Monday, March 02, 2020
Please
find below our latest Weekly Trend Update Report covering major
asset classes and currencies.
Have
a nice week.
Marc
Bentin
Bentinpartner GmbH
Trend
Status Update
The economic impact will be considerable although hard to gauge but a
growing number of analysts now consider the growing likelihood that the world
economy will fall into recession this year, bowing under the nourished fire of a
heavy supply (disrupted supply chains) and demand (stalling tourism and
discretionary spending) shock. Equity and credit markets were sent into
disarray, still leaving investors with the hope that central banks will come to
the rescue to deliver more of the same posology of lower rates and more asset
monetisation. It is difficult to imagine how effective these measures will be to
resuscitate investment bubbles that were punctuated by a melt up phase that was
itself caused by excessive easing delivered at a time when it was not necessary.
More of the same is still forthcoming with up to three rate cuts now expected
by the Federal Reserve for the rest of the year. A first move will likely
happen inter-meeting or at the next Fed March 18th FOMC gathering
(Goldman now expects a 50bps cut this month). ECB President Christine Lagarde
cautioned on Thursday that additional measures were not necessary just yet,
implicitly admitting that there is not much else she can do beyond calling for coordinated
fiscal easing. There were some early signs on Wednesday that Germany was getting
ready to open the purse strings. D. Trump called for a press conference on
Wednesday in an effort to prop up markets but his incantations fell flat as did
his doubts about the spreading of the virus on US soil coupled to his intimate
conviction that a vaccine will soon be found. Both expectations and hope ran against
the opinion of the CDC cautioning the former could likely still happen and the
latter not before a year or a year and a half. Equity markets fell globally
into “correction” mode (the step before a bear market) will all major indices and
sectors dropping by 10+%. Credit spreads widened across the board, especially
the worse High Yield segment which saw its risk premium widen faster than US
Treasuries could rally. 10 Year Treasury yields dropped 32bps to an all-time
low of 1.15% while HY spreads widened 141bps, causing the global credit machine
(UD2.6trn international bond market) to grind to a halt. Surprisingly perhaps
and even as EM currencies suffered, the dollar index failed to capitalize on this
risk off week and it was funding currencies that rallied the most starting with
JPY, CHF but also EUR as traders were forced out to deleverage on carry trades.
Gold dropped sharply on Friday as traders hurried to sell winners and cover
losses elsewhere, purging some of the excess positions. Although more
volatility is warranted over the near term, it should not take too long for
precious metals to reassert themselves as the most natural safe haven when
policy rates and so called risk free bond yields all converge to 0 while central banks roll over additional rate cuts
and boost QE with governments likely to spend more including possibly with a
broader adoption of MMT (Modern Monetary Theory). If history is any guide, gold
has more leeway on the up than downside in our view. Speculators may have been
long and too long but typical investment portfolios have rarely 5% invested in
precious metals and this is likely change, in our view.
Last week, the S&P500
sold off by -11,2% (-8,0% YTD, Z-score -2,4) while the Nasdaq100 sold off by -10,6%
(-3,2% YTD, Z-score -2,2). The US small cap index sold off by -12,4% (-11,7% YTD,
Z-score -2,6).
CBOE Volatility Index
rallied 134,8% (191,1% YTD, Z-score 2,6) to 40,11.
The Eurostoxx50
sold off by -12,7% (-11,0%, Z-score -2,8), underperforming the
S&P500 by-1,6%.
Diversified EM
equities (VWO) sold off by -6,2% (-8,9%, Z-score -2,1), outperforming
the S&P500 by 4,9%. India’s growth expanded at 4.7% in Q4, the slowest pace
of growth in 6 years.
The Dollar DXY Index (UUP) measuring the USD performance vs. other G7
currencies dropped -1,1% (2,2%) while the MSCI EM currency index (measuring the
performance of EM currencies vs. the USD) dropped -0,6% (-2,6%).
10Y US Treasuries rallied
-32bps (-77bps, Z-score -2,6) to 1,15%. 10Y Bunds dropped -18bps (-42bps,
Z-score -2,7) to -0,61%. 10Y Italian BTPs underperformed rising 19bps
(-31bps, Z-score 2,8) to 1,10%.
US High Yield (HY) Average
Spread over Treasuries climbed 141bps (164bps, Z-score 2,9) to 5,00%. US
Investment Grade Average OAS climbed 26bps (35bps, Z-score 3,0) to 1,36%.
In European credit markets, EUR 5Y Senior Financial Spread climbed 26bps (23bps, Z-score 3,1) to
0,74%.
Gold sold off by -3,5% (4,5%) while Silver sold off by -9,9% (-6,7%,
Z-score -2,8). Major
Gold Mines (GDX) sold off by -14,5% (-10,5%, Z-score -2,4).
Gold revised its Gold forecast higher to USD1800, citing global risk
aversion.
Goldman Sachs Commodity
Index sold off by -10,5% (-18,5%, Z-score -2,7). WTI Crude sold off by -16,1%
(-26,7%, Z-score -2,8)
Over the week end…
Federal Reserve Chairman Jerome Powell said on Friday that the
US central bank is prepared to cut interest rates while former Fed Chair Yellen
took issue with MMT saying at an Asian investors’ conference hosted by Credit
Suisse in Hong Kong. “That’s a very wrong-minded theory because that’s how you
get hyper-inflation.” She also said that yield-curve inversion happens very
easily and doesn’t alone signal a US recession is imminent, though it can
signal that Fed might at some point need to cut interest rates.
Infections in Italy jumped 50% in a day, a dozen new cases were
reported in the U.K. and the first infections broke out in the German financial
capital.
Acting White House Chief of Staff Mick Mulvaney said school
closings in the U.S. are likely.
China’s February manufacturing activity gauge plunged to its lowest
level on record over the week end.
Australia is all-but certain to cut rates Tuesday, according to
Bloomberg.
J. Biden won a South Carolina primary over the week end, boosting his
campaign ahead of a likely decisive “super Tuesday”. At the same time P.
Buttigieg chose to drop out of the race.
Trend Score Card
Most Asset
classes saw their trend signalling reverse last week, leading most sectors to
return to neutral gear.
Click here for technical annotations.
US
& International Equities
Check out US and International Stocks’ Technical Trend
Status.
Sector
Trend & Momentum
Check equity sectors’ trend and performance …and
when they break out!
Fixed
Income
Check out 10Y US Treasury and Bund yields, their trend,
expected Fed rate moves and speculative positioning in 10-year Treasury Futures.
US
Recession Risk Radar
A comprehensive list of economic
indicators to compare the current situation with previous recessions.
The
Dollar
Check out where the Dollar stands Trendwise and Breakoutwise vs.
G7 and EM counterparts.
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).
Check out how precious metals, the dollar and the Stock
market correlate with each other and speculative futures positioning on
Gold and the Dollar.
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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