Risk-on returned with a vengeance last week.
Friday’s payrolls report came in weaker than expected Friday with only 49k non-farm payrolls job creation (vs.105k expected and -140k last month), just sufficiently weak to require more fiscal stimulus and sufficiently strong not to stir worries about a relapse of the reflation trade.
Bonds and the dollar sold off while equities rallied further.
Precious metals came back to life, led by silver and platinum, recouping 3%.
The dollar selloff was broad-based enabling EM currencies to post solid gains as well.
Bonds witnessed a failed rally and closed lower, driven by the long end. About this, we recommend Aperture Investors’ Chairman interview on Bloomberg as he sounded a word of caution towards the bubbly parts of the equity markets and of inflation and of risk premia. He also shared some very interesting thoughts about management fees...
Hopefully, authorities will tackle the thorny issue of how to contain the bitcoins marketing push of E. Musk, M. Cuban, and secondarily that of JPMorgan research aimed at feeding bitcoins down the throat of both private and institutional investors.
There was a first Central Bank reaction over the weekend from Nigeria Central bank who said it ordered deposit-taking banks and other financial institutions to close accounts dealing in cryptocurrencies because it was threatening the country’s financial system. “Cryptocurrencies are increasingly being used for money laundering, terrorism financing, and other criminal activities due to the anonymity that they provide”, the regulator said in a statement yesterday.
It will be a tougher nut to crack and also a much more important one in terms of policy setting, currency, and investors’ protection than trying to protect retail investors from themselves by muting their Reddit Wallstreetbets thread on a handful of stocks, in our view.
Perhaps not much will be done against hedge funds’ manipulation and Citadel’s de facto institutionalized front running activities as Citadel is now holding markets for everybody ... which is precisely the problem (they are both a hedge fund and a dominant market maker on options…which have become a huge business).
Complicating matters, J. Yellen was paid USD800k in speaking fees from Citadel and a few other hedge funds in the interim of her job as Fed President and Treasury Secretary.
Talking about hedge funds’ shenanigans and conflicts of interest, the Institutional Investor reported yesterday that “Billionaire Jim Simons’s firm, a quant-investing pioneer, is coming off a rough year. Its three public hedge funds posted double-digit losses in 2020 as their algorithms were thrown out of whack by market swings the computers had never seen before. At the same time, its fund for employees and insiders soared 76% last year, Institutional Investor reported.” Perhaps they bought bitcoins as well…but only for themselves.
Over The Past Week…
Over the past week, the S&P500 rallied 4,8% (3,7% YTD) gaining 4 days in a row while the Nasdaq100 rallied 5,3% (5,6% YTD). The US small cap index rallied 7,8% (13,1% YTD, Z-score 2,5).
Shares finished the week at all-time highs, supported by Washington working on a new USD2.2trn fiscal stimulus, encouraged by Treasury Secretary J. Yellen urging to go big to fix the slowing economy, on improved vaccine distribution, and reassurance that the Federal Reserve will not be raising interest rates any time soon (before 2025?, according to TD Ameritrade, one of the best most reliable economic forecasters).
For the week, Energy gained +8.2%, financials +6.7% and Technology were the strongest sectors, not to speak about Biotech that added 9%. Tesla and bitcoins are moving in tandem now adding respectively 9% and 8% on the week as well.
AAPL rallied 3,6% (3,1%), supporting the idea of its own self driving cars. FB rallied 3,8% (-1,9%). LYFT rallied 19,5% (8,1%, Z-score 2,3). AMZN rallied 4,6% (2,9%). NFLX rallied 3,5% (1,9%). GOOG rallied 14,3% (19,8%, Z-score 2,1). MSFT rallied 4,4% (8,9%). INTC rallied 4,8% (16,8%).
Cboe Volatility Index sold off by -36,9% (-8,3% YTD) to 20,87.
The Eurostoxx50 rallied 5,1% (3,5%), outperforming the S&P500 by 0,3%.
Diversified EM equities (VWO) rallied 5,5% (8,8%), outperforming the S&P500 by 0,7%.
The Dollar DXY Index (UUP) measuring the USD performance vs. other G7 currencies gained 0,5% (1,2%) while the MSCI EM currency index (measuring the performance of EM currencies vs. the USD) gained 0,0% (-0,1%).
Have a nice week ahead and stay safe.
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Marc Bentin, BentinPartner GmbH
Founder, Chief Investment Officer
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