PPT or TACO ?
- Marc Bentin
- 4 days ago
- 7 min read
BentinPartner Weekly
Dear Reader,
Please find below our latest Weekly Trend Report.
Have a nice start of the week.
Marc Bentin,
Bentinpartner GmbH
US equity markets continued to face the pressure from Iran war spiraling a new with contagion spreading to the Red Sea, establishing a potential second chokepoint at the Bab el-Mandeb Strait (connecting the Middle East and especially Saudi Arabia to the West via the Suez Canal) and D. Trump vowing to consider a “massive attack, bigger than ever before” which sent oil prices sharply higher, dragging inflation expectations and bond yields higher as well.
Over the week end, a pause was observed and expanded during the overnight session today, enabling US indices to regain some strength during a thinned holiday night session with some traders and algos considering this pause as another TACO iteration while others talked about the bombing being suspended due to a lack of ammunition…
Nobody knows when and under what form and when the next stock market manipulation will materialize, coming from the Trump Truth Social posts (now released early to paying subscribers) or some action of the PPT (Plungee protection team), or working group on financial markets which has been active to tame volatility and place a global put under the market, allowing only smaller and smaller drawdowns since the crises of the 1990’s.
Despite these efforts, MAG7 and so called hyperscalers (MSFT, AMZN, TSLA and ORCL) are all trading below their 200dMa long term average, sanctioning a downward trend for key components of the AI trade, not to speak about the IPO of SPCX which has turned into a loser since it was brought to the market on June 12th. Short term indicators for these names have turned even worse (along with their credit spread). Tesla was down 17.8% last week (mostly from last Thursday’s drop) while ORCL shed -9.0%, having now lost more 53% of its value since June 1st. The MAG7 dropped -5.6%.
Despite all this, the stock market as a whole is holding fairly well, with investors piling up and rotating into value stocks (“Liquidity does not evaporate, just relocate”).
A bounce is possible, If not likely, also in some of the most oversold AI and Tech names but we would not chase those, sticking instead to more defensive and value stocks which are seeing their own momentum improve meaningfully and keeping some macro hedges in place.
Mounting risk factors right now include higher Govt bond yields (in the US, Europe and Japan) and a further increase in HY (high yield) spreads (and of hyperscalers in particular such as ORCL which saw its bond yield increase by 46bps last week) that are borrowing hands over first to fund capex spending, in excess of available cash flows and planning to do so for several more years. Fitch warned that debt in developed markets would increase by $4.2trn this year alone, taking the total to the equivalent of 104% of gross domestic product, up sharply from $26 trillion, or 68% of GDP, two decades ago. In the meantime, the U.S. Treasury has ramped up sales of short-term bills this month as the government borrows more short-term money, a strategy that has found plenty of willing buyers but sparked debate about the risks of relying too heavily on near-term financing, Reuters wrote.
Also pressuring bonds was US business activity expanding at the fastest pace in eight months as strong domestic demand for services offset cooling factory production, growing supply chain delays and rising costs, Bloomberg reported. The S&P Global flash composite purchasing managers index rose to 53.6 in July.
Finally, Morgan Stanley estimated the amount of money invested in leveraged investors’ basis trades on Treasuries declined by more than $200bn to $1 trillion in recent months, which ma also have increased the pressure on US yields (at the same time as further JPY weakness forcing the BoJ to intervene to prop up its currency, and sell more Treasuries. Satsuki Katayama, Japan’s Finance Minister, said that Japan’s policy on potential intervention remained unchanged and that it would take action if necessary… ‘The situation between the US and Iran has taken a sudden turn for the worse — a deterioration that the world did not foresee — creating a very difficult environment,’ Katayama also said…”
Despite all the Doom and Gloom, the US dollar posted further gains last week, adding 0.2% with the Dollar index now +5% year to date.
Gold traded in a volatile fashion, still closing marginally lower last week (by -0.7%) while Silver gained as much, within an improving technical and bottoming out picture in our view, that remained supported by the fundamental story that China remains a solid buyer of gold on dips.
