Sunday, May 24, 2020

 

Dear Reader,

 

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

Have a nice evening.

 

Marc Bentin

Bentinpartner GmbH

 

Friday’s Snapshot

 

Global Chartbook PDF

 

 

 

FX Overlay Model

 

 

Global Tactical Model

 

 

 

Trend Following

 

       


 

Trend Status Update

 

Over the past week, the S&P500 recovered 3,2% (-8,2% YTD) while the Nasdaq100 rallied 2,9% (8,0% YTD). The US small cap index rallied 7,8% (-18,6% YTD).

XLI (INDUSTRIAL SELECT SECT SPDR) rallied 7,4% (-21,6%), XLE (ENERGY SELECT SECTOR SPDR) rallied 6,9% (-35,9%), KBE (SPDR S&P BANK ETF) rallied 8,4% (-38,9%), suggesting some revival in the cyclical value segment.

Most of the gains came from early in the week on expectations for more liquidity provisions and fiscal support, comforted by hopes (and mostly hype) that Moderna was about to deliver a vaccine (which was downplayed on Thursday). The Federal Reserve’s balance sheet increased to $7.09 trillion for the week, up from $6.98 trillion the week before. Democrats and Republicans cooperated to deliver the initial $2 trillion CARES Act (supplemented by $484 billion in funding for small businesses). Negotiations have now moved to the HEROES Act that would provide in a few weeks’ time $3 trillion (worth 15% of GDP) in additional relief funding, answering the call for more fiscal support by the Federal Reserve last week.

While Senate Republicans have not expressed much interest in the bill, senior White House officials have indicated that D. Trump would support the distribution of further stimulus checks and N. Pelosi expressed confidence over the week end for a bipartisan support. Treasury Secretary Mnuchin also explained how the distribution of money will work next time.  

Cboe Volatility Index sold off by -11,7% (104,4% YTD) to 28,16.

The Eurostoxx50 rallied 5,0% (-21,3%), outperforming the S&P500 by 1,8%, jolted by the EUR500bn Franco-German plan for joint issuance (more than the amount, it was the principle of joint issuance that was cheered) aimed at aiding post-coronavirus economic recovery.

Diversified EM equities (VWO) gained 1,0% (-18,8%), underperforming the S&P500 by -2,2%. ASHR (XTRACKERS HARVEST CSI 300 CH) dropped -1,4% (-9,3%).

Larry Kudlow said nobody can invest confidently in Chinese companies and that the U.S. needs to protect investors from the country’s lack of transparency and accountability. ‘We have learned that Chinese companies are not transparent,’ Kudlow said. ‘They do not meet the norms, the regulations.’ Kudlow pointed to potential lawsuits related to the coronavirus, saying ‘until that stuff is sorted out, nobody really can invest with confidence in China.’

The discussion to restrict Chinese shares trading on US exchanges intensified as well, bringing the trade war to the financial scene. China is no saint and does not even claim to be a democracy.  But for an international investor seeking long term appreciation and diversification, it would be a mistake, in our view, not to be invested in China’s markets for its currency, stock and bond markets are bound to appreciate over the coming years if not in absolute then in relative terms to the rest of developed markets as the world seeks to diversify away from Western and US markets to accommodate the emergence of a more multipolar world likely to sever its dependency and excessive reliance on the USD for conducting trade (the petrodollar is being challenged as well) and managing world reserves (60% + invested in USD). There will be efforts to torpedo Chinese markets that will lead Chinese stocks to delist from US markets, going to Hong Kong, Singapore, London, Frankfurt or Paris. There will be efforts to force US pensions out of them on political ground and that is ok. But it will make little difference in the end.

There will be efforts to keep the weights of CNY in the SDR low at each quinquennial reweighing (the SDR is a basket of USD, EUR, JPY, GBP and CNY used as an allocation by some key supranational organisations but not only). The last reweighing of the SDR was made mostly at the expense of the euro, rather than out of the USD which was at least in some ways, politically motivated. Ditto for international equity and bond indices. There is and will be pressures to keep the weight of Chinese assets disproportionately low to their economic importance. That might be an increasingly difficult posture to hold in the future as well as China’s economic power and importance keep climbing.

