Monday, March 23, 2020

 

Dear Reader,

 

Please find below our latest Weekly Trend Update Report covering major asset classes and currencies.

Stay safe.

 

Marc Bentin

Bentinpartner GmbH

 

Friday’s Snapshot

 

Global Chartbook PDF

 

 

 

Trend Following

 

       


 

Trend Status Update

 

Last week started with the Fed slashing rates on Sunday to 0.25% and in a second emergency move in as many weeks and announced a USD700bn purchase of US Treasuries and mortgage backed securities. This did not prevent an immediate dislocation with widening credit spreads and even rising government bond yields coming along widespread market illiquidity. It took a lot of attention to follow all subsequent emergency measures as market turmoil unravelled. To help credit markets on Tuesday, the Federal Reserve established a Commercial Paper Funding Facility with the approval of the Treasury that would provide USD10bn in credit protection from its Exchange Stabilisation Fund. Also, on Tuesday, the Fed announced a Primary Dealer Credit Facility as illiquidity and rising bond yields hit US Treasuries and credit markets despite the emergency rate cut and QE announcement.

The following day, the Fed unveiled a third emergency credit program, the Money Market Mutual Fund Liability Facility, aimed at supporting the USD3.8trn money market fund industry and help financial institutions meet redemptions or help banks buy those assets from mutual funds as investors rushed for the exit to generate liquidity. These efforts helped preventing money markets funds to “break the buck”. Many other funds traded (and for some of them still trade) at a deep discount to NAV. At some point the largest ETF invested in long dated (20-30Y) US treasuries was quoted with a 5% discount to NAV. This was a week where most ETF’s ranging from those trading relatively illiquid gold mines to those invested solely in the most liquid US Treasuries faced liquidity problems.

Friday looked set for a day of recovery caused in some ways by a “quadruple witching” of derivatives and investors having to decide whether or not to roll hedges. The day started with the hope that some would not but those hopes were dashed at the end of the day as the S&P closed 4% lower.

It was not only the Fed that unleashed the bazooka last week as the ECB announced late on Wednesday a new EUR750bn QE plan one day after taming the widening in spreads initiated on peripheral bonds.

The week finished with the good news that the German government readying to vote on Monday a special budget of EUR150bn including EUR50bn of emergency funds allocated to small businesses. By so doing Germany triggered an exception to a rule written in the Constitution which only authorizes the Federal State to issue new debt within a limit of 0.35% of GDP, baring natural disaster or a situation of exceptional urgency. In actual fact, the Bundestag is expected to grant an additional leeway of EUR200bn which came as a credibility support for the ECB which committed to an unlimited support to States of the Euro area. This will come in addition to the EUR500bn protective shield already decided.  Analysts opined that the financial mobilisation of the German government to bring 10% of its GDP on the table, came in support of the ECB’s credibility to live up to its promise to absorb a large part of the new issues from States of the eurozone.

During this exceptional week, German Chancellor A. Merkel also opened the door to the possibility of joint European debt issuance.

Over the past week, the S&P500 sold off by -15,0% (-28,9% YTD) while the Nasdaq100 sold off by -11,3% (-19,7% YTD). The US small cap index sold off by -15,1% (-38,8% YTD). CBOE Volatility Index rallied 14,2% (379,2% YTD) to 66,04. The Eurostoxx50 dropped -1,8% (-31,8%), outperforming the S&P500 by 13,2%. Diversified EM equities (VWO) sold off by -13,3% (-30,0%), outperforming the S&P500 by 1,7%.

 

The Dollar DXY Index (UUP) measuring the USD performance vs. other G7 currencies rallied 2,1% (7,9%, Z-score 2,1).

