Sunday, November 03, 2019

 

Dear Reader,

 

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

Have a nice week end.

 

Marc Bentin

 

 

 

       

Trend Status Update

 

Over the past week, the S&P500 gained 1,5% (22,5% YTD) while the Nasdaq100 rallied 1,7% (28,9% YTD), supported by the Federal Reserve delivering another “hawkish and insurance” cut and the good surprise of a better than expected US job report on Friday. The initial market response to the hawkish part of the Federal Reserve rate cut was a stock market correction that was followed by promises that China/ US negotiations were progressing well and renewed criticism of the Federal Reserve by D. Trump. The savings grace came on Thursday from some stronger than expected Chinese data and on Friday by a better than expected job report which took precedence over the accumulating evidence that the US economy starts to feel the heat of a global economic slowdown.

Apple, Microsoft and FB posted a solid (further) rally, supported by good earnings reports. The latest global equity rally is taking place in low volumes with investors still largely reluctant to embrace it amidst economic and political uncertainties (impeachment proceedings).  AAPL rallied 3,7% (62,2%, Z-score 2,1); MSFT rose 2,1% (41,5%) and FB rallied 3,0% (47,7%). The US small cap index gained 2,0% (18,1% YTD). Semis were extremely strong as well with XSD (SPDR S&P SEMICONDUCTOR ETF) rallied 5,6% (49,5%, Z-score 2,6).  Biotech XBI (SPDR S&P BIOTECH ETF) rallied 2,8% (16,6%) and IBB (ISHARES NASDAQ BIOTECHNOLOGY +4,0% (13,9%), suggesting that last Friday was also a grab for beta with investors loading tactically on some highest beta sectors in an effort to catch up for lost time. CBOE Volatility Index dropped -2,8% (-51,6% YTD) to 12,3.

The Eurostoxx50 added 0,1% (23,4%), underperforming the S&P500 by -1,4%. Diversified EM equities (VWO) gained 1,4% (11,5%), outperforming the S&P500 by -0,1%. CSI300 Chinese equity index (ASHR) gained 1,3% (30,2%), still leading the way this year behind Russian shares (RSX) which rallied 2,7% (32,0%, Z-score 2,0). Investors grabbed the chance to take part in China’s largest convertible bond sale (Shangai Pudong Development Bank) oversubscribing 330 times an issued amount of USD7bn.  

 

The Dollar DXY Index (UUP) dropped -0,6% (4,4%) while the MSCI EM currency index (measuring the performance of EM currencies vs. the USD) gained 0,3% (1,6%). USDBRL dropped -0,4% (2,8%). USDRUB dropped -0,6% (-8,4%). USDMXN gained 0,3% (-2,7%). USDINR dropped -0,1% (1,5%). USDCNY dropped -0,4% (2,3%). USDZAR rallied 2,8% (4,8%). Doubts about the merits of negative interest rates are becoming more pressing. ECB Vice President Louis de Guindos joined a growing contingent of officials at the ECB and other central banks starting to worry about the side effects (by way of misallocating capital, fuelling bubbles that foster potential instability, enriching the few and mining pension funds of all). The more rates stay where they are (they will unfortunately) the more MMT will become a necessity and a self-defeating mechanism for economic freedom and capitalism with far reaching consequences, in our view. Sweden for one said last week it was eager to get rid of negative rates altogether with Riksbank Governor S. Ingves reiterating that it’s likely that the Swedish central bank will raise the repo rate in December.

AUDUSD recovered 1,2% (-2,1%), encouraged by risk appetite, favourable Chinese data and the firming up of the bearish dollar set up (DXY dropped below its 50dma and 200dma just as EM FX broke in bull trend with the exact opposite configuration.

 

10Y US Treasuries rallied -8bps (-97bps) to 1,71%. 10Y Bunds dropped -2bps (-62bps) to -0,38%. 10Y Italian BTPs climbed 4bps (-175bps) to 0,99%, underperforming Bunds by 4bps.  US Investment Grade Average OAS climbed 2bps (-51bps) to 1,21%. As equities rallied, high yields sold off in the latter part of the week with the US High Yield (HY) Average Spread over Treasuries climbing 25bps (-141bps) to 3,85%. Low tiered US High Yield (HY) Caa Average Spread over Treasuries fared even worse, climbing + 54bps on the week (-22bps) to 9,67%. Last week, Federal Government debt reached USD23trn. This is just one of these numbers except that it increased by USD9.5trn since 2008. As a rule of thumb, the US Federal debt remains on target to double with each passing 8-year termed President. This is an unsustainable or rather unbearable path unless bond yields are driven all the way to zero (which is where D. Trump want them to be) and the cost of holding debt along with it. The US is going there but Japan showed the way a while back and Europe is at the forefront now. Several Central banks are not only obliging but signalling that interest rates won’t be increased any time soon even if there is a pick-up in inflation (which will be said to be temporary). In our view the bond bubble is only too obvious and the risks going forward lie at the periphery of credit markets where investors are piling up risks (price and investment flows wise) in a gasp for yield.

 

Precious metals participated in last week’s liquidity push driving Gold 0,6% higher (18,1%, Z-score 2,1) while silver gained 0,5% (17,0%, Z-score 2,0). Major Gold Mines (GDX) rose 1,0% (32,8%). Bitcoin gained 7,4% on the week (150,7%), still gradually eroding part of the 30% gap higher triggered by some misinterpretation of what China plans to do with its focus on investing in blockchain technology (which has nothing to do with adopting bitcoins). China does not tolerate bitcoin and likely never will (nor will it accept libra in all likelihood) but it is vowing to widely adopt the underlying technology of distributed ledger for other purposes, but also possibly to introduce a cryptocurrency of its own.

Last week’s market configuration looked suspect and artificial  but should not necessarily be fought because the “data driven” nature of central banks (and government) policies are also now focussed on preventing equity markets corrections at all costs (a 0.3% drop on Thursday caused a near panic and an official rush to announce (unaverred) trade negotiations progress that the Chinese did their best to throw cold water on. However, there is no point fighting equity markets (D. Trump will do everything now that he runs the risk to be impeached to drive them higher) and as always, credit markets will be the judge of how genuine the economic improvement is. The VC market for unicorns is clogged (hence in our view the lingering liquidity problems which requires constant daily infusion) and needs to unclog before an impression of normality can be restored. In that sense, a further stock market rally would help…

 

Over the week end

 

The Trump administration may not need to put tariffs on imported automobiles later this month after holding “good conversations” with automakers in the European Union, Japan and elsewhere, Commerce Secretary Wilbur Ross said. “We’ve had very good conversations with our European friends, with our Japanese friends, with our Korean friends, and those are the major auto producing sectors,” Ross said.  Last May in the midst of equity market turmoil, D. Trump had agreed to delay them by 6 months, causing an instant gap higher in major indices. W. Ross also expressed optimism the U.S. would reach a “Phase One” trade deal with China this month.

 

 

 

Trend Score Card

 

 

 

 

Click here for technical annotations.

 

 

US & International Equities

Check out US and International Stocks’ Technical Trend Status.

 

Sector Trend & Momentum (revised)

Check out 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?

 

The last months of 2018 illustrated how fast and furious markets can fall. Trend following offers guidance as to when to join and when to leave an asset class with changing trend characteristics. A disciplined and rule-based trend following investment approach can serve as an effective portfolio insurance technique. Our purpose, beyond tracking economic, political and monetary developments is to assist readers investing in global markets with a keen focus on trend formation covering all important asset classes.  

 

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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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