Some Salutary Backpedalling...
- Marc Bentin
- Apr 27
- 6 min read
BentinPartner Weekly
Dear Reader,
Please find below our latest Weekly Trend Report.
Have a nice start of the week.
Marc Bentin,
Bentinpartner GmbH
Last week started with wheels coming off on Monday, only to end Friday with a major relief away from the “Sell America” trade with VIX halving from its recent highs and below 25 for the first time in three weeks, supported by a solid rally/recovery in US bond markets, a stabilization of the USD and a decent return in grace of US tech stocks, following encouraging earnings from GOOG and Tesla.
There was some apparent de-escalation of the trade war with China. D. Trump said; “We are meeting with China. We are doing fine with everybody” (a statement which China did not seem entirely in agreement with and called “fake news”), adding that trade deals will be wrapped in the next 3 to 4 weeks. The general impression remained that either the US was talking or that D. Trump was going to retreat, to some extent, with China.
China also said it was considering suspending its 125% tariffs on medical equipment and industrial chemicals.
On the economic side, consumer sentiment and new home sales reached their lowest points in three years.
The US bond recovery was triggered by D. Trump backpedalling on his declared intention to fire J. Powell and troubles on the basis trade liquidation going quiet, suggesting some Fed backing of these trades (one way or another with liquidity backstops). Hedge Funds holdings reported to the SEC by the end of 2024 stood at USD3.4trn, roughly double what they owned at the beginning of 2023, meaning hedge fund holdings have become key holders of Treasuries (with more than 10% of outstanding bonds).
Most fixed income indicators of “risk” improved last week starting with the level of the 10Y US yield (which dropped by 9bps), the 2/10 curve (which flattened slightly, also pointing at improving confidence) and falling HY spreads (which dropped by 39bps).
At the same time, Japanese bonds and stocks drew exceptional demand from foreign investors (with a record monthly inflow of USD67bn), suggesting investors are also looking at alternatives to US treasuries (and stocks).
Elsewhere in fixed income, Italian BTPs continued to outperform with 10Y yields dropping 7bps while Bunds and OATS were unchanged (at 2.47%).
Last week, the ECB and BoE shifted their rhetoric to the dovish side which also helped the dollar to stabilize the dollar. The euro’s appreciation, tighter financing conditions and a drop in energy prices are also set to weigh on prices, strengthening the case for an eighth quarter-point rate cut in June.
Tim Griffin (Citadel founder and major “high frequency” market maker on US stocks) criticized the modus operandi of D. Trump’s policy roll-out saying “D. Trump has an incredibly good sense of where the problems lie, but we are moving too quickly, too haphazardly and we are breaking a lot of glass in trying to solve some very real problems.”
At this week’s meetings of the World Bank and the IMF, finance ministers and central bank governors expressed alarm at rapidly deteriorating global growth prospects.
While last week offered some welcome relief, challenges remain with rising odds of a recession (some key MAG7 earnings reports will also come this week) and as investors kept buying the dip in US equity funds with record inflows of USD156bn so far this year. The fact that stocks witnessed in April one of the sharpest intra-month turnaround in history may also come as dampener.
With FX volatility on the wane, we do not expect much change in the dollar this week but FX volatility going hand in hand with stock volatility at the moment, this week’s sentiment will remain dependent on MAG7 earnings reports…
The BoJ meets this week and ADP employment data will be released on Thursday (124k expected from 158k prior) with US non-farm payrolls coming on Friday (130k expected from 228k last month) along with Q1 GDP data on Wednesday (+0.4% QoQ expected from 2.4% prior).
Over the past week, the S&P500 rallied 4,6% (-6,0% YTD) while the Nasdaq100 rallied 6,4% (-7,6% YTD). The US small cap index rallied 4,1% (-12,1% YTD). AAPL rallied 6,2% (-16,4%).
The Equally Weighed SP500 rallied 2,9% (-4,4% YTD), underperforming the S&P500 by-1,7%. The median SP500 YTD return closed the week at -3,8%.
Cboe Volatility Index sold off by -16,2% (43,2% YTD) to 24,84.
The Eurostoxx50 rallied 4,2% (6,1%), underperforming the S&P500 by-0,4%.
Diversified EM equities (VWO) rallied 3,6% (1,9%), outperforming the S&P500 by -1,0%.
The Dollar DXY Index (UUP) measuring the USD performance vs. other G7 currencies gained 0,3% (-6,9%) while the MSCI EM currency index (measuring the performance of EM currencies vs. the USD) gained 0,2% (2,7%).
10Y US Treasuries rallied -9bps (-33bps) to 4,24%. 10Y Bunds climbed 0bps (10bps) to 2,47%. 10Y Italian BTPs rallied -7bps (5bps) to 3,57%, outperforming Bunds by -7bps.
US High Yield (HY) Average Spread over Treasuries dropped -38bps (73bps) to 3,60%. US Investment Grade Average OAS dropped -8bps (20bps) to 1,07%.
In European credit markets, EUR 5Y Senior Financial Spread dropped -7bps (7bps) to 0,71%.
Gold dropped -0,2% (26,5%) while Silver gained 1,7% (14,6%). Major Gold Mines (GDX) sold off by -4,1% (43,9%).
Goldman Sachs Commodity Index dropped -0,1% (-0,1%). WTI Crude sold off by -2,6% (-12,1%).
Overnight in Asia…
S&P future -29 points; Hong Kong -0.2%; Nikkei+0.5%; China unch.
While US equity-index futures dropped 0.5%, Asian shares gained cautiously awaiting more progress in US trade negotiations and signs of further stimulus from China. PBOC also said China will cut RRR rate in a timely manner
China's finance minister said the nation will adopt more proactive policies to achieve its growth target and bring stability to the global economy. China will hold a press conference today to discuss policies and measures on stabilizing employment, ensuring stable growth and promoting high-quality development.
China declared sovereignty over disputed reef in South China sea which will likely lead to some escalation with the Philippines.
BYD profits Q1 profits soared, leading the company to overtake Tesla’s market cap.
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