The BIS Annual Report Warns...
- Marc Bentin
- Jul 6
- 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
In a holiday shortened period, US stocks closed the week higher, but not the Nasdaq and even less so the so-called AI trades (semis and hyperscalers) as investors rotated more towards “value” sectors, including large mega caps (such as AAPL, MSFT and Alphabet), enabling the Dow Jones to close at a fresh record high with some noteworthy market breadth improvement.
Investors in search of lost momentum (and facing sudden losses) aggressively sold the AI trade, and repositioned not only on value but also and perhaps more surprisingly, on battered “private credit names” (such as OWL, KKR).
The strongest sectors were Financials (+3.8%), Consumer Discretionary (+2.4%) and health Care (+2.1%) while real Estate, Energy and Tech lagged (SOXX dropped -4%) held the short straw for the week.
We shifted our positioning accordingly as well, remaining weary of the bubbly nature of the AI trade which started to unravel, as we suspected might be the case, with the SPCX IPO. That said and for now, investors remain eager to buy the dips, albeit more selectively.
The BIS annual report released last week, noted that AI investments have become a major driver of global growth, lifting productivity expectations but also financial market sentiment (and possible exuberance), highlighting risks to the sustainability of AI-related investments, concentration of market power, and uncertainties regarding long‑term productivity gains.
The BIS annual report also threw some cold water on the AI speculative excesses (and on the accompanying debt crowding out).
The BIS also insisted on several pressure points of the world economy, namely weakening fiscal positions and high public debt, financial vulnerabilities outside the traditional banking system (private credit, hedge funds) and inflationary pressures resulting from the geopolitical tensions.
On the economic side, the job report on Thursday showed a disappointment with only 57’000 non-farm payrolls created vs. 115’000 expected, leaving the unemployment rate unchanged at 4.2%.
For the week, US bond yields rose 8bps, I suspect in part on BoJ selling some inventories following a likely FX intervention to support the ailing JPY in FX markets.
In contrast, credit markets showed some improvements.
My overall impression is that Optimism has become fairly contrarian which is a necessary and sufficient condition for the market to remain resilient.
Precious metals stood out last week, halting losses and initiating a recovery over the last days of the shortened week, as rate cuts expectations were trimmed by weaker economic data and as gold printed higher highs and higher lows for three days in a row (which is technically encouraging).
Despite the heavy correction of the past quarter caused by crowded positioning and a global unwind of risk (gold could not protect from the equity selloff at some point and continued to drop as stocks recovered), fundamentals for gold (and silver) have never been stronger.
While private selling has occurred and while some Central Banks have also been selling some gold (to finance a shortfall in revenues from the war in the Middle East), global Central Banks’ demand is not waning and just witnessed a 19th consecutive month of net accumulation, with the pace now accelerating and surpassing the 5-year average in Q1 2026.
The interest from China to accumulate ever more gold (to improve the credibility and facilitate the internationalization of the CNY) is unwavering and it is treating the USD2’000 drawdown just witnessed, as it should be…as a gift met recently with accelerating purchases. The recent decision by Chinese banks to restrict paper gold trading (by taking out margin) will contribute to trim the most speculative part of China’s paper Gold trading and contribute to solidify China as the increasingly important hub for physical price setting (at the expense of London).
Some banks have “trend followed” their price forecast for gold lower but others including SocGen still see gold at $6’000 by year end (EFG is even higher at $8’000).
It remains difficult if not impossible to stay positive on stocks without remaining constructive on gold because both are likely to go up (or be sustained/revived) for the same reason (upcoming rate cuts and QE, in my view), beyond Trump’s tweets of course.
The coming week will be light on data (ISM services is coming today expected at 54 from 54.5 last month) which should shed some light on the health of the consumer with a particular attention likely to be drawn to the price paid component (expected to have improved to 67.5 from 71.3).
Wednesday will see the Fed minutes of the last meeting issued with more insight on K. Warsh thinking. The next meeting is for July 28th and 29th. Markets expectations remain for a rate hike before year end. I am going for a rate cut…and possibly QE talks.
Over the past week, the S&P500 gained 1,4% (9,2% YTD) while the Nasdaq100 dropped -0,5% (16,0% YTD). The US small cap index dropped -0,4% (20,9% YTD). AAPL rallied 12,2% (13,5%).
The Equally Weighed SP500 gained 1,5% (12,2% YTD, Z-score 2,0), outperforming the S&P500 by 0,1%. The median SP500 YTD return closed the week at 7,8%.
Cboe Volatility Index sold off by -14,1% (5,8% YTD) to 15,81.
The Eurostoxx50 rallied 3,1% (12,7%), outperforming the S&P500 by 1,7%.
Diversified EM equities (VWO) gained 0,4% (9,8%), underperforming the S&P500 by-1,0%.
The Dollar DXY Index (UUP) measuring the USD performance vs. other G7 currencies dropped -0,5% (4,8%) while the MSCI EM currency index (measuring the performance of EM currencies vs. the USD) gained 0,2% (0,4%).
10Y US Treasuries underperformed with yields rising 9bps (30bps) to 4,47%. 10Y Bunds climbed 8bps (8bps) to 2,94%. 10Y Italian BTPs underperformed rising 12bps (16bps) to 3,71%, underperforming Bunds by 4bps.
10Y French OAT's underperformed rising 9bps (16bps) to 3,73%, underperforming Bunds by 1bps.
US High Yield (HY) Average Spread over Treasuries dropped -15bps (1bps) to 2,67%. US Investment Grade Average OAS dropped -2bps (-2bps) to 0,82%.
In European credit markets, EUR 5Y Senior Financial Spread dropped -1bps (-1bps) to 0,53%.
Gold rallied 4,3% (-3,1%) while Silver rallied 7,6% (-12,5%). Major Gold Mines (GDX) rallied 3,6% (-8,6%).
Goldman Sachs Commodity Index dropped -1,3% (18,8%). WTI Crude dropped -1,2% (19,2%).
Overnight in Asia…
S&P future +11 points; Hong Kong +0.7%; Nikkei -1%; China +0.3%
MSCI’s Asia Pacific equities index slipped 0.3%, with a gauge of regional chipmakers falling 0.7% and weighing on sentiment. South Korea’s Kospi Index dropped 1.4% even as a government official said the country is considering creating an investment fund using excess tax revenue from its semiconductor industry to support long-term growth, Bloomberg noted.
Brent dropped marginally as shipping through SoH showed signs of recovering. OPEC+ members also backed another modest rise in collective quotas for next month.
President D. Trump is heading for NATO’s summit to meet V. Zelinski following a 90 minutes call with V. Putin. Advantage President Putin now, as he is the last person that President Trump has talked to…and as he showed renewed determination to restore deterrence. D. Trump is suggesting massive imports tariffs on European imports from Russian gas and oil to stop the hypocrisy, perhaps, of talking the talk with ever more self-pain inflicting EU sanctions….
Let’s speak soccer now…and just wish that the best will win on Tuesday. “A vaincre sans peril, on triomphe sans gloire…” even if letting the US President intervene personally to reverse an expulsion decision started an uproar and is an historic interference that will scar FIFA’s reputation and likely not be without legal consequences.
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