Monday, February 14, 2022
Please
find below our latest Weekly Trend Report covering major asset
classes and currencies.
Have
a nice week ahead.
Marc
Bentin
The major events of the past week were inflation
(US CPI) running hotter than expected with a 0.6% monthly gain which boosted yoy
US inflation to a 40 year high at 7.5%.
This initiated a raft of damage control comments
from Federal Reserve Officials claiming monetary tightening and tapering should
occur sooner and faster than expected with speculation building of a 50bps rate
hike in March with accompanying calls for an immediate halt of Federal Reserve
asset purchases…Rate hike “speculation” rose to 6.3 times a 25bps hike before
the end of the year.
Then on Thursday and Friday came a swift
deterioration on the situation in Ukraine as the US administration raised the
alert level, calling back diplomatic staff from Ukraine (including some military
personnel), urging its nationals to leave Ukraine immediately, as it claimed
Russia would soon (before the end of the Olympics games) move into Ukraine.
This triggered a massive risk off session on Friday
that erased the squeezy gains of the first half of the week, at the same time cutting
most of the bond market loss that the inflation surprise and accompanying Fed officials’
declarations had triggered.
While the so-called ECB pivot from the previous
week (when ECB President C. Lagarde hinted at the possibility of a rate hike
before year end following disappointing German and pan European CPI) triggered
some rise in core yields and peripheral spreads (Italian and Greek yields climbed
by respectively 20bps and 40bps, early last week, Friday’s “risk off” session
and some push back/ backpedalling from the ECB President who insisted that a
precipitous rate hike would not help resorb prices pressures related to the energy
crisis and supply bottlenecks, reduced those losses.
Friday’s biggest casualty were the Russian stock
market (-5%) and RUB (-2%) while US Treasuries rallied. With inflation at 7.5%, “talks” about the need
of an immediate rate hike of 100bps managed to reverse much of last week’s
losses, with 10-year yields trading back at 1.94% (after hitting 2.04% intraday
on Friday). WTI which had corrected slightly earlier in the week, also stormed back,
closing 4.5% higher on Friday.
Russia blamed the White House for conducting a mass
disinformation campaign against Russia while the White House said it was just
“trying to stop a war”.
The technical deterioration inflicted on Friday was
severe, including and starting with the underperformance of US citadels which fuelled
US indices last year despite 50% of the Nasdaq undergoing a severe correction
over the same period. Amazon, Tesla, Netflix, Facebook, Nvidia and recent IPO’s
all suffered a near 4% loss on Friday. GOOG dropped 3.25% while semis shed
-7.9%. There was continued deterioration in credit markets as well with traders
bidding up the price of protection on corporate bonds and high yields in
particular.
Also on Friday, University of Michigan US consumer expectations were
reported to have unexpectedly dropped to a fresh decade low (to 61.7 from 67.2 and 67
expected) with both current and expected conditions dropping and 12month inflation
expectations rising once more (to 5%).
All of the above being said, over the week end, Goldman and BoA reminded that while 2021 logged more
equity inflows ($913bn), than the prior 25 years combined, 2022 is on pace to
exceed this number by 45%”. While the risk of war and tapering are powerful deterrents
near term (as could be a recession) and while most of this year’s equity flows
are wrong footed, it remains nonetheless that FOMO will calculate in days,
weeks, months rather than years when the bottom is reached, especially, as is
likely, if the Fed (ECB, BoJ) remain (very) unlikely to deliver a “Volcker” moment
or anything of that nature.
Elsewhere in China last week, January aggregate
financing data came in 15% stronger than expected at USD972bn and trouncing a
previous record growth dating from January last year as the PBOC reiterated on
Friday it was encouraging banks to expand lending to bolster a slowing economy.
Stress remained visible among leveraged real estate developers and real estate
transactions dropped sharply over the past few weeks.
Over the past week, the S&P500 dropped -1,8%
(-7,3% YTD) while the Nasdaq100 sold off by -3,1% (-12,8% YTD). The US small
cap index gained 1,5% (-9,5% YTD).
Cboe Volatility Index rallied 19,7% (61,4% YTD) to
27,57.
With Friday’s move, every major US index and every
sector of the S&P500 now stand in “bear trend” territory (trading below
their respective 50d and 200d ma) with the exception of banking, energy (+27%
ytd) and metals mining (+8.1% ytd). The worst performance year to date comes
from semis (-18.5%), home building (-17.6%) and Biotech (-16.66%).
Last week, the Eurostoxx50 gained 1,8% (-3,2%),
outperforming the S&P500 by 3,7%.
Diversified EM equities (VWO) gained 0,3% (0,3%),
outperforming the S&P500 by 2,1%.
The Dollar DXY Index (UUP) measuring the USD
performance vs. other G7 currencies gained 0,7% (0,4%) while the MSCI EM
currency index (measuring the performance of EM currencies vs. the USD) gained
0,4% (0,7%).
10Y US Treasuries dropped 1bps (40bps) to 1,91%.
10Y Bunds climbed 9bps (47bps) to 0,30%. 10Y Italian BTPs underperformed rising
21bps (78bps) to 1,95%, underperforming Bunds by 5bps.
US High Yield (HY) Average Spread over Treasuries
climbed 2bps (52bps) to 3,35%. US Investment Grade Average OAS climbed 1bps
(17bps) to 1,17%.
In European credit markets, EUR 5Y Senior Financial
Spread climbed 3bps (20bps) to 0,75%.
Gold
rallied 3,0% (1,9%, Z-score 2,2) while Silver rallied 5,1% (1,5%). Major Gold Mines
(GDX) rallied 6,7% (1,2%), delivering the best daily performance of our score
card on Friday.
Goldman Sachs Commodity Index dropped -0,3%
(14,4%). WTI Crude gained
1,6% (24,7%, Z-score 2,2). J. Currie, the closely watched commodities
research head of Goldman opined last week that in 30 years in the business, he
has never seen commodity markets pricing in the shortages they are now. “We are
out of everything”, he said, pointing out that futures curves in several
markets are trading in super backwardation as traders keep paying up large premium
for immediate supply.
Overnight in Asia…
Ø S&P500 future +12 points; Nikkei -2.1%; CSI300
-0.6%
Ø Over the week end, L. Summers called for the Fed to
hold an emergency meeting to conclude QE early.
Ø On Thursday, just prior to traders hitting off for
a long week end, the BoJ announced a fixed rate operation to buy an infinite
amount 10-year notes at 0.25% today as 10-year yields approached this upside limit
of their yield anchoring extreme monetary policy. Nobody showed up this morning
to sell at 0.25% bonds trading at 0.21%
Ø A call between J. Biden and V. Putin over the week
end was inconclusive.
Ø During their Sunday phone call Ukraine's President
Zelensky asked US President J. Biden to visit Kiev in person amid pressing White
House claims that a Russian invasion is set to happen "any day" now. Russian Foreign Minister Lavrov tweeted over the week
end “After Russian troops finish drills and return to barracks, West will
declare 'diplomatic victory' by having 'secured' Russian 'de-escalation'.
Predictable scenario and cheap domestic political points.”
10 Days In Charts…
Global
Risk Appetite & Confidence
Check out different gauges of Risk Appetite .
Check China … (Stock
Indices, CNY…and Evergrande)
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