Rejecting (European) Globalists...
- Marc Bentin
- Mar 16
- 7 min read
Updated: Mar 20
BentinPartner Weekly
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US stocks dropped for a fourth week, despite Friday’s bounce, driving investor sentiment sharply lower, with more bears than bulls for the first time since 2022, which is usually associated with previous bear markets. The catalysts remain the same with trade and geopolitical uncertainties.
While few indicators suggest that a recession is looming (with LEI improving), economic growth is still expected to slow as all the extra governmental spending of the previous administration unwinds. Looking at the ISM composite index, it also remains in expansionary territory but suggests a slower economic growth ahead with expectations for the economy and earnings being too optimistic.
Trading from sharply oversold conditions on Friday, US stocks managed to finish the week in a short squeeze mode, led by some of the weakest links. Still, and for the week, Goldman reported the largest de-grossing of market exposure by hedge funds of the past 4 years.
There were some expectations on Friday that the 10% “correction” would not morph into a 20% “bear market”, even as some analysts reminded that every 50% correction started with a 10% one. In any case, caution remained the order of the week among hedge funds, some of whom were taken aback by the speed and breadth of the US stock market correction. Technicals remained firmly bearish (for US stocks) with the bitter taste coming last week from credit markets which saw corporate and HY spreads (+20bps) continue to widen.
Economically, the US newsflow was subdued with the US budget deficit coming at 7% (USD1.1trn) and inflation remaining at 3.3% while the University of Michigan showed long-term (5Y) inflation expectations hitting a 32-year high at 3.9% (from 3.5% last and 3.4% expected) while short term 1 Y inflation expectations reached 4.9% (from 4.3% expected and last). Despite a 2.8% print on the YoY CPI reported last week, expectations for inflation (which are even more important than realized inflation) remained under pressure and a sure dampener for Fed rate cut expectations.
The Fed is expected to wait for H2 to deliver 2 rate cuts according to current estimates and the FOMC will meet on Wednesday.
Friday’s US stock market gains were also sourced in China as the local stock market showed signs of renewed optimism over policy stimulus after the government set an ambitious economic growth target of about 5% for the year. In an encouraging sign that this year’s tech-driven rally in Chinese stocks may be broadening, all 10 of the CSI 300’s sector gauges also rose on Friday and the CSI300 stood at the top of our Z-score report (along with Poland and Gold mines). Chinese banking stocks also advanced as investors positioned for a possible reduction in banks’ reserve requirement ratio.
In this context, and as we noted on Friday, Gold soared to a fresh record with the future contract topping USD3’000 and the biggest delivery of the month reported on the future contract. Goldman revised its year end price target higher to USD3’100 (from USD2’890) while COMEX inventories reached a new record. Gold lease rate remained at 1% and 2.2% on GLD and SLV respectively. Gold further outperformed bitcoin with the XBT/Gold ratio returning close to where it was before the results of the US election. For a good reason to not like Gold as an economist (and like it even more as an investor), the interview of Patrick Artus is very enlightening (min 18’40’’).
The USD closed unchanged on the week but still well within a downward pointing trend.
Elsewhere, Germany’s Friedrich Merz reached an agreement with the Greens on a debt-funded spending package for defense and infrastructure which sent German bond yields spike although German inflation was revised down to 2.6% for February, a positive sign for ECB policymakers. European stocks also dropped but continued to outperform, led by defense shares.
Ukrainian drones attacked Moscow for the second day in a week on Friday, as US special envoy Steve Witkoff left the country, suggesting Ukraine only has a limited interest in seeking a truce under US/Russian terms as Ukraine keeps insisting on getting European troops on the ground to “defend peace” which would only increase the risks of a broader conflict as this is still considered a “no go” for Russia, and actually a risk to jeopardize long term peace prospects beyond a 30d truce that would essentially serve the purpose of allowing Ukraine to regroup and recoup some strength as the Kursk incursion turns into a debacle.
