Monday, May 18, 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
The equity market overall remained dominated by the fear of a “second
wave” (amidst an avalanche of bad economic data) and the panic fear of missing
out (FOMO) on the next squeeze induced so far by ill based news related to a vaccine being just around the corner or the announcement of a few more zeros added the
Fed’s balance sheet via economic relief or market supporting programs coupled to the cheerleading
effort of Trump’s twitter feed. The disconnect between economic and financial reality
is only growing wider and in terms of overvaluation of the market, a reversal
to the mean in terms of Market cap vs. GDP would require a 12trn hit on US
stock markets, according to analysts. This
likely won’t happen. More money be printed though and investors will remain
mindful that amidst the Zimbabwe and Weimar Republic crises, stock markets kept
going higher. We have no reason to believe
that the ongoing global depression/dislocation will unwind differently this
time.
As R. Dalio suggested in a recent essay, it is the monetary debasement that we have to be
concerned about. Stocks will likely go higher but money will lose its value
faster and the stock market performance deflated by the price of gold will look
very different, as it already did when looked over the past 20 years. To deflate
the unsustainable stock of debt that has been accumulated, there are four options;
austerity (less spending), wealth transfer (higher taxes), default and money
printing. We are going the money printing way, coupled with financial
repression, so as to look and stay solvent. Although the Federal Reserve
reiterated that negative rates are not in its toolkit (it would require
Congress approval), expectations of negative rates in the US have started to resurface
last week as well.
Chart 1: Gold Performance over 20 years in different currencies (vs. the
S&P500)
XLE (ENERGY SELECT SECTOR SPDR) sold off by -7,2% (-40,1%) despite oil
recouping 19% (the June oil contract expires early next week which will command
some volatility) but the most noteworthy weakness was seen in banks. XLF
(FINANCIAL SELECT SECTOR SPDR) sold off by -5,6% (-31,6%). KBE (SPDR S&P
BANK ETF) sold off by -11,2% (-43,6%) and the CDS of most large banks rose 10
to 15bps (JPM’s CDS rose 14bps to 87, six weeks high). XLI (INDUSTRIAL SELECT SECT SPDR) sold off by
-5,8% (-27,0%). The real estate complex suffered last week with XHB (SPDR
S&P HOMEBUILDERS ETF) selling off by -4,8% (-20,6%). VNQ (VANGUARD REAL
ESTATE ETF) sold off by -8,3% (-25,9%). Some weakness filtered into techs but
the US market remains disproportionately driven by the performance of a handful
of tech (fang) stocks (fangs now constitute 50% of the
Nasdaq), that many investors continue to consider as a safe haven.
CBOE Volatility Index rallied 14,0% (131,4% YTD) to 31,89.
The Eurostoxx50 sold off by -4,6% (-25,0%), underperforming the
S&P500 by-2,5%.
Diversified EM equities (VWO) dropped -2,0% (-19,6%), in line with the
S&P500 losses.
The Dollar DXY Index (UUP) measuring the USD performance vs. other G7
currencies gained 0,6% (4,7%) while the MSCI EM currency index (measuring the
performance of EM currencies vs. the USD) dropped -0,4% (-6,2%).
10Y US Treasuries rallied -4bps (-127bps) to 0,64%. 10Y Bunds climbed
1bps (-35bps) to -0,53%. 10Y Italian BTPs climbed 2bps (45bps) to 1,86%,
underperforming Bunds by 4bps.
US High Yield (HY) Average Spread over Treasuries climbed 32bps (421bps)
to 7,57%. US Investment Grade Average OAS dropped -4bps (111bps) to 2,12%.
In European credit markets, EUR 5Y Senior Financial Spread climbed 5bps
(59bps) to 1,10%.
Gold rallied 2,4% (14,9%,
Z-score 2,2) while Silver rallied 7,3% (-7,0%, Z-score 3,3), taking the top of the Z-score
report and bring the Gol/silver ration down. The entire metal complex is in
break out mode now (trading outside of their respective Bollinger band), led by
Silver and also platinum (the platinum ETF trades at a premium of 5%). Gold closed
at a fresh all time high vs. CHF as well.
Chart 2: Gold/ Silver ratio
Major Gold Mines (GDX)
rallied 4,9% (24,9%, Z-score 2,1). Aberdeen
Physical Platinum rallied 4,0% (-17,1%, Z-score 2,5). Bitcoin sold off
by -7,6% (29,1%).
Goldman Sachs Commodity Index gained 1,6% (-40,3%). WTI Crude rallied
19,0% (-51,8%). CPER sold off by -2,9% (-15,3%). DBC dropped -0,4% (-29,8%).
After Friday’s close…
The pound weakened against all G-10 peers after the Bank of England
Chief Economist Andrew Haldane said it was examining unconventional monetary
policy measures more urgently, including negative interest rates.
The Fed warned on Friday that the stock market could suffer significant
declines should the corona pandemic deepen which is leaving indifferent this morning as the
market participants give precedence to
the Fed’s asset targeting policies rather than dialectic, the same way they keep
considering that rates could go negative later this year. Higher oil prices (+2% above $30) and Japan’s mulling
an easing of its travel bans were also cited as supporting risk appetite this morning.
Consensus is for Japan’s Q1 GDP, due today, to shrink 4.5% from the previous
quarter on an annualized basis, to be followed by a 21.5% plummet in the
current period.
Adding to a daily barrage of U.S. attacks on China, Peter Navarro suggested
on ABC’s “This Week” that Beijing sent airline passengers to spread the
coronavirus worldwide, as the Trump administration stepped up its campaign of
blaming China for the pandemic.
Trend Score Card
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.
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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