Please find today’s installment of the Bentin Daily.
Be safe and have a nice week end.
Marc Bentin,
Bentinpartner GmbH
Global Chartbook
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Friday,
March 13, 2020
US stocks (US Equity
Internals)
suffered their worst session since 1987 despite the ECB and Fed each announcing
some drastic supporting package. The ECB increased its QE by 120bn but skipping
to cut rates further into negative territory while rolling out cheap loans for
banks at an interest rate as low as minus 0.75%.
This was deemed to be
a too modest stimulus package to shield the region's economy from the
fast-spreading coronavirus. Credit spreads widened sharply across the board and
on both sides of the Atlantic. In Europe it was the Italian spread widening
which was most noteworthy (high yield in the US) and drew some immediate
criticism of ECB President C. Lagarde for having said that the ECB was not
there to close the (BTP/Bund) spread. She may have been right in her assessment
but this stance contrasted with the “whatever it takes” moment of M. Draghi
which was effective at doing exactly that; closing credit spreads within the
European periphery. Nothing performed as bad as US high yield yesterday which
coupled to a relentless equity markets decline led the Fed to unleash its own
bazooka under the form of USD4trn additional liquidity injections by month end.
The Fed announced a USD1trn amount in 3mth repo (USD500 bn for yesterday and
USD500bn for today) coupled with USD500bn additional weekly repo injections
aimed at addressing some malfunctioning in the US Treasury market which came in
addition to the USD175bn and USD45bn in 2 weeks repo additions recently
announced. As the New York
Times
wrote yesterday, “it all looks like something was breaking down in the workings
of the financial system yesterday, even if it was not totally clear what that
was just yet.” When stocks, government bonds (prices and liquidity wise),
credits and safe havens all fall at the same time (hence with bonds also
reversing their long-term negative correlation with stocks in periods of
stress), there is something wrong which looks like a cash crunch that yesterday’s
Fed measures tried to address to no avail, just yet.
S&P500 sold off by -9,6% (-22,9% YTD, Z-score
-3,1)
while the Nasdaq100 sold
off by -9,2% (-16,6% YTD, Z-score -3,0). The US small cap index sold off by -11,1% (-32,4% YTD,
Z-score -3,2). Tech joined the bloodbath yesterday. AAPL sold off by -9,9% (-15,5%, Z-score -2,6). FB sold off by -9,3% (-24,7%, Z-score -2,8).
AMZN sold off by -7,9% (-9,3%, Z-score -2,7). NFLX sold off by -9,9% (-2,6%,
Z-score -5,1). GOOG sold off by -8,3% (-16,6%, Z-score -2,8). MSFT sold off by
-9,5% (-11,8%, Z-score -2,8). INTC sold off by -11,8% (-23,9%, Z-score -2,7).
Leading on the way
down were the same bank and energy sectors. XLE (ENERGY SELECT SECTOR SPDR) sold off by -12,5%
(-50,9%, Z-score -2,6). XLF (FINANCIAL SELECT SECTOR SPDR) sold off by -10,8%
(-33,8%, Z-score -2,8).
CBOE Volatility Index climbed40,0% (447,7% YTD,
Z-score 2,6) to 75,47.
The Eurostoxx50 sold off by -13,0%
(-32,0%, Z-score -2,4), underperforming the S&P500 by -3,4% ( EUROSTOXX DAX CAC SMI ).
Diversified EM equities (VWO) sold off by -10,1% (-24,6%, Z-score
-3,9), underperforming the S&P500 by -0,5%.
(See China’s Global Snapshot and Confidometer.)
The Dollar DXY Index (UUP) measuring the USD
performance vs. other G7 currencies gained 1,1% (1,8% YTD) while the MSCI EM currency index (measuring the performance of EM currencies vs. the USD) dropped -1,1%
(-4,1% YTD).
BRLUSD sold off by -3,3% (-16,1%). RUBUSD sold off
by -5,0% (-18,0%). INRUSD dropped -0,5% (-4,2%). CNYUSD dropped -1,1% (-0,9%). ZARUSD sold off by -3,9%
(-15,6%, Z-score -2,1). MXNUSD sold off by -5,3% (-14,0%, Z-score -2,1).
