Squeezes and Black Out...
- Marc Bentin
- 4 days ago
- 7 min read
BentinPartner Weekly
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Marc Bentin,
Bentinpartner GmbH
US stocks posted broad-based gains throughout the week, supported by easing trade tariffs tensions (taking the form of a drumbeat of positive headlines that fueled squeezy market conditions) and fueling the continuation of a powerful comeback of US tech stocks (which rallied 16% in 16 days, the 4th time in 23 years) after Meta and Microsoft reported earnings midweek showing they were not slowing AI spending, somehow defying skeptics and taking Nvidia out of its flunk last week.
Economic data came mostly on the weak side early last week with consumer confidence dropping for the fifth month in April to its lowest level since COVID on uncertainties related to D. Trump’s trade policy which helped both stocks and bonds in the first half of the week, allowing the dollar to also recover slightly (as the sell America trade took the back seat).
Despite concerns over a possible recession, the “stronger than expected” non-farm payrolls report issued on Friday coupled to tame inflationary numbers and the WSJ headline that “China was weighing a Fentanyl offer to the US before starting trade talks” also jolted sentiment, unleashing a powerful rally (and more short covering) which erased all of the post “liberation” day US equity markets losses, following 9 consecutive days of gains (which did not happen since November 2004). Positive flows into US stocks also continued for the seventh week (according to BoA).
The overwhelming influence, in the US Non-Farm Payrolls report, of the 393’000 (plug) “birth-death model” job creation tainted the report, likely artificially boosting the job situation and downplaying (at least over the near-term) the negative impact of D. Trump’s policies on the health of the job market (back months were also revised lower by 58k). Coupled to favorable (tame) inflation numbers (ISM Price Paid climbed less than expected and average hourly earnings rose 0.2% (vs. 0.3% expected and last), this helped boosting the case for Fed rate cuts to support the US non-inflationary accelerating economic growth.
Technically speaking, the SP500 and Nasdaq100 futures reached levels mid last week that triggered even more short covering after the favorable job report. For the SP500, the next important target on the upside is the 200dMA but a move back towards the 50dMa is equally possible.
With 76% of SP500 having reported, Q1 results were so far better than expected (+12% vs. +6% expected at the beginning of the quarter) while 56% of the EPS forward looking guidance reflected a higher degree of uncertainty with below consensus guidance.
While most stocks continued on the week’s positive trend, embracing a rosy scenario on Friday (AAPL nonetheless dropped -3.5% vs. a near 2% gain for the SP500), bonds did not play ball and sold off with 10Y yields adding 10bps on Friday despite rate cut expectations for the rest of the year climbing to 3.2 rate cuts (of 25bps).
Gold and precious metals witnessed their first week of outflows since the beginning of the year while oil sold off on oversupply and (implied global) recession concerns.
Last week electricity black out in Spain laid bare the limitations of the European electricity policy and the over-reliance on sustainable energy sources that are threatening the stability of the interconnected European power grid. Spain suppressed under the pressure of Brussels financed NGO’s 128 barrages (which are considered as not green enough) that are used for providing “stable” sources of electricity. The Commission said the causes of the blackout will be carefully reviewed with the results of a careful investigation likely to come within 6 months.
Electricity cannot (currently) be (cost efficiently) stored. A “black out” occurs when either supply or demand creates an imbalance so that either too much or not enough electricity goes into the grid. When tension varies too much as a result of an imbalance (in this case, it was “too much” electricity not meeting sufficient demand due to too much solar production), a black out can occur.
In order to prevent black outs, a reasonable proportion of “stable” sources of electricity (hydro primarily, but also nuclear or gas) that can be easily be “finetuned” to keep the grid in equilibrium, must be maintained (a nuclear power plant can be turned off or “isolated” as do hydro-power plants more easily than scattered windfarms or interconnected solar panels of private owners). With 128 barrages taken out in three years, Spain now relies too much on “unstable” and “intermittent” sources, albeit also maximalist green sources of electricity (mostly wind and solar). Future black outs are inevitable and only a question of when, not if, according to specialists who also warned they could be “European” wide and not only country-specific, given the interconnectivity of the European power grid (see interview in French of Nicolas Meilhan).
Overnight in Asia…
President Donald Trump said he is willing to lower tariffs on China at some point because the levies now are so high that the world’s two largest economies have essentially stopped doing business with each other, Bloomberg reported,
TWD rallied 2% overnight on Asian currencies strength, soaring most since 1988 and triggering central bank intervention to curb gains. On Friday, the Hong Kong Monetary Authority sold a record amount of local dollars to prevent its advance and protect the currency’s 42-year-old peg to the dollar.
Japan's Finance Minister Katsunobu Kato said the country won't use the sale of its US Treasury holdings in trade talks with Washington (correcting a misstep last week).
George Simion, a nationalist aligned with Donald Trump, will head to Romania’s presidential runoff against Nicusor Dan, the centrist mayor of Bucharest, later this month after securing 40% of the vote in the repeat election (the previous one was cancelled on accusations of Russian interference and was followed by the biggest political crisis since the end of the Communist ruling). The runoff will decide whether Romania maintains its transatlantic course or turns to anti-establishment forces that have challenged the EU's liberal order. The outcome of the election will determine whether Romania maintains its transatlantic course or turns to anti-establishment forces that have challenged the EU's liberal order, Bloomberg reported.
In an interview over the week end, President Trump insisted, one more time, that he does not want to remove J. Powell (just to criticize him until he starts cutting rates perhaps…). S. Bessent who is carefully advising Trump on the topic, nonetheless noted that short term rates should be lowered, as 2Y yield are now well below Fed funds rate (and that as Gundlach also opined, the 2Y yields leads the Fed and not the other way around).
As France struggles to control public finances after the budget deficit reached close to 6% of GDP last year, and the government has cut its growth forecast to 0.7% this year and introduced spending cuts to target a gap of 5.4% in 2025, French PM F. Bayrou intends to present a plan to reduce the country's debt and boost production, which will include reducing spending and “improving the efficiency” of the state, “not excluding” a referendum to secure public backing for necessary reforms, Bloomberg “AI” reported. Given that the referendum needs to be backed by the President, and that Europe hates the idea of thematic popular consultation nearly as much as he does (the Commission also tries to yield pressure on Switzerland to let go with this bad habit), it likely won’t happen… A dissolution of the assembly seems to be approaching as well (not to be confused with a referendum “for” anything).
Russia’s Defense Ministry on Saturday said its forces intercepted and downed a total of 170 Ukrainian drones, mainly over the nation’s southern regions, including almost 100 in Crimea, which Russia annexed in 2014. It also claimed to have destroyed eight western Storm Shadow and three Ukrainian Neptune cruise missiles over the Black Sea.
Berkshire’s Q1 report showed and increased cash pile of USD347bn (from USD188bn a year ago with USD1.5bn net selling occurring last quarter) with profits dragged down by USD1.1bn in losses related to California’s wildfire and USD713mn linked to currency related losses. W. Buffet who also announced his retirement for the end of the year commented that opportunities of investment had become plentiful
Oil prices dropped more 3.8% overnight after Riyadh steered the Organization of the Petroleum Exporting Countries on Saturday to agree on a surge of 411,000 barrels a day in June, the second month in a row, in a bid to punish quota cheats like Kazakhstan and Iraq. The kingdom is weighing returning the remainder of the group’s halted 2.2 million barrels in similar increments unless the countries fall in line, Bloomberg reported.
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