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So Far So Good...

BentinPartner Weekly

Stocks ended the quarter with another small string of tech led gains with lots of adverse currents dissimulated by a seemingly boring score card.

Early on Monday, equities looked like they had initiated another “rotation” towards value (from growth) with Nvidia and bitcoin selling off.


This was one-day wonder as tech retook the lead the following day, helped by a comeback of EV maker Rivian after receiving a USD5bn injection from VW and as so far lagging AMZN served as a safe haven (amidst hesitation after Nvidia sputtering and following weaker Asian and European markets) joining the USD2trn market cap club. The latest equity market signalling of the stumbling consumer sector came from Nike and Walgreens both suffering heavy losses after reporting a decline in earnings.


On Friday, stocks initially rallied after the Presidential debate showed a diminished President raising the odds of a Trump win and following the publication of a tame core inflation number which came at 0.0% MoM and 2.6%, as expected (the Chicago PMI also came in support of a still resilient economy at 68.2 vs. 66 expected).  Calls for the Democrats to switch candidate before it is too late were issued by many observers and strongly suggested by no less than the NYT. 

Those late equity gains did not stick however, and US stocks closed lower on Friday, driven by some surprising late session bond market weakness (which as a bond trader would have made me spend a bad week end a couple of decades ago when I helped steering multi-billion long duration bond portfolios). I do not own bonds anymore (only T-bills and Gold as a long duration asset for the hopefully safe part of our portfolio allocation), as we consider bonds as neither safe nor attractive (especially as credit spreads start to widen) but the sort of intraday volatility seen in US bonds market late on Friday ran some alarm bells in the bond trader psyche still running in me.

Buying tbills is ok as the coupon of t-bills cannot be restructured (in the worst case) but the bond market engine is not ticking right…the Fed knows this and is therefore likely closer than one might think, approaching the moment when it will revert back to the old playbook (of cutting rates and implementing QE) to avert the emergence of a crisis or a surge in yields. What is likely preventing the Fed from cutting rates (along with its peers) now, are the chain reaction that might ensue and the looming concerns about de-dollarization which is the precise force causing bond market “illiquidity” at this point (not the fact that inflation is heading lower for now).  Big buyers are on strike and will not return and fiscal deficits currently run at 7% (the CBO expects with no recession 5.2% to 6.3% fiscal deficits for the next 10 years) without considering non-trivial recession risks… which brings us back full-circle to the risks of a looming debt crisis.   


Next Friday will bring the US NFP report to “engineer” something that might help with this highly unreliable data print.


On the FX side, JPY continued its never-ending slide (to 160.95), causing no reaction other than Finance Minister Suzuki saying Friday that he was “deeply concerned about the impact of rapid and one-sided currency moves on the economy, and that the government was watching market developments with a high sense of urgency.” Suzuki also announced personnel changes on the FX side. Some traders have suggested that the yen is at risk of slumping as far as 170 per dollar, with no immediate catalysts to reverse the negative momentum in a sustainable way, according to a Bloomberg report.



In its latest annual report released over the week end, the BIS warned major central banks should be cautious not to cut rates too soon to avoid risking another flare-up of inflation (in particular from the service sector) whilst noting that the world economy looks “So far so good”, and likely heading for a smooth landing.


Echoing earlier urgent IMF calls for addressing mounting fiscal burdens, the BIS report also identified rising public debt as the biggest threat to monetary and financial stability, recalling that markets could quickly turn against governments thought to have unsustainable debt levels.


The report also flagged the commercial sector as a high risk despite some “extend and pretend” attitude of the banking sector and reminded that financial stress historically occurred three years after the start of a rate hike cycle, implying it could still happen this year. 


Ray Dalio wrote a long article which linked excessive government debt with the extreme disparity between rich and (working) poor and the societal divide issuing  his own set of warnings that we may be reaching a breaking point of some sort that would cause civil unrest as governments are now in such a dire fiscal strait that they are not in a position anymore to fulfil their social contract obligations (without making the debt problem worse or start printing money again). Social unrest, political extremism, higher tax, money printing and currency debasement (with FX devaluation or most likely a further deterioration of its purchasing power through inflation) could all be on the menu, he warned.






Over the past week, the S&P500 dropped -0,1% (14,5% YTD) while the Nasdaq100 dropped -0,2% (17,0% YTD). The US small cap index gained 1,3% (1,1% YTD). AAPL gained 1,5% (9,4%).

The Equally Weighed SP500 dropped -0,8% (4,1% YTD), underperforming the S&P500 by-0,7%. The median SP500 YTD return closed the week at 3,7%.

Cboe Volatility Index sold off by -5,8% (-0,1% YTD) to 12,44.

The Eurostoxx50 dropped -0,2% (10,9%), underperforming the S&P500 by-0,1%.

Diversified EM equities (VWO) dropped -0,4% (6,5%), outperforming the S&P500 by -0,4%.


The Dollar DXY Index (UUP) measuring the USD performance vs. other G7 currencies gained 0,1% (7,5%) while the MSCI EM currency index (measuring the performance of EM currencies vs. the USD) gained 0,0% (-1,0%).


10Y US Treasuries underperformed with yields rising 14bps (52bps) to 4,40%. 10Y Bunds climbed 9bps (48bps) to 2,50%. 10Y Italian BTPs underperformed rising 13bps (37bps) to 4,07%, underperforming Bunds by 4bps.

US High Yield (HY) Average Spread over Treasuries dropped -5bps (-14bps) to 3,09%. US Investment Grade Average OAS climbed 0bps (-3bps) to 1,02%.

In European credit markets, EUR 5Y Senior Financial Spread dropped -1bps (4bps) to 0,72%.


Gold gained 0,2% (12,8%) while Silver dropped -1,4% (22,5%). Major Gold Mines (GDX) dropped -0,2% (9,4%).


Goldman Sachs Commodity Index gained 0,1% (5,4%). WTI Crude gained 1,0% (13,8%).


 Overnight in Asia…


  • S&P500 + 13 points; Nikkei +0.3%; Hang Seng unch.; CSI300 +0.2%

  • Over the week end, results of the first round of the French elections suggested that French President Macron will likely share government responsibilities with the far-right RN, estimated to have collected 33% of the votes vs. 22% for the Centrist bloc of E. Macron and 28% for the far-left alliance. EURUSD initial reaction is good with the common currency trading 20pips higher as the perspective of a hung parliament is seen as a least evil compared to an alternative that would have raised the chances of the (now unlikely) leftist alliance to lead the next French government.

  • Opinion polls in Britain are still pointing to a crushing defeat (20% vs. 40% for the Labour) for the governing Conservatives as the election campaign reaches its final days.

  • ZAR gained overnight after President C. Ramaphosa announced a new cabinet. It’s been more than a month since his party lost its parliamentary majority in elections, but now Ramaphosa’s talks with the opposition look to have delivered the chance for some stability.

  • The WSJ wrote a vitriolic accusation against C. Schwab and the way he ran the Global Economic Forum, nurturing a highly psychologically toxic environment replete with sexual harassment, racism and demotion of family building female executives.




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