In FX, liquidity also evaporated and some extraordinary moves were observed across DM and EM crosses. Norwegian krona plummeted 13% to a record low while GBP dropped 5% to its lowest since 1985. NZDUSD sold off by -6,9% (-16,5%, Z-score -2,1). EURUSD sold off by -4,5% (-4,7%) while most other EUR pairs were stable, confirming a USD move. Interestingly, the COT report showed on Friday a major squaring off speculative positions which were mainly long USD the week before. Speculators even went net long EUR with 32.5k contracts (from short -12.7k contracts). These inversions are rare enough to be noted. Similarly, JPY speculative long exposure increased (vs. USD) from +8.2k to +32.9k. Speculators also found the courage to go long GBP with +18.6k (from -7.7k short the week before).The only exception involving buying of USD was a large reduction (stopping out) of MXN long positions from +112.5k contracts to 33.8k.

The MSCI EM currency index (measuring the performance of EM currencies vs. the USD) dropped -1,6% (-6,1%) with most EM currencies dropping with oil and risk appetite amidst a dash for dollar liquidity which abated towards the end of the week with the fed liquidity enhancing measures which seem to at least have stopped the bloodshed on EUR. USDBRL rallied 4,6% (25,8%). USDRUB rallied 8,4% (30,4%). USDMXN rallied 8,3% (30,9%). USDINR gained 1,7% (5,3%). USDCNY gained 1,2% (1,9%, Z-score 2,0). USDZAR rallied 6,0% (26,4%).

 

Volatility in US government bonds reached its highest level since the 2008 financial crisis and was accompanied by concerns about the proper functioning of the world’s most liquid debt market. 10Y US Treasuries rallied -11bps (-107bps) to 0,85%. 10Y Bunds climbed 22bps (-14bps) to -0,32% only recovering on Friday after climbing for seven consecutive days. 10Y Italian BTPs rallied -15bps (22bps) to 1,63%.

US High Yield (HY) Average Spread over Treasuries climbed 286bps (677bps, Z-score 2,0) to 10,13%. US Investment Grade Average OAS climbed 149bps (276bps, Z-score 2,3) to 3,77%.

In European credit markets, EUR 5Y Senior Financial Spread dropped -10bps (82bps) to 1,34%.

 

Gold dropped -1,6% (-1,8%) while Silver sold off by -3,6% (-30,3%). Major Gold Mines (GDX) rallied 8,2% (-29,8%). Large backlogs of buying orders were reported in the physical markets with French newspaper les Echos reporting that the quotation of Franc20 Napoleons being suspended for the first time since second world war as a result of a large offer problem and fear of an explosion in their premium. Similar offer disruptions were reported in silver coins (despite the paper silver metal getting crushed last week).

 

Goldman Sachs Commodity Index sold off by -6,3% (-40,8%). WTI Crude sold off by -26,7% (-65,5%).

 

Over the week end…

 

US futures hit limit down (-5%) overnight (then recovered by 1.5%) as did Korea and Hong Kong (and Australia by 8%) after a surge in the global death toll from the coronavirus and a failure as yet by Congress to agree on an aid plan, Bloomberg reported. A deal could still be expected…today…which would herald a bounce.

Federal Reserve Bank of St. Louis President James Bullard predicted the US unemployment rate may hit 30% in Q2. Otherwise FX is mostly stable with the dollar index even dropping slightly (in line with a mirror like move for EURUSD) while yields were slightly lower this morning.

Germany moved to banning gathering of more than 2 people in an effort to contain the virus.

German Chancellor A. Merkel decided to self-isolate after her doctor was tested positive.

Chinese officials, including Premier Li Keqiang, have pointed to claims the outbreak has been controlled and signs of a resumption of activity as reasons for optimism with regards to China’s outlook.

 


Trend Score Card

 

 

 

 

Click here for technical annotations.

 

 

Trend Scorecard   

 

 


US & International Equities

Check out US and International Stocks’ Technical Trend Status.

 

 

Stocks   

 


Sector Trend & Momentum

Check equity sectors’ trend and performance …and when they break out!

 

Sector Analysis   

 

 


Fixed Income

Check out 10Y US Treasury and Bund yields, their trend, expected Fed rate moves and speculative positioning in 10-year Treasury Futures.

