BentinPartner Weekly
During a holiday shortened week, US stocks rallied strongly, led for the most part by tech stocks (and tesla in particular) in response to fresh evidence that the US economy and job market are weakening which revived hopes of Fed rate cuts not only for September (odds rose from 64% to 75%) but also as early as July 31st.
The major catalysts were Friday’s US Non-Farm Payrolls report (which was preceded by several other weak reports last week) which, although coming slightly stronger than expected with a 206k monthly job creation, showed a significant revision lower for the previous 2 months (-110k) along with an increase of the US unemployment rate to 4.1%, the highest level since November 2021.
This drove the dollar down and got precious metals back in strong rally mode in anticipation of an easing Fed. US bonds also rallied and 10-year yields dropped -14bps last week.
Earlier on Wednesday, the ISM services came out at 48.8 (from 52.7 expected) with the employment and new orders coming particularly weak, all under 50 while the ISM services index came out stubbornly strong at 56.3. Factory orders were also weaker than expected (-0.5% vs. +0.2% expected).
Precious metals performed strongly with all elements of the precious metals complex in break out mode (likely deceiving those who recently sold gold on news that China had presumably stopped buying gold for one month. Reviving Fed rate cuts expectations, a weakening economy and stubborn services inflation, not to speak about last week’s dollar weakness were the major catalysts for the precious metals recovery. For what it is worth, China announced that it did not buy Gold for a second month over the week end. Perhaps those not hurt the first time will take this as a good enough reason to sell gold again which could result in some weakness that will be welcomed by all those who still need or want to buy Gold (covertly or not). Despite Gold trading at an all-time high across currencies, Gold has been largely ignored by private investors (except for those focusing on physical gold stored outside of the financial system), at least judging from the divergence between precious metal ETF’s outstanding and the gold price evolution chart. Most commodities traded higher on the week as well.
Elsewhere, in the UK, 14 years of Tory rule came to a sudden but expected halt and support for US President Biden declined, including among politicians of his own party in response to his reluctance to pass the baton (which he firmly rejected over the week end, saying only an act of God could lead him to pull out from the race).
Over the week end, French President Macron’s plan to collude with the far left to defeat the far right worked beyond expectations, leading the “Nouveau Front Populaire” to come out victorious, followed by Macron’s centrist alliance and the Rassemblement National third. This will likely lead to the appointment of a leftist Prime Minister in addition to a hung parliament which is not the scenario that markets had been expecting or were hoping for. Some pressure could result on the euro, French stocks and OAT/Bund spreads. The market response so far has been muted on the euro (given the very negative spin inflicted on the USD last week with the development of a “micro” or “macro” panic) and the ECB will likely be on deck today to prevent any disorderly move on the OAT/Bund spread of which the equilibrium will nonetheless likely head towards 80bps (from around 70bps before the election) as the party who won vowed to implement “all its program”.
In Iran, M. Pezeshkian became Iran’s second reformist president in the history of the Islamic republic after his conservative predecessor was killed in a helicopter crash in May. He campaigned on a promise to ease tensions with the West that have escalated recently as Iran mobilized a regional network of proxy militias to target Israel in response to its military offensive in Gaza, Bloomberg reported.
The last time I was in Montreux I saw a “Black Swan” (and passed my way). This time around, it was a beautiful heron who offered us a graceful landing, fishing and some appeasing contemplation.
Over the past week, the S&P500 gained 1,5% (16,7% YTD, Z-score 2,0) while the Nasdaq100 rallied 3,0% (21,2% YTD, Z-score 2,0). The US small cap index dropped -0,6% (0,1% YTD). AAPL rallied 5,7% (17,6%).
The Equally Weighed SP500 dropped -0,3% (3,7% YTD), underperforming the S&P500 by-1,8%. The median SP500 YTD return closed the week at 3,6%.
Cboe Volatility Index gained 2,0% (0,2% YTD) to 12,48.
The Eurostoxx50 gained 1,7% (12,8%), outperforming the S&P500 by 0,2%.
Diversified EM equities (VWO) rallied 2,3% (8,7%, Z-score 2,1), outperforming the S&P500 by 0,8%.
The Dollar DXY Index (UUP) measuring the USD performance vs. other G7 currencies dropped -0,9% (6,6%) while the MSCI EM currency index (measuring the performance of EM currencies vs. the USD) gained 0,2% (-0,9%).
10Y US Treasuries rallied -12bps (40bps) to 4,28%. 10Y Bunds climbed 6bps (53bps) to 2,56%. 10Y Italian BTPs rallied -14bps (24bps) to 3,94%, outperforming Bunds by -20bps.
US High Yield (HY) Average Spread over Treasuries climbed 5bps (-9bps) to 3,14%. US Investment Grade Average OAS dropped -6bps (-9bps) to 0,96%.
In European credit markets, EUR 5Y Senior Financial Spread dropped -6bps (-6bps) to 0,61%.
Gold rallied 2,3% (15,7%, Z-score 2,2) while Silver rallied 5,7% (30,8%, Z-score 2,0). Major Gold Mines (GDX) rallied 6,0% (17,0%, Z-score 2,6).
Goldman Sachs Commodity Index gained 1,9% (7,9%, Z-score 2,2). WTI Crude rallied 2,1% (16,1%).
Overnight in Asia…
S&P500 -9 points; Nikkei -0.2%
US futures are slightly weaker overnight.
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