Financial repression will take many forms and this will be one of them; preventing or discouraging investors to go where the potential for gains outside of zero yielding government bonds and even US stocks will be the highest. Governments are “sacrificing” savers on the altar of necessity to remain solvent (you cannot run debt/GDP ratio in excess of 150%, pay a decent interest and stay solvent, as Japan running on a 250% debt/GDP ratio and 0% interest rates, has learned a long time ago. Those free of political constraints should also be invested in China on pure investing considerations, in our view. At the very least, they should be mindful that L. Kudlow who is never shy of financial prognostication is most reliable as a contrarian indicator (his bearish call on gold being his major and least prescient calls). His duty is understandably to be a cheerleader but as an advisor, he will be wrong again in the future.

 

The Dollar DXY Index (UUP) measuring the USD performance vs. other G7 currencies dropped -0,7% (3,9%) while the MSCI EM currency index (measuring the performance of EM currencies vs. the USD) gained 0,3% (-5,9%).

The euro strengthened following the agreement by A. Merkel to concede some joint issuance for the EUR500bn covid fund. EURUSD gained 0,7% (-2,8%). EURCHF gained 0,7% (-2,4%). EURJPY gained 1,1% (-3,7%). EURGBP gained 0,3% (5,9%).

 The dollar weakened selectively vs. certain EM currencies. USDBRL dropped by -5,5% (37,5%). USDRUB sold off by -2,6% (15,5%). USDMXN sold off by -5,1% (20,1%, Z-score -2,3). USDZAR sold off by -5,2% (25,9%, Z-score -2,3).

 

10Y US Treasuries dropped 2bps (-126bps) to 0,66%. 10Y Bunds climbed 4bps (-30bps) to -0,49%. 10Y Italian BTPs rallied -27bps (19bps) to 1,60%, outperforming Bunds by   -3bps.

 

US High Yield (HY) Average Spread over Treasuries dropped -77bps (344bps) to 6,80%. US Investment Grade Average OAS dropped -24bps (87bps) to 1,88%. The full action of the Fed program in the corporate sector was in full display on LQD last week , rallying 1,7% (2,1%) having now recouped most of a 25% loss. Risk reversals went from -30 at the peak crisis to just over the 3-year average of -2.2 at the close of last week.  Official investment flows and % of AUM growth YTD climbed to +30%).  The Fed challenge will be to sustain the effort and keep underwriting an entire corporate debt index  as M. El Arian suggested here, while still praising, like W. Buffet, the decisive action of the Fed in a time of crisis. Now, besides the urge to copycat the Fed’s action (a strategy that many advocate including Blackrock mandated by the Fed), it might be a less desirable investment to buy an entire asset class populated by an ever larger percentage of fallen angels (see Economist article) and zombie companies vs. owning a barbell of solid cash flow producing equities, some high yields, EM market debt (in local currencies), Gold and silver, in our view. 

In European credit markets, EUR 5Y Senior Financial Spread dropped -16bps (43bps) to 0,95%.

 

Gold dropped -0,5% (14,3%) while Silver rallied 3,6% (-3,6%), continuing to outperform and breaking higher. Major Gold Mines (GDX) sold off by -2,8% (21,4%).

Some of the world’s most-prominent investors raised alarm bells over the looming threat of inflation, and turning to gold for protection. Hedge fund managers Paul Singer, David Einhorn, and Crispin Odey are among those bullish on gold… So are large asset managers like Blackrock (which are also implementing the Fed’s asset buying program).

No surprise that we stumbled last week however. It is a pattern that each approaching future expiration is a near term challenge that needs to be overcome before prices can move higher.

Goldman Sachs Commodity Index rallied 4,6% (-37,6%). WTI Crude rallied 13,0% (-45,5%). XLE (ENERGY SELECT SECTOR SPDR)rallied 6,9% (-35,9%).

