BentinPartner Weekly
US stocks posted additional marginal gains last week, this time boosted by China borrowing a page of the Western policy playbook to deliver some “shock and awe” action. China’s central bank unveiled a broad package of monetary stimulus starting by cutting short term interest rates and minimum reserve requirement to its lowest level since 2018. A myriad of additional measures was announced including pledging some USD340bn aimed at supporting the local equity market and reducing the minimum equity for secondary home purchases.
In a context where local equity markets have been underperforming and were decried for years, leaving most investors underinvested, the CSI 300 gained +15.7% in 3 days while Chinex rallied 22.7%, creating a positive dynamic in other equity markets as well, especially in Europe (led by members of the luxury sector such as LVMH, Hermes and Kering which all rallied double digits on hopes of China’s revival).
Rising commodities, China’s stimulus measures, signs of a resilient US economy, coupled to inflation moving closer to the Fed target in terms of PCE (with 12mth rate at 2.2% down from 2.5% in July) fuelled a strong risk appetite on equity markets with little impact on US Treasuries while European bond yields declined by some 10bps in Italy and half as much in France where the OAT/Bund yield spread climbed by 3bps to 80bps. Intraday volatility in US bonds increased (in contrast with stock market volatility) as lower Fed rates (and expectations for much more) conflicted with a burst in corporate debt issuance and lingering concerns about US debt dynamics and another warning from Moodys one year after announcing its negative outlook on the US debt.
Geopolitics aggravated with IDF assault on Hezbollah taking down its leader, Nasrallah, with a bunker busting bomb attack and intensifying air-reads on some 140 military targets in Lebanon, raising the odds of an all-out local war in Lebanon which handled over a huge challenge to Iran which so far remained reluctant to enter the vicious circle of retribution and escalation.
In response to deliberation on allowing the use of throwing conventional missiles deeper in Russia, the Kremlin said that changes to Russia’s nuclear weapons doctrine should be considered as a signal to Western countries that there will be consequences if they participate in attacks on Russia.
Taiwan defence Ministry raised the alarm on Thursday about a renewed surge of Chinese military activity around the island.
Gold jumped USD90 or 3.5% to a fresh record high, with silver gaining slightly less (but hitting its highest level since 2012) while commodities recovered 3.3% on the week as well, led by copper which rallied in response to China’s economic and monetary stimulus.
On Friday; JPY rallied back by -1.8% (causing some hard selloff in Japan this morning).
Over the past week, the S&P500 gained 0,6% (20,2% YTD) while the Nasdaq100 gained 0,9% (18,9% YTD). The US small cap index dropped -0,6% (9,8% YTD). AAPL dropped -0,2% (18,3%).
The Equally Weighed SP500 gained 0,8% (13,4% YTD), outperforming the S&P500 by +0,3%. The median SP500 YTD return closed the week at 13,6%.
Cboe Volatility Index rallied 5,0% (36,2% YTD) to 16,96.
The Eurostoxx50 rallied 4,0% (15,0%, Z-score 2,6), outperforming the S&P500 by 3,4%.
Diversified EM equities (VWO) rallied 6,5% (17,4%, Z-score 2,8), outperforming the S&P500 by +6,0%.
The Dollar DXY Index (UUP) measuring the USD performance vs. other G7 currencies dropped -0,2% (3,6%) while the MSCI EM currency index (measuring the performance of EM currencies vs. the USD) gained 0,7% (2,9%).
10Y US Treasuries dropped 1bps (-13bps) to 3,75%. 10Y Bunds dropped -8bps (11bps) to 2,13%. 10Y Italian BTPs rallied -10bps (-25bps) to 3,45%, outperforming Bunds by -2bps.
US High Yield (HY) Average Spread over Treasuries dropped -2bps (-24bps) to 2,99%. US Investment Grade Average OAS dropped -2bps (-9bps) to 0,96%.
In European credit markets, EUR 5Y Senior Financial Spread climbed 1bps (-2bps) to 0,66%.
Gold gained 1,4% (28,9%) while Silver gained 1,3% (32,7%). Major Gold Mines (GDX) dropped -0,4% (30,2%).
Goldman Sachs Commodity Index gained 0,5% (1,3%). WTI Crude sold off by -5,2% (-4,8%).
Overnight in Asia…
S&P500 + 2 points; Nikkei -4.6%; CSI300 +6.2%; Hang Seng +2.8%
Asian shares rallied overnight, led by China and the CSI300 storming higher “into a bull market” according to some metrics, having gained more than 20% from the lows printed a few days ago. Iron ore and Chinese developer stocks also surged. This contrasted with Japanese stocks which dropped after the victory of Shigeru Ishiba in the Japanese ruling party’s leadership race wrong footed investors who were expecting more stimulus from his rival.
Austria’s traditional political powers pledged to block the far-right Freedom Party from forming a government following Sunday’s national elections, Bloomberg reported.
Israeli fighter jets bombed a seaport and several power stations in Yemen, its military said Sunday, following a string of attacks this month on central Israel by Iran-backed Houthi rebels, Bloomberg also reported.
French finance ministry is considering a 8.5% temporary extra tax on companies with more than €1 billion in revenue, and a tax on stock buybacks equal to 8% of the nominal reduction in capital, according to documents cited by Le Monde. Personal income taxes would remain stable and there would be cuts to public spending, the daily said.
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