BentinPartner Weekly
US stocks and risk assets delivered another strongly positive week following a decisive US election (and the confirmation of a red and clean sweep whereby D. Trump won the popular vote, the Senate, the Congress and the so called 7 swing states), giving D. Trump free reins to conduct his policies. Also supporting markets last week, was the Fed’s decision to cut rates by 25bps, in line with expectations, with Fed Chair Powel saying he was prepared to (dovishly) “adjust the pace and destination” of rates as the situation evolves.
While bonds initially reacted badly to the election outcome (with 10y yields gapping 20bps higher) on the perspective of larger deficits, they recovered late in the week, supported by the Fed’s rate cut decision and US 10Y yields closed -2 bps lower (at 4.35%) while 10Y Bund yields closed -4bps lower in line as did other core European bond yields.
Financial conditions eased in a broader sense as credit spreads also improved meaningfully with investment grade spreads dropping 9bps to 74bps (their lowest level since 1998) while high yield spreads dropped -11bps to 244bps (their lowest level since June 2007). J. Powell reminded last week (in response to the initial spurt higher in yields) that the Fed was taking into consideration financial conditions in their policy if they were persistent, but that we were not there yet…And we certainly closed the week further away from the worry zone. The very strong rally in bank shares was another indicator of improving liquidity as tighter Basel standards are likely to apply but with a meaningful exception. Last but not least, corporate stock buyback spending among S&P 500 companies that have reported so far this quarter climbed 30% from the quarter last year, reaching $200 billion and this also supports a bullish stocks narrative.
The dollar gained further ground last week, while precious metals suffered a mild correction.
All the above being said and even though more gains in risk assets might be in store for year end, boosted by seasonality, the rebound in US activity (that has started in manufacturing) coupled to tariffs are equally likely to boost inflation and bond yields on supply concerns sometimes in Q1 next year, with the Fed forced to end QT and resume QE (asset purchases) to keep yields anchored. For what it is worth, this is what the working group on financial markets seem to expect will happen in 2026, according to its latest October report while other analysts opined they expect the Fed to start supporting Treasuries by the middle of next year already.
Over the weekend the Telegraph reported that a meeting would take place in Paris (on the occasion of …the Armistice) in a last ditch effort to convince J. Biden to authorize Kiev the use of Tomahawks to hit targets deeper in Russia before…surrendering to D. Trump’s pre-announced decision to stop funding the war and end the conflict.
When I look at the economic situation in Europe, I am concerned over the near term to see Germany unable to stabilize. German bankruptcies recently soared to their highest in 20 years while industrial orders dropped -5.8% in August (from July), a larger than anticipated slump, and while the IFO institute also revealed in September that the German economy was expected to shrink by -0.1% in 2024, following a -0.3% drop last year.
And when I look at the European car industry, my blood starts to boil. There we have VW closing three factories in Germany (for the first time ever) and Michelin closing two factories in France. With D. Trump elected, there is a 10% tariff coming on all European exports to the US (which will lead to relocation of factories to the US all other things remaining equal).
Maybe this will be a blessing in disguise and an invitation to the European Commission to stop shooting itself in the foot or rather interrupt the slow euthanasia of European car makers by lifting the date of 2035 for going “all electric”, scrapping the fines/carbon credits that plague European producers and reducing the so called “ecological malus” imposed on most new cars other than EVs.
Consumers are neither ready nor willing to buy EV’s anymore. European producers are structurally uncompetitive (pricewise just like for European solar panels …) vs. Chinese producers which, faced with the prospect of a 100%-200% US tariffs, are gearing to flood the European market. D. Trump will go to such extremes until the Chinese threat is extinct, to protect the local industry and indeed the architect of his landslide victory. Chinese imports of EV’s in Europe may only represent 5% of the market now but the strained European consumers will have no time for patriotic purchases and will go for the cheapest and likely as well in this segment, for the best in droves. The French observer of metallurgy estimated threatened jobs in the car industry in France alone to reach 20% of the current workforce by 2030. To this we can add the fact that the Commission keeps imposing more fines on car manufacturers to limit emissions of CO2 which could reach…EUR15bn this year. This “check” situation is now forcing them, well ahead of the deadline, to forfeit producing cars for which they have demand and on which they could make money and to close factories to keep the Commission’s arsonists happy…
This is all without talking about the ecological malus imposed and aggravated in 2024 on buyers themselves when they purchase non-electrical cars, incentivizing them to…wait.
