Monday, July 20, 2020
Please
find below our latest Weekly Trend Update Report covering major
asset classes and currencies.
Have
a nice week end.
Marc
Bentin
Bentinpartner GmbH
Trend
Status Update
Over the week end and in a pattern that has become familiar, financial
markets chose to ignore the bad news of the unfolding second wave of corona
infections to focus on the imbedded good news resulting from the bad news which
is the prospect of more global central banks and fiscal stimulus.
There was some good news reported with a widening range of potential
vaccines in 2d and 3d stage. It is difficult to report on accumulating evidence
that do not seem to have any lasting market impact but the risks of a second
wave are becoming hard facts. The number of infections around the world hit
13mn, with 1mn added in just five days. WHO warned there would be no return to the
“old normal” for the foreseeable future and that many countries were heading in
the wrong direction. This applied to several key US states such as California,
Texas and Florida that are being forced to partially unwind the reopening of
their economy. There were also some disturbing new revelations that permanent
immunity to the corona may not be possible, jeopardizing vaccine developments with
several international studies indicating that the human body does not retain
the antibodies building up during the infections, meaning serial contamination
are a risk to contend with.
Over the past week, the S&P500 gained 1,3% (0,0% YTD) breaking even
for the year while the Nasdaq100 dropped -1,7% (22,0% YTD). The US small cap
index rallied 3,7% (-11,5% YTD).
While US stocks rose further, there were signs of nervousness with tech
underperforming last week, as Netflix, one of the darlings of “stay at home”
tech names, suffered a 7% correction (reducing its YTD gains to a still comfortable
high double digit gain after new account openings only reached half of Wall Street estimates). The
absurdity of Tesla trading at 350+ times earnings continued nonetheless as short
sellers got and keep getting squeezed. Let’s see what Wednesday brings when the
company reports earnings. Before the company joins the S&P500 it will have
to print four consecutive quarters of profits but the talk is already that the
S&P is ready to make an exception for Tesla. The best time to lighten up on
Tesla (for lack of better word) will be (in our admittedly perma-bear view) when
it enters the S&P. At that point, the hoard (millions) of passive investors
holding their one or two shares at distorted prices… will hold that share at an
insane top plus the 40’000 new account holders at Robin Hood who reportedly added
to their Tesla holdings during a single four-hours span on Monday as well. Smart
money is already lightening up on tech and these new holders will have no
lasting power when the correction genuinely starts…(imho).
Last week’s Banks results were mixed with large loan loss provisions contrasting
with an explosion in investment banking results (for those banks involved in
this activity).
Another illustration that markets have become detached from reality came
with loss making “small caps” now outperforming money making ones by a large margin. “As insolvency risk subsides, investors have flocked
to unprofitable companies. As of the end of last year, 38% of Russell 2000
constituents were losing money. Since the market’s trough in March, their
stocks have rallied about 79% on average. That compares with 47% for those that
are profitable.”, Bloomberg wrote.
CBOE Volatility Index sold off by -5,9% (86,4% YTD) to 25,68.
The Eurostoxx50 rallied 2,2% (-8,2%), outperforming the S&P500 by 0,9%.
Diversified EM equities (VWO) dropped -1,3% (-4,4%), underperforming the
S&P500 by-2,6%.
The Dollar DXY Index (UUP) measuring the USD performance vs. other G7
currencies dropped -0,7% (-0,2%) turning the dollar red for the year while the
MSCI EM currency index (measuring the performance of EM currencies vs. the USD)
dropped -0,1% (-3,7%).
The US Federal deficit incurred its largest monthly deficit in history
reaching USD864mn in June, exceeding most “annual” deficits of the nation’s
history. The 12month deficit came at 14% of GDP last month (beating the second
largest 10.1% deficit of February 2010). That is without counting the new round
of emergency stimulus being discussed by Congress and the White House at the
moment. Technically, although EM currencies had a rough week, the Dollar index further
weakened technically last week. Ray Dalio and Hugh Henry gave two recent interesting interviews on why they
think the dollar is set to fall. We share their view that FX volatility is too
low and set to rise.
10Y US Treasuries rallied -2bps (-129bps) to 0,63%. 10Y Bunds climbed
2bps (-26bps) to -0,45%. 10Y Italian BTPs rallied -6bps (-24bps) to 1,17%, outperforming
Bunds by -4bps.
The number of Americans filing for jobless claims last week rose more
than expected (+1.3mn last week, the 17th straight week when jobless
claims rose more than 1mn). American Airlines warned it could furlough up to
29% of their workforce (while some others reported a larger 50% planned job
cuts).
There was intensifying talks of the Fed contemplating some anchoring of
the yield curve, not least supported by former Fed Chairmen B. Bernanke and J.
Yellen.
US High Yield (HY) Average Spread over Treasuries dropped -41bps (220bps)
to 5,56%. US Investment Grade Average OAS dropped -7bps (40bps) to 1,41%.
In European credit markets, EUR 5Y Senior Financial Spread dropped -3bps
(19bps) to 0,71%.
Gold gained 0,4% (19,2%) while Silver continued to catch up adding 1,4%
(8,4%). Major Gold Mines (GDX) rallied 2,4% (34,3%). The slow grind higher in
precious metals seems relentless. An interesting development emerged with
investors in the gold futures market, reducing positions (some brokers also
suspended trading in the gold emini future that
allows to trade a smaller size than the full CME contract due to dwindling open
interest and rising illiquidity) while investors continued to expand physical
gold hoarding, suggesting a shift in the balance of power in the gold market.
Gold ETF holdings rose to their highest level ever exceeding 3’000 tons while
Gold in dollars still traded (for a little while) below its all-time highs.
Goldman Sachs Commodity Index gained 0,2% (-30,1%). WTI Crude gained
1,1% (-33,6%).
Over the week end…
After EU Leaders argued on how to roll out their recovery fund of
EUR750bn. European Council President floated a proposal reducing handouts to EUR400bn
(from EUR500bn originally). Dutch and Austrian Prime Ministers rejected
the new offer, standing by a pledge to limit grants to EUR350bn.
Some polls are showing Biden leads by 14%...which had D. Trump irate…and
branding polls showing him trailing as "fake". "Biden can't put
two sentences together," Trump said when he was told about the poll. "They
wheel him out. He goes up – he repeats – they ask him questions. He reads a
teleprompter and then he goes back into his basement." Ugly enough not to
relate what he said next….
Overnight action
Ø Nikkei -0.3%;
CSI300 +1%; S&P500 -11 points
Ø Three Tech IPO’s stocks debuts soared (some of them
more than 200%) in China overnight.
Ø Export data in Japan declined -26.2% in June (vs.
-24.7% expected) while imports dropped -14.4% (from -17.6% expected).
Next week…
Ø IBM will report on Monday and Tesla on Wednesday
Trend Score Card
Click here for
technical terminology.
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.
Get the Score card of all major currency pairs in terms
of Trend, Momentum, Carry, GDP and Current account differential
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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