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Popping Up…

BentinPartner Weekly

Markets delivered a second week of very strong performance for risk assets in break-out conditions, suggesting that a new bull market (of uncertain longevity) is in the making despite Federal Reserve officials delivering their best efforts to convince investors they will not be slashing interest rates before year-end despite money markets currently pricing a peak in rates at 4.9% followed by a 50bps rate cut by the end of this year. Federal Reserve Bank of St. Louis President J. Bullard said the US central bank should raise interest rates above 5% expeditiously to ensure price pressures are subdued while Fed Chair Powell noted that stabilizing prices requires making tough decisions that can be unpopular politically (without committing further).

This happened in a context when the New York Federal Reserve said that its December Survey of Consumer Expectations saw inflation a year from now at 5%, from 5.2% in November, or the lowest reading since July 2021 while projections of inflation in five years’ time stood at 2.4%, up from 2.3% in November.

Both J. Dimon and J. Gundlach opined that rates might creep higher a bit further but that a Fed pause would perhaps be welcome.

In addition to the breadth thrust that impacted a very wide range of assets (if not all including meme stocks, crypto and some notorious earnings-deprived tech stocks), US markets also caught a bid, propelled under the thrust of rallying international markets and a “reverse head and shoulder” fairly bullish technical pattern formation developing on the S&P500.

International markets continued to outperform and may well continue to do so for a while, given how cheap they remain relative to US markets as investors are set to remain more sensitive to value investing in a near 4.5% risk-free world.

At the same time, no indication was provided that would question the likelihood of an economic, earnings recession, and margin recession.

In the latest edition of its twice-yearly Global Economic Prospects report, the World Bank said “The global economy is ‘on a razor’s edge’ and risks falling into recession this year with the organization expecting the world economy to grow by just 1.7% this year, a sharp fall from an estimated 2.9% in 2022.

In FX, the runaway JPY rally continued despite more money printing by the BoJ in support of the 10-year yield peg that came under intense pressure again last week, causing the 10-year bond yield to climb as high at 54bps (before two waves of emergency bond-buying reined it back to 50bps) whilst 10-year swap rates, under a looser control from the BoJ, spiked to 1% (see chart below), triggering hopes (and fears) that the BoJ might be forced (after spending another USD13.9bn to buy more of the bond lines it already owns 80 to 90% of) to loosen its grip on the JGB market, as early as this week.

The dollar index dropped further last week whilst EM currencies pursued their thrust higher (MXN rallied 2.1% and BRL 2.4%) amidst growing bearish hedge funds bets against the USD.

We find it difficult to adhere to the view that it is the perspective of the US Fed reaching some sort of a terminal rate at 5% after slowing its pace of expected rate hikes, whilst most European officials talk about the need for higher rates (ECB Executive Board member I. Schnabel said borrowing costs must be lifted much further, with inflation only just having dipped back into single digits), that is driving the dollar down, but more a combination of negative USD momentum, bullish risk appetite (generally detrimental to the USD) and continued selling pressure on dollar reserves (ranging from Japan defending its YCC policy to China, GCC and other international holders of US reserves trimming their USD holdings in favor of CNY).

In the US, the saga of the US debt limit will return this week as the US federal government is expected to hit its USD31.4trillion borrowing authority as early as this month which will lead to hardball negotiations between the US President and the fresh Republican Congressional majority to prevent the government from shutting down.

Whilst bond yields dropped last week, credit markets also attracted heavy flows that pushed credit spreads sharply lower from Greek govt bond spreads (where yields dropped -21bps vs. -4 bps for bunds) to US high yields and EM local currency debt.

Chinese equity markets continued to recover swiftly as China is moving away from its ‘red line’ policy of limiting leverage in the property sector at the same time as it eased pressure on tech companies and prepared to add further monetary easing in an effort to counter the negative effects of a rapidly spreading covid. Despite the sharp falloff in shipments in the last few months, China's total exports rose 7% in 2022, according to local statistics.

Gold added a little less than 3% last week, leaving the metal in a bullish trend and breaking up mode, supported by dollar weakness, continued underinvestment, and more central bank buying (China announced it bought 30 tons in December after adding 32 tons last November).


Click on the Picture below for our latest Leaders & Laggards Report:

Over the past week, the S&P500 rallied 2,7% (4,2% YTD, Z-score 2,2) while the Nasdaq100 rallied 4,5% (5,5% YTD). The US small cap index rallied 5,3% (7,3% YTD, Z-score 2,5). AAPL rallied 4,0% (3,7%).

Cboe Volatility Index sold off by -13,2% (-15,3% YTD, Z-score -2,6) to 18,35.

The Eurostoxx50 rallied 3,3% (9,8%), outperforming the S&P500 by 0,7%.

Diversified EM equities (VWO) rallied 2,8% (8,1%), outperforming the S&P500 by 0,1%.

The Dollar DXY Index (UUP) measuring the USD performance vs. other G7 currencies dropped -1,5% (-1,2%, Z-score -2,1) while the MSCI EM currency index (measuring the performance of EM currencies vs. the USD) gained 2,0% (2,5%).

10Y US Treasuries rallied -5bps (-37bps) to 3,50%. 10Y Bunds dropped -4bps (-40bps) to 2,17%. 10Y Italian BTPs rallied -21bps (-70bps) to 4,01%, outperforming Bunds by -17bps.

US High Yield (HY) Average Spread over Treasuries dropped -30bps (-62bps, Z-score -2,2) to 4,07%. US Investment Grade Average OAS dropped -10bps (-9bps, Z-score -2,5) to 1,34%.

In European credit markets, EUR 5Y Senior Financial Spread dropped -2bps (-11bps) to 0,88%.

Gold rallied 2,9% (5,3%, Z-score 2,2) while Silver gained 1,8% (1,3%). Major Gold Mines (GDX) rallied 3,5% (13,9%).

Goldman Sachs Commodity Index rallied 5,8% (-0,6%). WTI Crude rallied 8,3% (-0,5%).

Overnight in Asia…

  • S&P500 +9 points; Nikkei -1%; CSI300 +1.5%; Hong Kong +0.8%

  • Asian shares started the week higher with a tailwind from US stocks closing at the highest in a month.

  • The World Economic Forum is kicking off today with 1’000 private jets expected to bring their cohort of climate-sensitive participating politicians and CEO's in Davos…They will be greeted with the first Alpine snow in a long while.

  • PBOC maintained the rate of its one-year medium-term lending facility unchanged, adding less cash than expected into the banking system before the Lunar New Year holidays.

  • Bond yields rose in Australia and New Zealand. There will be no trading in Treasuries, with US financial markets closed for a holiday.

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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