Monday, May 11, 2020
Please
find below our latest Weekly Trend Update Report covering major
asset classes and currencies.
Please
not that we are introducing a revamped Chartbook report.
Have
a good week.
Marc
Bentin
Bentinpartner
GmbH
Trend
Status Update
We do not know what kind of letter shaped recovery, the deconfinement
will bring. What we do know is that things will not return to normal. They will
return to a to a new normal, at best. People will be zooming, netflixing,
hopefully walking, running, cycling, golfing maybe. They will most certainly go
into a shopping spree (as a revenge against the confinement). But who is going
to enjoy packed restaurants, planes or movie theatres? Most likely, way less
people than before.
Transporting (not traveling) was already an unpleasant experience in
many ways and things will only get worse. Take off your shoes, your belts, your
liquids... add to that the risk of being taken aside for a cold...wearing a
mask next to a sneezing fellow traveller and you’ll get a really unpleasant and
stressful experience that you will want to avoid. Furthermore, who is going to
want to return to floating cities for a cruise running the risk of staying
trapped for days and weeks? Not all these floating cities will be turned into
museums...and that is a good thing perhaps. After all, there were part of a big
ecological disaster.
Still, industries centred on tourism, hospitality and leisure (accounting
for 7.7mn job losses) are only supported at arms’ strength by governments and likely
not forever.
That is probably why W. Buffet stunned investors early last week, saying
he had turned tail on his four US airlines investments. This only plumbed the
market for one day before investors decided that this also shall pass.
There will be positive consequences like less pollution, an acceleration
of technological adoption but many job losses will turn permanent and things
might not play out as smoothly in the end as markets are keen to believe (Goldman
still believes lows will be revisited on the S&P500). Still, it took courage and
fortitude that we have been missing to fight this bulldozer of a rally last,
not least because it is also fuelled by hopes, expectations and rising odds of
the Fed going negative (on rates) before the end of the year.
This provided some comfort to succumb to the sirens of Tina last week… Fed
Chair Powell will speak on Wednesday and will be scrutinized for his stance on
negative interest rates which he has systematically so far rejected.
If the Fed pursues to bail out everything that can go down (its balance
sheet is set to treble from pre-corona outbreak) and if the US Treasury
abandons any sense of fiscal restraint on expectations that all new debt will
be monetized (a thinking gaining in popularity in certain countries of Europe
as well), there is not one single chance that we are not heading into a
currency crisis of some sort with serious inflation consequences down the road.
Germany will continue to play the adult in the room (see decision of the
Constitution court last week questioning the legality of the different QE
programs) and prevent excessive debt monetisation in Europe. But the Fed and
Treasury are going all in (either because they naively believe the dollar is
iron clad or because they do not mind dragging it down) and we think that the
odds are now high that the dollar will go down fairly significantly in a not
too distant future.
The best way to prepare is to hold large strategic overweighs on
precious metals (in conjunction with tactical long equity positioning in
Europe) held in gold and increasingly, in silver as well. We will never be able
to buy a bitcoin…
The European court of justice recalled last week that the ECB is
submitted to the European court of justice that supersedes the German court of
justice and the French Finance Minister and BdF Governor vociferously reminded this
last week. Still, if the German Court of Justice does not change its stance in
three months, in theory the Bundesbank might be forced to stop buying German
debt, leaving this mission to the BdF and other European central banks to buy
negatively yielding German bonds...
So, the ECB has got some PR and convincing work to do, and politicians
from de-complexed overindebted, ever-profligate and lecturing European nations
as well. Otherwise, the sacred unity will be broken and in the worst case,
infinitesimally small Gerxit probabilities could even resurface.
Over the past week, the S&P500 rallied 3,4% (-9,1% YTD) while the Nasdaq100 rallied 5,7% (5,8%
YTD, Z-score 2,1). The US small cap index rallied 5,8% (-20,1% YTD).
Cboe Volatility Index sold off by -24,8% (103,0% YTD) to 27,98.
The Eurostoxx50 dropped -0,1% (-21,5%), underperforming the S&P500
by-3,5%.
Diversified EM equities (VWO) rallied 4,4% (-17,9%), outperforming the
S&P500 by 1,0%.
The Dollar DXY Index (UUP) measuring the USD performance vs. other G7
currencies gained 0,8% (4,1%) while the MSCI EM currency index (measuring the
performance of EM currencies vs. the USD) gained 0,2% (-5,9%).
10Y US Treasuries underperformed with yields rising 6bps (-122bps) to
0,70%. 10Y Bunds climbed 5bps (-35bps) to -0,54%. 10Y Italian BTPs
underperformed rising 8bps (43bps) to 1,85%.
US High Yield (HY) Average Spread over Treasuries dropped -20bps (389bps)
to 7,25%. US Investment
Grade Average OAS climbed 10bps (115bps, Z-score 2,3) to 2,16%.
In European credit markets, EUR 5Y Senior Financial Spread dropped -3bps
(53bps) to 1,05%.
Gold gained 0,3% (12,5%) while Silver rallied 5,3% (-12,9%). Major Gold
Mines (GDX) rallied 4,7% (19,1%). The argumentation of the bull case for silver
(in absolute and relative terms to its big brother gold) became more compelling
and was presented convincingly in this ZH article. Gold is technically in bull trend and supported
by solid fundamentals (the grandest global monetary experiment of all times,
negative real rates, soaring deficits, stable gold production, strong central
bank and soaring investment (etf) demand. However, a Gold/ silver ratio over
100 (120 now) has only been that high, going into historical recessions such as
the invasion of Poland by the Nazis, the great depression, or the 2008
financial crisis. We might be at a similar juncture... but in each and every
case, the gold/silver ratio ebbed back significantly from those peaks and stocks
are not pricing an Armageddon scenario for now. The risk of an engineered and
seasonal gold take-down of gold ahead of the futures settlement (to reduce or
prevent delivery) remains a possibility…but it will be bought. Bitcoin rallied
last Thursday after Paul Tudor Jones suggested it might keep pushing
higher.
Goldman Sachs Commodity Index rallied 6,5% (-41,3%). WTI Crude rallied
17,7% (-60,7%).
Over the week end…
Nikkei +1.4%; CSI300 +0.4%; S&P500 future +10 points
Stocks climbed in Asia this morning, recouping some early losses in thin
volumes.
The PBOC pledged more help to counter the virus impact in China. U.S. VP
Mike Pence is self-isolating away from the White House after an aide tested
positive.
Regional Federal Reserve Presidents J. Bullard, J. Mester and P. Harker are due to speak at
events on Tuesday.
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.
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?
A disciplined and
rule-based trend following investment approach can serve as an effective
portfolio insurance technique.
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