Sunday, January 26, 2020

 

Dear Reader,

 

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

Have a nice week ahead.

 

Marc Bentin

Bentinpartner GmbH

 

 

Friday’s Snapshot

 

Global Chartbook PDF

 

 

 

FX Overlay Model

 

 

Global Tactical Model

 

 

 

Trend Following

 

       


 

Trend Status Update

 

 

The consensus at the Davos Forum is often looked at as a contrarian indicator. Some suggested that this year’s broadly shared opinion in Davos was the exceptional resilience of equity markets to economic and political uncertainties and disruptions, supported by the umbrella of extremely accommodative Central Banks’ monetary policy. It is too early to judge but the outbreak of the corona virus is an unexpected “curve ball” with the potential to unsettle the resilience of consumers beyond China with their behaviour likely to be affected by a diminished appetite to spend and travel. History also showed that the outbreak of SARS in 2003 caused a (temporary) 10% stock market correction before moving on… On the other side of the coin, there is the possibility that these serious health (and growth) related concerns will accelerate the Fed’s easing cycle, encouraging it to cut rates, possibly all the way to zero (but not beyond). Last week brought a dovish ECB and speculation that the yearly review could lead to a revision of the ECB inflation objective (see FT article of this week end). The Fed will meet this week. The Wall Street Journal over the week end suggested the way forward for the Fed could be to consider yield curve anchoring. This would likely imply further interest rate cuts and the resumption of genuinely called QE, as the only question would then be how far on the curve (but beyond Tbills!) the Fed would be buying bonds in order to cap rates.         

 

Over the past week, the S&P500 dropped -0,6% (2,1% YTD) while the Nasdaq100 gained 0,2% (4,7% YTD). The US small cap index sold off by -2,4% (-0,2% YTD). CBOE Volatility Index rallied 18,2% (5,7% YTD) to 14,56. AAPL gained 1,0% (8,4%). FB   dropped -1,7% (6,2%).  AMZN dropped -0,9% (0,7%). NFLX rallied 4,3% (9,1%, Z-score 2,4). GOOG gained 1,0% (9,7%). MSFT dropped -0,7% (4,7%). INTC rallied 14,8% (14,4%, Z-score 3,7). IBB (ISHARES NASDAQ BIOTECHNOLOGY) sold off by -4,5% (-3,0%, Z-score -2,5). On the macro side, in the latest indication that lower mortgage rates are helping the housing market, US home sales jumped in December to a 2 years high while existing home sales that make up 90% of US home sales, jumped 10% in December on a year over year basis. The Eurostoxx50 dropped -0,6% (1,3%).

Diversified EM equities (VWO) sold off by -2,9% (-0,4%), underperforming the S&P500 by-2,3% with Chinese shares understandably, hit the hardest by the outbreak of the corona virus. On the week, CSI300 Chinese equity index (ASHR) sold off by -6,0% (-3,4%). Indian shares (EPI) dropped -1,4% (1,3%). Russian shares (RSX) dropped -1,3% (3,6%).

 

The Dollar DXY Index (UUP) measuring the USD performance vs. other G7 currencies gained 0,6% (1,6%) while the MSCI EM currency index (measuring the performance of EM currencies vs. the USD) dropped -0,5% (-0,2%).

 

Including with this morning’s move, 10Y US Treasuries rallied -18bps (-28bps, Z-score -2,5) to 1,64%. 10Y Bunds dropped -12bps (-15bps, Z-score -2,2) to -0,34%. 10Y Italian BTPs rallied -14bps (-18bps, Z-score -2,7) to 1,23%, underperforming Bunds by 2bps.

Quite noticeably, US High Yield (HY) Average Spread over Treasuries climbed 36bps (20bps, Z-score 3,0) to 3,56%. US Investment Grade Average OAS climbed 2bps (3bps) to 1,04%. In European credit markets, EUR 5Y Senior Financial Spread climbed 2bps (2bps) to 0,53%.

 

Gold gained 1,2% (4,1%) while Silver gained 0,8% (2,1%). Major Gold Mines (GDX) gained 1,9% (-0,2%).

Commodities were the hardest hit sector last week. Goldman Sachs Commodity Index sold off by -4,8% (-6,8%, Z-score -2,5). WTI Crude sold off by -7,4% (-11,3%, Z-score -2,2).

 

While we cut most of our FX Model’s risks last week, we are sticking with an overweight on RUB (vs. USD)  as RUB remains likely to benefit from its higher yielding status, Russia’s solid fiscal stance and the rising backing of its currency by Gold which itself remains supported by an array of reasons going well beyond the current corona virus crisis (those were outlined in Ray Dalio’s and P. Tudor Jones interviews last week in Davos). IMF’s Georgieva warned about the debt build-up reaching a danger point while US Treasury S. Mnuchin talked about the Trump’s plan for tax cut 2.0 (targeting the middle class), positing that growth would pay for it.

 

Over the week end…

 

The headlines on the spreading of the corona virus were not particularly reassuring with the death toll rising to 80 and global cases brought to 2500 with increased concerns that the 8 days incubation period during which contamination occurred (and can still occur) without detection (and prior to China’s decision to quarantine 13 cities ), significantly increased the risks of spreading the virus.

The initial market response overnight is for the S&P futures to drop of 1.3%, 1%, 0.8% (and counting)  from Friday’s close with bonds, gold and safe haven currencies slightly higher and EURUSD mostly stable (despite having suffered a technical setback last week more as a result of a dovish ECB than following USD safe haven purchases). Oil is marked 2% lower and is more unlikely to rebound (unlike stocks perhaps).

 


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?

 

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 major 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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