 

As a conclusion to this week’s letter, we would like to refer our readers to a most interesting essay from R. Dalio on the “Big Cycle of the Life of an Empire” covering 500 years of monetary history in just a few pages. It is straightforward to see what part of the cycle we are in and what might come next, even if history does not repeat itself and just rhythms. This is particularly insightful reading in support of the discussion above on the opportunity (or not) to keep at least a foot in China as an investor.

 


Trend Score Card

 

 

 

 

Click here for technical annotations.

 

 

Trend Scorecard   

 

 


US & International Equities

Check out US and International Stocks’ Technical Trend Status.

 

 

Stocks   

 


Sector Trend & Momentum

Check equity sectors’ trend and performance …and when they break out!

 

Sector Analysis   

 

 


Fixed Income

Check out 10Y US Treasury and Bund yields, their trend, expected Fed rate moves and speculative positioning in 10-year Treasury Futures.

 

Fixed Income

 

 


US Recession Risk Radar

A comprehensive list of economic indicators to compare the current situation with previous recessions.

 

US Recession Risk Radar

 

 


The Dollar

Check out where the Dollar stands Trendwise and Breakoutwise vs. G7 and EM counterparts.

 

The Dollar

 

 


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).

 

Precious Metals

 

Check out how precious metals, the dollar and the Stock market correlate with each other and speculative futures positioning on Gold and the Dollar.

 

Gold vs. USD vs. SPX

 

 


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.

 

To receive a Daily Trend Status Update and round the clock market and economic instant notifications, join the free trial for our premium research. No credit card needed.  

 

To learn more about our premium research:

https://www.bentinpartners.ch/research

 

To join our free trial and choose your delivery preferences:

https://www.bentinpartners.ch/subscribe

 


Our Portfolio Management and Advisory Services

 

BentinPartner GmbH is a Swiss registered independent financial adviser. We offer four different portfolio management mandates:

 

- The “Global Strategic” (GS) mandate invests your portfolio according to an optimized strategic benchmark. This allocation delivers the “beta” (or markets related) performance of your portfolio while we seek to generate additional “alpha” (“skills related) performance with tactical adjustments, using a predefined maximum “value at risk” envelope. Most of the portfolio’s performance is derived from the strategic Benchmark (beta).

- The “Global Tactical” (GT) mandate invests your portfolio without tracking a strategic asset allocation (or benchmark) and pursues a “total” as opposed to “relative” return objective. With this mandate, we seek to beat the best of “cash” or of the MSCI World Equity index, applying mostly tactical considerations, using a predefined maximum “value at risk” envelope and targeting not to exceed a predetermined overall portfolio volatility.

- The “Trend/Momentum” (TM) mandate, builds a diversified “All Weather” investment portfolio and applies a rule-based Trend/Momentum methodology to adjust this “trend neutral” allocation. We track trends across asset classes on a daily basis and adjust your portfolio in a semi automatic (there is always a pilot in the plane) fashion applying trend changes signals.

- The “Currency Overlay” (CO) mandate seeks to generate “alpha” applying a currency overlay with a limited leverage (not exceeding 100% of NAV). You control the portfolio allocation (which can be a pool of cash, stocks, bonds or gold) and we manage in overlay the FX exposure of your portfolio, seeking to add a total FX return of 4% to 7%.

 

For more information on our risk management and investment methodology, please check our web site.

 

We deliver transparent, professional, tailor-made, and competitive asset management services, seeking to fulfill our fiduciary duty at all times.

 


 

Please visit our web site or call us at +41615444310. We’d love to hear from you and see how we can further assist you.

Join us on Linked In

To be removed from the list, please send us an email by clicking here, mentioning “unsubscribe” in the title.

  

Terms and Conditions

 

Privacy policy

 


 

To ensure that our emails reach your inbox and not your spam folder, please consider adding Marc.Bentin@BentinPartner.ch, Marc.Bentin@BentinPartners.ch and our alternate address Bentinpartner@gmail.com to your safe address book. If you are using Microsoft Outlook, simply right click on our email address, choose "add to Outlook contacts" and then "save".

 


 

Important Disclaimer
© 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. 

 

#fx #forex #investing #markets #riskmanagement #bankingindustry #finances #money #traders #quants