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More Geopolitical chaos...

BentinPartner Weekly

Last week started with a better than expected S&P Global US Manufacturing PMI (49.8 vs. 48.9 expected, unchanged from the previous month) while another ISM Manufacturing survey beat expectations, coming at 49 (vs. 47.9 expected and 47.6 for the last reading), bringing a third consecutive gain in manufacturing while construction spending also rose 0.5% MoM). Both indicators contributed to another jump of 11bps in US 10-year yields which set stocks on the wrong footing for the week.

Later on Tuesday, the US JOLT opening jobs report came in fairly stronger than expected (+9.6mn vs. +8.8mn expected) suggesting a still tight labour market which exerted additional pressure on bonds and stocks.

Many pockets of (recent) strength were seen falling back like dominos (with energy stocks also dropping on a lower oil price), which led risk parity (RPAR) strategies to add to its losses for the year, leaving Mega Tech and…. bitcoin to reign as “modern” safe havens. The combined effects of “risk off” and higher yields also pushed the dollar higher across the board vs. both EM and DM FX.

The removal of the speaker of the House brought additional confusion in an otherwise complicated situation resulting from ongoing concerns about skyrocketing debt, political chaos, difficult wage negotiation …and steadily rising yields.

Then came the “bomb” of the US Non-Farm payrolls report coming in way stronger than expected for September (+336k NFP jobs created vs. 170k expected) with upside revision also brought to August (227k from 187k previously exported). The immediate market reaction was a sharply higher 10-year yields gapping to 4.82% (from 4.74%) and the sp500 to drop -0.8% below the key support of the 200dMa level (standing at 4229).

A “miraculous” rally ensued with President Biden lauding Bidenomics on TV following a strong job report. The reversal was swift and this was the good news for Friday and perhaps not so much of a surprise…Unlike the turn of events which struck the Middle East over the week end which will likely require additional efforts to sustain optimism on Wall Street as a 4%+ oil price recovery hypothecates recent improvement in inflation expectations. A quick broadening of the new Israel/Palestine war declared on Saturday by the Israeli Prime Minister, remains a distinct possibility bringing additional risks to the outlook for energy, equity and bond prices.

In any case, Israel has promised to take all measures to bring down Hamas and this implies massive military action the consequences of which are impossible to guess now…

Elsewhere, on the Ukraine war front, the WSJ wrote that the US has another USD1bn tranche of economic aid for Ukraine worth over $1bn to go through October, after which if a new aid package isn’t authorized by Congress, the funds will dry up.

In the meantime, in Granada, the EU bloc’s top diplomat J. Borrell said Europe wouldn’t be able to shoulder the entire burden of foreign support for Ukraine on its own. “Europe cannot fill the gap of the U.S.,” he said, a few days after congressional Republicans refused to approve a stopgap funding measure for Kyiv.

In a surprising breach of unconditional support for Ukraine, former European Commission President Jean-Claude Juncker slammed the possibility of Ukraine joining the EU, lambasting the country as massively “corrupt.” “Anyone who has had anything to do with Ukraine knows that this is a country that is corrupt at all levels of society. Despite its efforts, it is not ready for accession; it needs massive internal reform processes,”

Juncker also said during an interview with Augsburger Allgemeine that “Making false promises” to Ukrainians regarding EU accession “would be neither good for the EU nor for Ukraine”.

Over the past week, the S&P500 gained 0,5% (12,3% YTD) while the Nasdaq100 gained 1,8% (37,0% YTD). The US small cap index sold off by -2,1% (-0,8% YTD). AAPL rallied 3,7% (36,6%).

CBOE Volatility Index dropped -0,4% (-19,5% YTD) to 17,45.

The Eurostoxx50 dropped -0,8% (12,3%), underperforming the S&P500 by-1,3%.

Diversified EM equities (VWO) dropped -0,3% (0,3%), outperforming the S&P500 by -0,8%.

The Dollar DXY Index (UUP) measuring the USD performance vs. other G7 currencies was flat (6,9%) while the MSCI EM currency index (measuring the performance of EM currencies vs. the USD) dropped -0,4% (0,1%).

10Y US Treasuries underperformed with yields rising 23bps (93bps) to 4,80%. 10Y Bunds climbed 5bps (31bps) to 2,88%. 10Y Italian BTPs underperformed rising 13bps (20bps) to 4,91%, underperforming Bunds by 8bps.

US High Yield (HY) Average Spread over Treasuries climbed 31bps (-40bps, Z-score 2,2) to 4,29%. US Investment Grade Average OAS climbed 7bps (-6bps, Z-score 2,0) to 1,37%.

In European credit markets, EUR 5Y Senior Financial Spread climbed 9bps (0bps) to 1,00%.

Gold dropped -0,8% (0,5%) while Silver sold off by -2,6% (-9,8%). Major Gold Mines (GDX) dropped -0,1% (-6,2%).

Goldman Sachs Commodity Index sold off by -4,2% (-3,0%, Z-score -2,5).WTI Crude sold off by -8,8% (3,2%, Z-score -2,2).


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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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