 

Fixed Income

 

 


US Recession Risk Radar

A comprehensive list of economic indicators to compare the current situation with previous recessions.

 

US Recession Risk Radar

 

 


The Dollar

Check out where the Dollar stands Trendwise and Breakoutwise vs. G7 and EM counterparts.

 

The Dollar

 

 


Precious Metals

Check out where precious metals stand Trendwise and Breakoutwise. Get a sense of options (cumulative open interests on calls and puts) and futures traders’ sentiment (non-commercials open positions).

 

Precious Metals

 

Check out how precious metals, the dollar and the Stock market correlate with each other and speculative futures positioning on Gold and the Dollar.

 

Gold vs. USD vs. SPX

 

 


Why Trend Following Matters and How It Can Help You?

 

A disciplined and rule-based trend following investment approach can serve as an effective portfolio insurance technique.

 

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Our Portfolio Management and Advisory Services

 

BentinPartner GmbH is a Swiss registered independent financial adviser. We offer four different portfolio management mandates:

 

- The “Global Strategic” (GS) mandate invests your portfolio according to an optimized strategic benchmark. This allocation delivers the “beta” (or markets related) performance of your portfolio while we seek to generate additional “alpha” (“skills related) performance with tactical adjustments, using a predefined maximum “value at risk” envelope. Most of the portfolio’s performance is derived from the strategic Benchmark (beta).

- The “Global Tactical” (GT) mandate invests your portfolio without tracking a strategic asset allocation (or benchmark) and pursues a “total” as opposed to “relative” return objective. With this mandate, we seek to beat the best of “cash” or of the MSCI World Equity index, applying mostly tactical considerations, using a predefined maximum “value at risk” envelope and targeting not to exceed a predetermined overall portfolio volatility.

- The “Trend/Momentum” (TM) mandate, builds a diversified “All Weather” investment portfolio and applies a rule-based Trend/Momentum methodology to adjust this “trend neutral” allocation. We track trends across asset classes on a daily basis and adjust your portfolio in a semi automatic (there is always a pilot in the plane) fashion applying trend changes signals.

- The “Currency Overlay” (CO) mandate seeks to generate “alpha” applying a currency overlay with a limited leverage (not exceeding 100% of NAV). You control the portfolio allocation (which can be a pool of cash, stocks, bonds or gold) and we manage in overlay the FX exposure of your portfolio, seeking to add a total FX return of 4% to 7%.

 

For more information on our risk management and investment methodology, please check our web site.

 

We deliver transparent, professional, tailor-made, and competitive asset management services, seeking to fulfill our fiduciary duty at all times.

 


 

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© Copyright by BentinPartner llc. This communication is provided for information purposes only and for the recipient's sole use. Please do not forward it without prior authorization. It is not intended as a recommendation, an offer or solicitation for the purchase or sale of any security or underlying asset referenced herein or investment advice. Investors should seek financial advice regarding the suitability of any investment strategy based on their objectives, financial situation, investment horizon and particular needs. This report does not include information tailored to any particular investor. It has been prepared without any regard to the specific investment objectives, financial situation or particular needs of any person who receives this report. Accordingly, the opinions discussed in this Report may not be suitable for all investors. You should not consider any of the content in this report as legal, tax or financial advice. The data and analysis contained herein are provided "as is" and without warranty of any kind. BentinPartner llc, its employees, or any third party shall not have any liability for any loss sustained by anyone who has relied on the information contained in any publication published by BentinPartner llc. The content and views expressed in this report represents the opinions of Marc Bentin and should not be construed as guarantee of performance with respect to any referenced sector. We remind you that past performance is not necessarily indicative of future results. Although BentinPartner llc believes the information and content included in this report have been obtained from sources considered reliable, no representation or warranty, express or implied, is provided in relation to the accuracy, completeness or reliability of such information. This Report is also not intended to be a complete statement or summary of the industries, markets or developments referred to in the Report. 

 

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