% (3,5%).
10Y US Treasuries dropped 4bps (57bps) to 4,73%. 10Y Bunds climbed 5bps (40bps) to 3,26%. 10Y Italian BTPs underperformed rising 10bps (53bps) to 4,08%, underperforming Bunds by 5bps.
10Y French OAT's underperformed rising 9bps (57bps) to 4,13%, underperforming Bunds by 4bps.
US High Yield (HY) Average Spread over Treasuries climbed 3bps (3bps) to 2,69%. US Investment Grade Average OAS climbed 1bps (6bps) to 0,90%.
In European credit markets, EUR 5Y Senior Financial Spread climbed 1bps (0bps) to 0,54%.
Gold rallied 5,2% (6,6%) while Silver rallied 6,7% (-3,7%). Major Gold Mines (GDX) rallied 14,3% (19,9%).
Goldman Sachs Commodity Index rallied 4,2% (39,8%). WTI Crude rallied 5,7% (51,6%).
Overnight in Asia…
S&P future +5 points; Hong Kong -2%; Nikkei unch.; China -0.6%
Asian shares are mostly lower with Samsung Electronics and Alibaba contributing most to their losses. SoftBank also announced plans for a record ¥1 trillion ($6.3 billion) retail bond offering in Japan which kept attention firmly on the tech sector.
Brent fell 1.9% to $92.60 a barrel before Treasury Secretary Scott Bessent’s press conference detailing a plan to economically isolate Iran.
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