Monday, May 04, 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
“In terms of fiscal concern…, for many years, I've
been, before the Fed, I have long time been an advocate for the need for the
United States to return to a sustainable path from a fiscal perspective at the
federal level. We have not been on such a path for some time which just means
that the debt is growing faster than the economy. This is not the time to act
on those concerns. This is the time to use the great fiscal power of the United
States to do what we can to support the economy and try to get through this
with as little damage to the longer run productive capacity of the economy as
possible. The time will come, again, and reasonably soon, I think, where we can
think about a long-term way to get our fiscal house in order. And we absolutely
need to do that. But this is not the time to be, in my personal view, this is
not the time to let that concern, which is a very serious concern, but to let
that get in the way of us winning this battle…”
Chances are that there is no turning back on this monetary stimulus and
that the normalisation will be replaced by something else… Congress is also and
already evaluating the opportunity of another USD1trn stimulus.
A former President of the Federal Reserve Bank of Minneapolis, N.
Kocherlatoka was interviewed last week by Tom Keene (Bloomberg) and said he was
favouring negative interest rates for the Fed making some other (and more) jaw
dropping observations;
“One of the
roles of economists like myself that are in academia … is to really try to push
us into a much better place. I really believe that fifty years from now people
are going to look back – economists are going to look back – at the existence
of cash much like we look back at the gold standard. We look back at the gold
standard as a period which really hamstrung monetary policy and created huge
amounts of unemployment as a result during the Great Depression. People are
going to look back at the existence of cash and the zero lower bound – the
inability to go much below zero with interest rates – in the same way,
hamstringing the ability of central banks to provide sufficient support to the
economy – and thereby creating excessive unemployment and robbing people of
their jobs.”
I do not know what he wants to replace cash with (bitcoins?) but I
thought the quote to be quite insightful.
Last week, the ECB also expanded its loans to banks saying it would lend
money to banks at rates as low as minus 1% through a planned programme and launched
a separate round of fresh lending. The ECB’s governing council said it was
‘fully prepared’ to increase the size of its recently launched €750bn pandemic
emergency purchase programme and to ‘adjust its composition, by as much as
necessary and for as long as needed’.”
In Japan, “The Bank of Japan… ramped up risky asset purchases and
pledged to buy unlimited amounts of government bonds to combat the economic
fallout from the coronavirus epidemic. At the rate review, the central bank
pledged to accelerate purchases of corporate bonds and commercial paper until
the combined balance of its holdings reaches 20 trillion yen ($186bn). It also
pledged to aggressively buy government bonds to keep the yield curve low in a
stable manner.” The FT wrote a comprehensive article asking the question of debt sustainability (which is a bit too theoretical when interest
rates are set to be anchored at 0% or below for years to come). Foreign policy also reviewed the Japanese fiscal situation in an
article (dating from two weeks ago), that should get traders inclined to believe
JPY is a genuine safe haven currency, puzzled.
Among the risks that resurfaced last week (beyond the fact that WHO
warned that it was possible to be infected twice by Covid19 which reduced the
interest of establishing certificates of immunity), was D. Trump saying… his
hard-fought trade deal with China was now of secondary importance to the
coronavirus pandemic as he threatened new tariffs on Beijing. Trump’s sharpened
rhetoric against China reflected his growing frustration with Beijing over the
pandemic… Two U.S. officials… said a range of options against China were under
discussion. Reuters also reported that D. Trump said… he was confident the
coronavirus may have originated in a Chinese virology lab, ratcheting up
tensions with Beijing over the origins of the deadly outbreak.
Over the past week, the S&P500 dropped -0,1% (-12,1% YTD) while the
Nasdaq100 dropped -0,5% (0,1% YTD). The US small cap index rallied 2,2% (-24,5%
YTD).
CBOE Volatility Index rallied 3,5% (169,9% YTD) to 37,19.
The Eurostoxx50 rallied 2,7% (-21,4%), outperforming the S&P500 by
2,7%.
Diversified EM equities (VWO) dropped -0,4% (-21,4%), outperforming the
S&P500 by -0,3%. The tech picture became more blurred; AAPL rallied 2,2%
(-1,6%). FB rallied 6,4% (-1,5%). LYFT
sold off by -7,4% (-31,2%). AMZN sold off by -5,2% (23,7%).
NFLX sold off by -2,3% (28,3%). GOOG rallied 3,2% (-1,2%). MSFT was unchanged
(10,7%). INTC sold off by -3,0% (-4,0%).
The Dollar DXY Index (UUP) measuring the USD performance vs. other G7
currencies dropped -1,3% (3,3%) while the MSCI EM currency index (measuring the
performance of EM currencies vs. the USD) gained 0,9% (-5,8%).
The euro was mostly stronger. EURUSD gained 1,5% (-2,1%) EURCHF gained
0,2% (-2,8%). EURJPY gained 0,8% (-3,6%). EURGBP gained 0,3% (3,8%).
10Y US Treasuries dropped 1bps (-131bps) to 0,61%. 10Y Bunds dropped
-11bps (-40bps) to -0,59%. 10Y Italian BTPs rallied -8bps (35bps) to 1,76%,
outperforming Bunds by 0bps.
US High Yield (HY) Average Spread over Treasuries dropped -30bps
(409bps) to 7,45%. US Investment Grade Average OAS dropped -1bps (105bps) to
2,06%.
In European credit markets, EUR 5Y Senior Financial Spread dropped -5bps
(52bps) to 1,04%.
Gold dropped -1,7% (12,1%) while Silver dropped -1,8% (-16,1%). Major
Gold Mines (GDX) dropped -1,9% (13,7%).
Goldman Sachs Commodity Index gained 4,3% (-45,4%). WTI Crude rallied
16,8% (-67,6%). The Saudi Arabian Monetary Authority’s net foreign assets
dropped by 100bn riyals ($27bn) in March to SAR465bn, the lowest levels since
2011 and the fastest decline in two decades, the FT reported.
Hedge funds’ April results still need to be posted for April but up to March,
currency and macro funds were reported to be doing relatively well given the
circumstances and could well remain the place to be in this space for the next
few quarters.
Over the week end…
W. Buffet initiated a turnaround on a previous call, announcing over the
week end that he had sold his stakes in all US airlines; “I don’t know if two or three years from now if
as many people will fly as many passenger miles as they did last year,” he
said. “If the business comes back 70 or 80 per cent, the aircraft doesn’t
disappear. You've got too many planes.” Mr Buffett also said that he had
decided against lending large sums as he did during the depths of the financial
crisis because Berkshire was not finding enticing opportunities.” This is bad
omen for the transport sector today which more often than not tend to lead the
rest of the tape (Dow Theory). He also considers he is no competition to outbid
the Fed in supporting credit markets (not at that price…).
S&P500 futures -25 points; Hang Seng -3.5%; Japan closed
Trend Score Card
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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.
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