Dear Reader,

 

Please find today’s installment of the Bentin Daily.

Be safe and have a nice week end.

 

Marc Bentin,

Bentinpartner GmbH

 

Global Chartbook PDF

 

 

 

FX Overlay Model

 

 

Global Tactical Model

 

 

 

Trend Following

 

 

 

Friday, March 13, 2020

 

A Sea of Red…

 

 

 Equity Sectors

 

 

FANG BANG!   

 

 

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%.

(EMLC  China CSI300 Russia)

(See China’s Global Snapshot and Confidometer.)

 

The Dollar

 

 

FX Scorecard  PDF

 

 

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%).

 

 

 

EURUSD

 

AUDJPY

 

USDCNH

 

EURJPY

 

CHFJPY

 

USDRUB

 

EURGBP

 

USDCAD

 

USDBRL

 

EURCHF

 

USDMXN

 

USDZAR

 

CHFSEK

 

AUDCAD

 

USDTRY

 

The “risk appetite” FX gauge (AUDJPY).

 

Fixed Income  

 

 

High Yield

 

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

Gold (Vol, rr…)

 

 

XAUUSD

 

 

XAGUSD

 

 

XPTUSD

 

 

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…

 

 

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

 

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.

 

Fed Watch Tool   

 

 

 

Recession Check 

 

 


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!

 

 

Factor Performance   

 

 

 

Banks’ Performance   

 

 


Leaders, Laggards & Z-Scores

 

Check what Leads, what Lags……and what is Breaking Out. The Trend is Your Friend!

 

 

Leaders & Laggards

 

 

(Explanation for our Implied Views)

 

 

Z-Scores

 

 

 (More explanation for