BentinPartner Weekly
Dear Reader,
As was widely expected the Fed raised rates by 75bps last Wednesday giving way to a powerful and broad-based equity and risk assets’ rally for the rest of the week as the Fed Chair acknowledged that another “large “rate hike would be “data dependent” (read perhaps it will not happen again and perhaps the Fed may just have pivoted).
On the other hand, J. Powell also noted, “I don't think the US economy is in recession right now”, adding that GDP numbers are often revised significantly and that first reports should be taken “with a grain of salt.” And for sure, US GDP data that were due out on Friday and expected at 0.5% (from -1.6% last quarter) were correctly pre-emptied by the Fed, coming out weaker than expected at -0.9%, not without triggering a heated (mostly politically driven) debate on whether that meant the US economy officially entered recession with two consecutive quarterly declines in GDP…ahead of the mid term elections. J. Yellen who acknowledged she stayed on the “temporary” inflation camp for too long supported the idea that the US economy remains strong and not anywhere near recession. “When you look at the economy, job creation is continuing, household finances remain strong, consumers are spending and businesses are growing”, she said last week.
As we signalled on Wednesday, we were more confident this time that the post Fed rally could stick and push further because sentiment remained overwhelmingly bearish, because some share buyback activity is returning, because bond yields ebbed back due a combination of market manipulation (yield curve anchoring in Japan and ECB fresh bond buying program) and weaker growth data which could take precedence over the recent surge in inflation data. Upside Technical breaches had also been confirmed on major US averages with high momentum already prior to the Fed meeting.
For the rest of the week as well, the dollar took a more defensive posture and traded weaker across the board as risk appetite turned more positive while precious metals performed strongly as well, consistently with the overall perception of a more dovish than expected Fed, at the same time as sentiment and positioning on precious metals remained excessively bearish and light.
Energy prices also took the elevator back up despite the publication of a US technical recession… not necessarily what the Fed wanted to see either…or what those betting on inflation starting to ebb back are betting on.
Spreads contracted in Europe last week which despite the widening short term differential helped the euro to stabilize despite “shorts” remaining adamant that the euro is going to drop much further, a view that we do not support anymore (despite being fairly bearish on the European energy situation for obvious reasons) because positioning and sentiment is too negative on the euro (judging on the COT non commercial positioning) and because the Fed pivot coupled to accelerating evidence of a growing de-dollarization is what we expect will end the dollar rally to move it into a consolidation and then potentially a more protracted period of weakness. The sharp move down in USDJPY (in absence of fundamentally more bullish news on Japan) was another technical indication that the global dollar rally is getting tired and about to be unwound at least in part.
Alibaba was added to the list of companies facing a possible delisting in the US (which could happen in 2024) sending its US ADR 11% lower on Friday. While this was an understandable reason for short term weakness that compounded news of Jack Ma ceding control of the company, a possible delisting will change little to the business prospects of Alibaba in China while Jack Ma ceding power is most likely a decision that will help take the company’s out of the Chinese government’s hair. Goldman Sachs also opined over the weekend that moving the primary and possibly sole listing of Alibaba to Hong Kong could potentially attract USD16bn worth of fresh investors’ money locally. Interestingly, four Chinese companies on Thursday became the first to issue shares in Switzerland via a China stock connect program that launched in late July. More than 10 Chinese-listed companies plan to offer shares in Switzerland as a result of the new stock connect program.
What will remain as a negative factor for Chinese stocks near term is the weakening Chinese consumer confidence of which we saw more evidence last week amidst ongoing concern regarding real estate concerns (the mortgage strike and ongoing miseries from real estate developers) and the covid related drag. Still Chinese GDP remains likely to continue to rebound into H2 as government rolls out more measures to stimulate the economy and deliver an asset markets’ put including with strong support to the real estate market.
Big picture, the structural story of China is improving which will lead to more capital flows (not less) going into China. China is going to benefit from having Russia served to it on a silver platter and in a position to pursue not so much global dominance than global independence. With Russia cut off from the USD and EUR, China will get to buy all its commodities from Russia in CNY (because Russia cannot trade anything else). The way you achieve independence is by having a stronger and more generally accepted currency which is exactly what the united West is enabling China to do. The success of Nixon was to separate China from Russia. The failure of J. Biden (inter alia) will be to deliver the exact opposite. Even better, the whole situation has emboldened China to get to pay Saudi Arabia at least partially in CNY for its oil. It is pursuing the same objective to pay Indonesia in CNY for its coal and Australia’s iron ore increasingly in CNY as well (as BHP showed it was ready to do recently delivering an important milestone in China’s de-dollarisation efforts).
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Over the past week, the S&P500 sold off by -3,7% (-14,4% YTD) while the Nasdaq100 sold off by -4,2% (-22,2% YTD, Z-score -2,1). The US small cap index sold off by -2,9% (-15,0% YTD).
CBOE Volatility Index rallied 21,7% (45,5% YTD, Z-score 2,5) to 25,56.
The Eurostoxx50 sold off by -3,4% (-14,1%, Z-score -2,8), outperforming the S&P500 by 0,2%.
Diversified EM equities (VWO) gained 0,6% (-15,5%), outperforming the S&P500 by 4,3%.
The Dollar DXY Index (UUP) measuring the USD performance vs. other G7 currencies gained 0,7% (13,7%) while the MSCI EM currency index (measuring the performance of EM currencies vs. the USD) dropped -0,1% (-4,9%). CNY slumped to its weakest against the dollar in almost two years, despite China’s government unveiling tens of billions of dollars of economic support for its power and agricultural industries in an effort to counter the damage from repeated Covid lockdowns and a property market slump.
10Y US Treasuries underperformed with yields rising 7bps (153bps) to 3,04%. 10Y Bunds climbed 16bps (157bps) to 1,39%. 10Y Italian BTPs underperformed rising 20bps (253bps) to 3,70%, underperforming Bunds by 7bps.
US High Yield (HY) Average Spread over Treasuries climbed 22bps (163bps) to 4,46%. US Investment Grade Average OAS climbed 2bps (47bps) to 1,47%.
In European credit markets, EUR 5Y Senior Financial Spread climbed 10bps (66bps) to 1,21%.
Gold dropped -0,5% (-5,0%) while Silver dropped -0,9% (-19,0%). Major Gold Mines (GDX) dropped -1,8% (-22,6%, Z-score -2,5).
Goldman Sachs Commodity Index rallied 2,1% (35,9%). WTI Crude rallied 2,5% (23,7%).
Overnight in Asia,,,
S&P500 -36 points; Nikkei -2.8%; CSI300 -0.9%
Have a nice week ahead and be good to yourself !
Marc Bentin, BentinPartner GmbH
Chief Investment Officer
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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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