EURUSD dropped -1,5% (-0,5%). EURCHF dropped -0,3%
(-2,7%). EURJPY dropped -1,2% (-3,9%). EURGBP gained 1,6% (5,3%).
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The
“risk appetite” FX gauge (AUDJPY).
US 10y Treasury yield rose
7bps (-115bps) to 0,76%, with the 10/2 spread at 29 bps (5). 10Y Bund yield
rose 5bps (-56bps) to -0,74%. 10Y Italian BTP yield rose 5bps (35bps, Z-score 3,3) to 1,76%,
matching Bunds. A wide gap between the prices of certain US Treasury ETF’s
which are normally easily traded, and the securities on which those funds are
based, appeared yesterday, including with a 5 points discount to NAV of a long
bond based one.
Some exceptional widening occurred on credit spreads
yesterday. US Investment Grade Average OAS rose 21bps (124bps, Z-score 2,5)
to 2,25%. US High Yield
(HY) Average Spread over Treasuries gapped 107bps wider (390bps, Z-score 2,2)
to 7,26%.US High Yield (HY) Caa Average Spread over Treasuries rose 141bps
(551bps, Z-score 2,4) to 14,20%. USD Repo Govt GC ON closed at 1,1% while the
US Federal Funds Effective Rate stood at 1,09%.
Precious metals dropped sharply as well (against our expectations)
with XAUUSD shedding -4,8% (4,0%) while Silver dropped -0,6% (-11,9%, Z-score -2,1).
Looking back at history, gold always rallied amidst the biggest S&P500
declines of the past 50 years with gains ranging between 9.4% (between 5/11 and
10/11) and 53.8% (between 9/76 and 3/78) which suggests that the current
selloff could be just temporary and a dip buying opportunity as gold was sold
off serving as collateral for everything that dropped precipitously over the
past few days amidst a furry of margin
calls and deleveraging. Major Gold Mines (GDX) were
slaughtered as well (for being stocks), selling sold off by -11,4% (-23,8%,
Z-score -4,4). Bitcoin was no safe
haven for anyone either chopped
off -39,0% of its value (-32,1%, Z-score -3,0).
Goldman Sachs Commodity
Index sold off by -4,3% (-31,9%, Z-score -2,1). WTI Crude Oil dropped further by -9,7% (-49,2%). Russian oil producers doubled down in their standoff with Saudi Arabia,
announcing they can boost output from April 1 and are able to withstand further
price declines.
COPPER (CPER) dropped -1,6%
(-12,7%, Z-score -3,3). (USO COPPER DBC DBA ).
After the US close…
Nikkei 225 -8%; China -3.45%; S&P -70 points
Stocks
followed with heavy losses across Asia this morning, most of them falling by
the same order of magnitude than US and European markets yesterday.
Italy
announced that it will ban short sales as of today with Spain announcing
similar bans but more selectively on certain sectors. The efficacy of banning
short sales is not established but there should at least be some coordination
to avoid that markets remaining open take undue pressures from those
establishing gates or prohibiting short sales.
Airlines
are pleading for government support after being inflicted a demand shock of
USD113bn amidst doubts about the efficacy of banning traveling to combat the
spreading of the virus.
Singapore
and India announced they will be using foreign reserves to support the economy
as part of an exceptional measure to stem the effects of the virus.
France
closed all schools will be closed. In a sign of the
mounting tension over the crisis response, French President Emmanuel Macron
launched a rare public criticism of central bank policy, saying said the ECB’s
plan wasn’t good enough, Bloomberg reported.
Democrats
and Republicans are fighting over a coronavirus relief package, leaving its
prospects uncertain.
Yesterday in Numbers…
Long-Term
View of Liquidity and Volatility picture
ETF
Investment Universe
Check things out 360degrees! Here is an easy to
read ETF Reference Guide…
Federal
Reserve Expectations 6 Recession Warning
Check
what Markets are pricing in terms of probability of easing/tightening for
upcoming FOMC meetings!
And
see how some key economic indicators performed “prior to” past recessions.
Factor
(style) and World’s Major Banks’ Performance
Check the performance by factor (Value, Momentum, Low Vol, top 20 CTAs)
of US markets and how Banks are doing!
Leaders, Laggards & Z-Scores
Check what Leads, what Lags……and what is Breaking Out. The Trend is Your Friend!
(Explanation
for our Implied Views)
(More explanation for