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Riding A Magic Carpet...

BentinPartner Weekly

Both the Federal Reserve and the ECB tightened monetary policy last week and markets did what they did all year, shrugging it off and marching higher.

The BoJ announced on Thursday they would “tweak” the “hard” 10-year yield cap to 1% (meaning the BoJ would only be guaranteed to intervene at 1%, still making sure it could still squeeze short sellers by intervening well before that threshold is reached) which led to a sharp equity selloff on Thursday and a snap JPY rally but the BoJ decision was quickly set aside, allowing markets to resume their ascent on Friday.

At the moment the bull case is mostly technical (still) but that is what matters to most investors.

After raising rates by 25bps on Wednesday, J. Powell said his base case is “no recession”, adding that the staff had changed their model about no landing being in sight, the same view that is held by JPMorgan, Goldman and most of Wall Street. He also said “The Fed funds rate is at a restrictive level now. So, if we see inflation coming down credibly, sustainably, then we do not ned to be at restrictive level anymore. We can move back to a neutral level and then below a neutral level at a certain point…. And you’d start cutting before you got to 2% inflation too”.

This was by no means a hawkish statement even though expectations for inflation are now more likely to stop improving after the recent spike in oil and food prices (and the large pay union deals being settled).

What is supporting the US economy despite the litany of recession indicators still flashing red is the amount of government spending (student loan suspension, Inflation Reduction Act…) filtering into the economy.

The US Q2 Annualized GDP came out at 2.4% (vs. 1.8% expected). While the strong GDP number was downplayed by those saying 80% of it came from a no repeatable boost to car buying, the number is the number and 2.4% does not spell recession yesterday, today and probably not this year as the tidal wave of liquidity also keeps supporting the economy, making it look better over the short term than it genuinely is.

The IMF also revised it world GDP higher by 0.2% for 2024 but noted in its latest World Economic Outlook noted that Germany will suffer G7’s only contraction this year (facing a 0.3% drop) as manufacturing slumped on the heels of the energy crisis and lower demand from China. The IFO report issued last week suggested the slump may not be over (more data about Q2 will be published next week to assess whether the German economy continued to contract. Germany’s economy Minister warned that Germans should prepare for “tough years ahead”.

That said, as regards markets dynamics, coupled to bulled-up technicals, the strong performance of Chinese stocks that was initiated early last week also geared investors towards climbing a wall of worries going into the much-awaited Fed and ECB rate hikes after the Chinese Politburo recognized on Monday the lack of domestic demand and softened its stance on real estate by taking out from its statement the mention that “housing is for living in, not for speculation”. This coupled to expectations for renewed government support, helped Chinese stocks throughout last week, giving them a ray of sunshine after being painful laggards for over three years.

On Thursday, BoJ talks erased US equity markets gains, turning a 1% gain into a 1% loss but the selling saw no follow through on Friday.


Over the past week, the S&P500 gained 1,0% (19,5% YTD) while the Nasdaq100 rallied 2,1% (44,0% YTD). The US small cap index gained 1,0% (12,7% YTD). AAPL rallied 2,0% (50,7%).

Cboe Volatility Index dropped -2,0% (-38,5% YTD) to 13,33.

The Eurostoxx50 gained 2,0% (21,2%), outperforming the S&P500 by 0,9%.

Diversified EM equities (VWO) rallied 4,1% (10,4%, Z-score 2,1), outperforming the S&P500 by 3,0%.

The Dollar DXY Index (UUP) measuring the USD performance vs. other G7 currencies gained 0,8% (1,3%) while the MSCI EM currency index (measuring the performance of EM currencies vs. the USD) gained 0,2% (2,5%).

10Y US Treasuries underperformed with yields rising 11bps (10bps) to 3,98%. 10Y Bunds climbed 2bps (-8bps) to 2,49%. 10Y Italian BTPs climbed 4bps (-60bps) to 4,11%, underperforming Bunds by 2bps.

US High Yield (HY) Average Spread over Treasuries dropped -5bps (-98bps) to 3,71%. US Investment Grade Average OAS dropped -7bps (-18bps , Z-score -2,7) to 1,25%.

In European credit markets, EUR 5Y Senior Financial Spread dropped -3bps (-22bps) to 0,77%.

Gold gained 0,2% (7,4%) while Silver dropped 0,0% (1,6%). Major Gold Mines (GDX) sold off by -2,4% (7,2%).

Goldman Sachs Commodity Index gained 0,8% (-1,3%). WTI Crude rallied 2,1% (0,2%).


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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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