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Sharp Deceleration Ahead …

Updated: Apr 27, 2023

BentinPartner Weekly




Last week, the Nasdaq closed out its best quarter since 2020, buoyed by bets on big tech companies as the world was taken by the AI storm fervour that propelled a big tech rally, narrowly led by the same 10 big tech stocks most likely to benefit from it. By doing so and in a repeat of late 2021, the same handful of mega tech stocks took the entire tape up with them in a move that was also justified, or at least explainable by, renewed Fed liquidity injection that rang the Pavlovian bell for equity investors going into the end of the quarter.


Renewed Fed liquidity injections aimed at containing a brewing banking crisis, de facto ended QT, reversing nearly a year of QT (balance sheet contraction) in a couple of weeks.

Technically the Fed’s back stop (BTFP) does not equate to QE as it is just central bank lending but the jury is out on how long it will take to get the Fed balance sheet to start going down again and “rate topping” and “pivot” expectations to reverse…


Another topic du jour (and week) were Brazil announcing it would sell energy in local currency and France Total Energies to sell LNG in CNY for the first time ever, firing another set of twin arrows towards the Kevlar armor of the petrodollar. To hear both CNN …and Fox harper on the same cord of de-dollarization and multi-polarization last week surely meant we earned a little more time. The dollar index rallied on Friday and some more this morning. We still expect the (mostly downward) adjustment on the USD (there is no EM currencies in the dollar index) to materialize on EM currencies first, whatever happens on major dollar pairs, in our view, supported by divergent monetary and fiscal policies, improving trade balances and indeed long term but slow moving de-dollarization forces.


Over the week end Japan, announced it had been authorized to buy Russian oil over the price cap…because it needs it. This, coupled to yesterday’s unexpected OPEC and Russia decision to significantly cut output in response to slower demand caused a 6% oil rally overnight and will contribute to drive Brent prices higher, making it all the more difficult for all members of the Western coalition to respect it and not to fracture their resolve about it.


On Friday afternoon, the Fed reported that deposits at small and midsized US lenders rose by a fraction (USD6bn) last week, the first weekly increase since concerns began growing about regional lenders after more than $200bn recently fled. In all, banks still lost a collective $127bn, a sign that savers keep moving cash into higher yielding money market funds.


What likely drove equity markets last week was quarter end FOMO, CTA purchases as major indices broke key averages and the AI push in technology (which also propelled AI French ticker “Air Liquide” that has very little, if anything, to do with AI but is a great company nonetheless). As everybody (rightfully) frets about the consequences of AI (including some hypocrites at Microsoft and Tesla) in her/his own field, some are nurturing the hope this will not apply to finance, trading or portfolio management. Hopefully they have a point…


Precious metals were hit late in the week as gold failed to break above USD2’000 and as inflation ebbed back a little. The more Gold waits to do so, the more pressure it will unleash in the next up-move, in our view, as the outlook for precious metals remains supported by continued diversification/hedging forces and the unsustainable fiscal path that the US is setting to embrace.


M. Wilson (Morgan Stanley) over the week end again, cautioned against excess optimism, writing “Our economists expect a sharp deceleration in both US and European growth this year. And our equity strategists think this deceleration puts earnings at risk. Expectations of a sharp slowdown in nominal GDP, and the belief this will be bad for operating leverage, drive below-consensus EPS forecasts on both sides of the Atlantic.” …The report expressed a preference for high grade bonds (and duration), noting that most of the time when the market expected a 150bps rather imminent rate cut, equity markets disappointed.


 

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Overnight in Asia...



- S&P500 -1points; Nikkei -1%; CSI300 +0.1%, Hang Seng -2.5%

- HSBC led declines in Hong Kong as worries over risky bond exposures related to Credit Suisse spurred further risk-off.

- Overnight, central banks currently offering U.S. dollar operations have agreed to increase the frequency of 7-day maturity operations from weekly to daily. The network of swap lines among these central banks is a set of available standing facilities and serves as an important liquidity backstop to ease strains in global funding markets.


 

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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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