For what it is worth, the European car demand in October was down -13% from last year.
The time to say no and reverse is now.
The economic situation in Europe is implosive and the political situation at its core, potentially explosive with Germany and France in economic and political disarray.
The French economic minister went to Brussels last week asking for relief on EU job killing penalties. The German Minister (hopefully not an ecologist) should do the same and both should take U. von der Leyen in a separate room, explain her the situation and commission her with an expeditious change.
There is a notion of urgency here. With D. Trump elected (in a red sweep fashion), a few good things will happen to “America first” with positive externalities for the rest of the world as well (putting to rest deep state war mongering and mortiferous woke ideologies) but also many negative economic externalities for China “and” Europe. The time has come to wake up before the President elect starts the wood chopping mid-January and there is no time to lose.
Over the week end, German Chancellor Olaf Scholz said he’s now open to moving up a parliamentary confidence vote by several weeks to before Christmas (after the head of Germany’s paper industry association assured the nation that enough ballot paper would be available), potentially speeding up the country’s early election to February after the country was plunged into political uncertainties as German Chancellor Scholz fired his Finance Minister C. Lindner of the Free Democratic Party, de facto ending the governing coalition in a dispute over debt-financed government spending to boost military support for Ukraine.
This was good news for Germany and Europe even if uncertainties remain as to what sort of parliamentary coalition could come out of the polls with the CDU/CSU likely at its helm (and even though O. Scholtz still believes he can still lead the next coalition).
Over the past week, the S&P500 rallied 4,8% (25,9% YTD, Z-score 2,3) while the Nasdaq100 rallied 5,5% (25,5% YTD, Z-score 2,4). The US small cap index rallied 8,7% (18,6% YTD, Z-score 2,3). AAPL gained 1,8% (17,9%).
The Equally Weighed SP500 rallied 4,4% (16,7% YTD), underperforming the S&P500 by-0,4%. The median SP500 YTD return closed the week at 15,0%.
Cboe Volatility Index sold off by -31,7% (20,0% YTD, Z-score -2,1) to 14,94.
The Eurostoxx50 dropped -1,6% (9,1%), underperforming the S&P500 by-6,3%.
Diversified EM equities (VWO) gained 0,5% (13,8%), underperforming the S&P500 by-4,3%.
The Dollar DXY Index (UUP) measuring the USD performance vs. other G7 currencies gained 0,7% (9,0%) while the MSCI EM currency index (measuring the performance of EM currencies vs. the USD) dropped -0,5% (1,1%).
10Y US Treasuries dropped 2bps (43bps) to 4,30%. 10Y Bunds dropped -4bps (34bps) to 2,37%. 10Y Italian BTPs dropped -3bps (-4bps) to 3,66%, underperforming Bunds by 1bps.
US High Yield (HY) Average Spread over Treasuries dropped -19bps (-67bps, Z-score -2,7) to 2,56%. US Investment Grade Average OAS dropped -10bps (-24bps, Z-score -2,5) to 0,81%.
In European credit markets, EUR 5Y Senior Financial Spread dropped -5bps (-7bps, Z-score -2,2) to 0,61%.
Gold sold off by -2,3% (29,6%) while Silver shed -3,7% (31,4%). Major Gold Mines (GDX) sold off by -2,1% (25,8%).
Goldman Sachs Commodity Index gained 0,7% (2,1%). WTI Crude dropped -2,0% (-2,2%).
Overnight in Asia…
S&P500 + 10 points; Nikkei unch.; Hong Kong -2.3%; CSI300 -0.14%
Asian shares dropped overnight after data showed persistent deflationary pressures while Bitcoin surged past $81,000 to a fresh record after Beijing unveiled a USD1.4trn program to reduce local governments’ debt risk but stopped short of unleashing a new fiscal stimulus which may have been left as dry powder to respond to a trade war likely to aggravate with the US early next year. According to a Bloomberg report, UBS lowered its 2025 growth forecast for China following Trump’s election, expecting an “around 4%” expansion for 2025, and a “considerably lower” pace in 2026. Chinese retail sales and industrial production are due out later this week.
Federal Reserve Bank of Minneapolis President Neel Kashkari indicated at the weekend the central bank could ease rates less than previously expected amid a strong US economy.
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