BentinPartner Weekly
With the exception of health care, all sectors of the SP500 are now trending higher and yesterday’s breakout story came from the small caps sector with expectations of lower rates and more protectionist measures compounding the bullish technical pattern of “higher highs and higher lows” of the Russel 2000 index which printed a fresh high for the year as well.
On the earnings front, Morgan Stanley beat expectations with a 32% profit surge with its share price soaring 8%. One day after US make up company suggested discretionary spending could be suffering, UAL announced record prices and volumes along with improving pricing power…and a 1.5bn share buy-back program, leading its share price to rally 13%.
All sectors of the SP500 closed higher yesterday (despite tech underperforming for the day) as the rally was very broad-based across sectors as evidenced by the SP500 equal weighed index (RSP) also breaking out (with a z-score of 3).
Uranium rallied strongly yesterday and actually was among the best performers yesterday rallying 7% back to its highest level for the year.
The dollar rallied further ahead of today’s ECB meeting and interestingly, precious metals rallied further despite rallying risk assets and a further breakouk in the dollar index. In other words, Gold has lost its correlation pattern not only with the dollar but with everything else except perhaps crypto currencies.
The next BRICS summit in Kazan will take place next week (on 22-24th October) and may hold some explanation as its alternative payment system (that has been in preparation for some time) will likely be further discussed.
This new system will not involve the creation of a new currency but rather payments of trade flows within BRICS that will be made neither in USD or EUR and rather with a unit of account that could be a crypto currency (so called stable coin) possibly be linked to gold. Trade flows are expected, according to specialists familiar with the proposal, to be settled among participants once a year meaning that the new system will bring both a new unit of account and a new clearing house. It will be based on a system that is not entirely new as it was used in Europe from 1950 to 1958 by the European Payments Union.
In terms of timing, the institution likely to be in charge of its implementation and administration is the “New Bank of Development” that was created by BRICS in 2014, located in Shangai and led by the former President of Brazil. Specialists consider the new payment system could become effective within a year, unless the new US President makes it “illegal”. D. Trump said in simple terms yesterday “no more trade” with countries questioning the current role of the USD (which this new payment system is all about) but it is difficult to imagine how he will/would be able to implement such a policy (except by directly trying to destabilize free trading BRICS currencies) as he would face the determination of BRICS countries (now accounting for 40% of the world GDP) to get away from the US sanctions regime or the weaponization of the dollar. Actually, and over time, it would only contribute, just as the broadening of the USD sanction regime did, to broaden the desire of member countries to intensify trade within BRICS using this new payment system.
US Retail sales are due out today, expected at +0.7% by BoA (the last retail sales figures before the elections which could bring seasonal surprises) along with the ECB meeting.
Overnight in Asia…
S&P future -12 points; Hong Kong +0.8%; Nikkei -1%; China flat
Chinese markets traded moderately higher after China's Housing Minister Ni Hong said authorities are acting "very swiftly" to stabilize the real estate market.
Europe should use the challenges posed by an increasingly fragmented world order and geopolitical conflicts as an opportunity to strengthen the foundations of its domestic market, ECB President Christine Lagarde said yesterday on the eve of the ECB meeting.
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