Earlier in the week, more than 30 army chiefs met in Paris without their U.S. counterparts, seeking to take on more responsibility over the Ukraine war given President Donald Trump's distancing with NATO and intention to terminate (or disengage from) the war in Ukraine while those speaking on the name of Europe held a more intentionally alarming tone regarding the threat that Russia constitutes for the peace in Europe.
There are many things to say about Europe’s attitude as regards the war in Ukraine, spearheaded by the French President who seems ready to sacrifice a lot to regain some political importance and create a diversion from a rapidly inflating controversy. Some reputed minds in France (see video of H. Guaino in French) and elsewhere are fairly worried about the health of democracy in Europe (exemplified by the unjustified cancellation of elections in Romania and subsequent banning of “sure to win” opposition members, the jailing of people for innocuous posts on social media and the arbitrary closure of TV stations) that reflect a sense of panic and urgent need to enter into war-like situation among ruling politicians that are afraid to lose control, confronted to a rapid deterioration of the social contract. Lots of anti-democratic abuses are becoming possible when people are afraid. Everybody who disagrees with the official doxa can (in Europe)/could (in the US) be labeled “conspirationist”, “hard right”, “fascist” or even “nazis”.
With all its excesses, what is happening in the US is sort of an ideologic revolution that is rejecting the globalist, woke friendly and only too often corrupted elite which in Europe is understandably getting antsy, agitated and increasingly threatening on the democratic values that they are supposed to defend.
Over the past week, the S&P500 sold off by -2,3% (-4,0% YTD) while the Nasdaq100 sold off by -2,5% (-6,2% YTD). The US small cap index dropped -1,5% (-8,2% YTD). AAPL sold off by -10,7% (-14,7%).
The Equally Weighed SP500 sold off by -2,3% (-1,5% YTD), underperforming the S&P500 by 0,0%. The median SP500 YTD return closed the week at -4,0%.
Cboe Volatility Index sold off by -6,8% (25,5% YTD) to 21,77.
The Eurostoxx50 dropped -1,2% (10,4%), outperforming the S&P500 by 1,1%.
Diversified EM equities (VWO) gained 0,3% (4,6%), outperforming the S&P500 by 2,5%.
The Dollar DXY Index (UUP) measuring the USD performance vs. other G7 currencies was unchanged (-3,5%) while the MSCI EM currency index (measuring the performance of EM currencies vs. the USD) gained 0,3% (1,7%).
10Y US Treasuries underperformed with yields rising 9bps (-26bps) to 4,31%. 10Y Bunds climbed 4bps (51bps) to 2,88%. 10Y Italian BTPs climbed 4bps (48bps) to 4,00%, matching Bunds.
US High Yield (HY) Average Spread over Treasuries climbed 30bps (34bps) to 3,21%. US Investment Grade Average OAS climbed 5bps (14bps) to 1,01%.
In European credit markets, EUR 5Y Senior Financial Spread climbed 1bps (-3bps) to 0,61%.
Gold rallied 3,5% (14,0%) while Silver rallied 5,4% (17,1%). Major Gold Mines (GDX) rallied 4,8% (28,7%, Z-score 2,3).
Goldman Sachs Commodity Index gained 0,1% (2,8%). WTI Crude rallied 2,9% (-5,3%).
Overnight in Asia…
S&P future -30 points; Hong Kong +1.2%; Nikkei +1.2%; China -0.2%
Asian markets strengthened on the heels of the strong US market close and as consumption and industrial production in China grew faster than expected with retail sales increasing 4% YoY (vs. 3.8% expected) and industrial output rising 5.9% YoY (vs. 5.3% expected), supported by front loading of shipments abroad and expectations for more government support.
Treasury Secretary Scott Bessent is not worried about the recent market downturn, saying corrections are healthy and normal.
President Donald Trump said he will speak with Russian President Vladimir Putin on Tuesday to discuss an end to fighting in Russia's war in Ukraine.
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