Commodities were fairly strong last week as well (dragged up by higher oil prices). As Russia and Ukraine stepped up attacks on each other’s commercial ships and ports in the Black Sea and the Sea of Azov, threatening grain exports, international wheat prices also rose to a two-year high. Other key foods such as corn have also rallied.
S&P500 dropped -0,2% (8,8% YTD) while the Nasdaq100 gained 0,1% (13,3% YTD). The US small cap index dropped -0,6% (18,7% YTD, Z-score -2,2).
The equally weighed SP500 Index dropped -0,4% (10,9% YTD), underperforming the S&P500 by -0,3%.
The proportion of stocks in the SP500 index trading above their medium- and long-term trend stand at 59,5% and 62,7% respectively.
Cboe Volatility Index dropped -0,6% (24,7% YTD) to 18,65.
The Eurostoxx50 dropped 0,0% (9,7%), outperforming the S&P500 by 0,1%.
CSI300 Chinese equity index (ASHR) gained 1,0% (3,4%), outperforming the S&P500 by 1,2%.
Diversified EM equities (VWO) gained 0,2% (7,8%), outperforming the S&P500 by 0,3%.
The Dollar DXY Index (UUP) measuring the USD performance vs. other G7 currencies gained 0,2% (5,0% YTD) while the MSCI EM currency index (measuring the performance of EM currencies vs. the USD) gained 0,2% (1,0% YTD).
RUBUSD dropped -0,7% (0,2%). INRUSD dropped -0,1% (-6,8%). CNYUSD gained 0,2% (3,2%). ZARUSD gained 0,1% (0,3%). MXNUSD gained 0,6% (3,4%).
EURUSD dropped -0,2% (-2,8%). EURCHF gained 0,2% (-0,6%). EURJPY dropped -0,2% (0,8%). EURGBP dropped 0,0% (-2,5%).
10Y US Treasury yield rose 4bps (42bps) to 4,59%, with the 10/2 spread at 39 bps (0,99).30Y US Treasury yield rose 4bps (27bps) to 5,11%.
10Y Bund yield rose 2bps (30bps) to 3,15%. 10Y French OAT yield rose 2bps (38bps) to 3,95%, matching Bunds.10Y Italian BTP yield rose 2bps (42bps) to 3,97%, matching Bunds.
US Investment Grade Average OAS was unchanged (2bps) to 0,86%. US High Yield (HY) Average Spread over Treasuries dropped -2bps (0bps) to 2,66%. US High Yield (HY) Caa Average Spread over Treasuries rose 6bps (180bps) to 7,95%. USD Repo Govt GC ON closed at 3,665% while the US Federal Funds Effective Rate stood at 3,63%.
In European credit markets, EUR 5Y Senior Financial Spread rose 0bps (1bps) to 0,55%. EUR 5Y Subordinated Financial Spread rose 0bps (-3bps) to 0,89%.
XAUUSD dropped -0,2% (-7,2%) while Silver gained 0,7% (-21,4%). Major Gold Mines (GDX) dropped -0,8% (-17,5%). Bitcoin gained 1,7% (-25,6%).
Goldman Sachs Commodity Index gained 0,7% (23,7%, Z-score 2,3). WTI Crude gained 0,8% (44,8%). COPPER (COPA IM) gained 1,6% (12,1%).
Overnight in Asia…
S&P future +47 points; Hong Kong +0.1%; Nikkei -0.7%; China +0.2%
After 13 straight nights of strikes aimed at degrading Iran’s ability to attack commercial shipping, the US has apparently held off since late Friday without explanation or announcement, Bloomberg noted, raising questions about President Donald Trump’s next move. Iran’s army on Sunday said Tehran had halted its retaliation as a result.
Pakistan has requested a USD10bn facility from Washington to shore up its FX reserves, as the cash-strapped country seeks to capitalise on its role mediating between the US and Iran.
Europe is facing a tight squeeze on helium supplies as China cut off exports of the industrial gas that is vital for manufacturing microchips and the functioning of medical devices including MRI scanners. Beijing earlier this month announced export controls on the natural gas byproduct, which has been in scarcer supply since the conflict in the Middle East cut off exports from the Gulf.
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