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We had not heard anything about this fund until a week ago, and neither had 99.9% of our subscribers. But now all traders and investors know about it. And on Monday, the US regulator (SEC) held an emergency meeting with representatives of leading US investment banks.

S&P 500

So what really happened? Archegos Capital Management is a family investment firm founded by former Tiger Management analyst Bill Hwang in 2013.
Before joining Archegos, Hwang founded the hedge fund Tiger Asia Management in New York. In 2012, Hwang pleaded guilty to insider trading in Chinese bank shares and agreed to a $44 million fine. The Securities and Exchange Commission in the US said he had used confidential information obtained in a private placement to short sell shares in three Chinese banks.
And this man was entrusted with billions of dollars that he invested in the stock markets through Archegos Capital Management. Not only that, the fund used a very aggressive policy, buying stocks with as much leverage as possible. And banks were happy to lend him this money despite the founder’s reputation.
But something went wrong. A fall in the value of a couple of stocks on which the fund was speculating had a domino effect. Suddenly it turned out that the fund’s net position had turned negative. The banks rushed to close out its positions on margin calls. As a result, some $20 billion worth of shares were traded on Friday, which severely depressed share prices. Which means that the fund took a huge loss that it will never be able to recoup. Who will pay for it? The US and European banks that lent to Archegos Capital Management.
How much are we talking about? There are figures of net losses ranging from 2 to 5 billion dollars. But no one knows for sure. Everyone is worried that there may be more stories about large hedge fund margin calls that took place on Friday.
Who was the beneficiary of what happened? Suddenly it turns out to be Bitcoin. Against a backdrop of falling stock and futures markets, the first cryptocurrency has rallied steadily upwards.

03.00 China Services Business Activity Index for March
11.00 EU Consumer Price Index for March
14.15 ADP US Employment Report March

Important Notes on This Publication:

The content of this publication is for general information purposes only. In this context, it is neither an individual investment recommendation or advice nor an offer to purchase or sell securities or other financial products. The content in question and all the information contained therein do not in any way replace individual investor- or investment-oriented advice. No reliable forecast or indication for the future is possible with respect to any presentation or information on the present or past performance of the relevant underlying assets. All information and data presented in this publication are based on reliable sources. However, Bernstein Bank does not guarantee that the information and data contained in this publication is up-to-date, correct and complete. Securities traded on the financial markets are subject to price fluctuations. A contract for difference (CFD) is also a financial instrument with leverage effect. Against this backdrop, CFD trading involves a high risk up to the point of total loss and may not be suitable for all investors. Therefore, make sure that you have fully understood all the correlating risks. If necessary, ask for independent advice.

30.03.2020 – Special Report. Now it’s getting exciting: the hedge fund Archegos in the USA has turned over. Its backers have liquidated huge equity positions in a firebrand sale. The question now is whether the fund’s exit puts an end to the imbalance. Or whether we are witnessing a devastating chain reaction.

Cheap money leads to imbalances

Told you so: For some time now, we have been warning here that cheap central bank money is increasingly flowing into equities all over the world, that risk appetite is increasing and that bubbles are forming. In addition, a lot of capital is flowing to addresses that are perhaps not as solid as they look. This pessimistic scenario has just come true. Chinese high-tech stocks plummeted and so did American media stocks.

Archegos goes under

Archegos is history: the website is down, the Financial Times did not reach anyone there. Both Bloomberg and the FT confirmed that it was Archegos that triggered a sell-off in some shares at the end of last week. According to them, the events created uncertainty among brokers – who were puzzling over which positions might still be sold off. Behind Archegos Capital Management is Bill Hwang, who has already achieved sad notoriety. His hedge fund Tiger Asia gave its investors their money back in 2012 when he admitted fraud with Chinese bank shares. He paid a $44 million fine and was banned from the Hong Kong stock exchange.

Released for shooting

The trigger for the end of Archegos: ViacomCBS just carried out a capital increase and issued fresh shares worth 3 billion dollars. Last week, Viacom therefore lost around 50 per cent of its value in just four days. This triggered a cascade of margin calls, reported the Financial Times. The financing banks threw blocks on the market at discount prices: Morgan Stanley hawked Farfetch, Discovery, Baidu and GSX Techedu worth 13 billion dollars. And Goldman Sachs put $6.6 billion worth of Baidu, Tencent Music Entertainment and Vipshop Holdings on sale. It also dumped $3.9 billion in ViacomCBS and iQiyi, Goldman wrote to its clients.

Maybe just profit taking

After all, since the beginning of the year Viacom’s share price had risen by around 170 percent. The group’s plan to shift more content to the Paramount + pay platform in the wake of the general audience erosion was increasingly met with doubts by analysts – there have already been eleven downgrades this year. This raises the question of whether this was just profit-taking: After all, Viacom has quadrupled in value since last October, said analyst Michael Hewson of CMC Markets on Sunday. So maybe we will see a nice recovery rally after the bloodbath.

Perhaps also a sector rotation

Or we may see a major sector rotation that can really hurt Wall Street and especially Big Tech: Out of the well-run Corona lockdown trades, into the hopefully rebounding old economy. Barclays strategist Emmanuel Cau said: “It may have hurt a number of funds that were overly exposed to these trades.

Impact hits for major banks

These are the lessons from the affair: First, in the event of an impending crash, the darlings from the previous bull market will be dumped. Which is likely to ruin many small investors who got in on the recommendation of chatter on social media. This is how the bubble deflates.
Secondly, a failure of a large fund causes a chain reaction. The question is whether a bank will soon topple over as well. Then we will experience a veritable crash that will eat into the overall market. And lo and behold: as the “Wall Street Journal” reported today (Monday), the two big banks Credit Suisse and Nomura Holdings warned that they are threatened with massive losses from deals with a US client. Nomura cited around 2 billion dollars. Both stocks slid sharply south. Neither mentioned a name. But the WSJ, of course, immediately made the cross-connection to Archego’s Capital Management.
We are curious to see whether this was just a singular event, or whether with Archegos the first domino in the series has toppled – the first canary in the mine, so to speak. And whether the market is now reacting bearishly out of caution against further distress selling. Bullish support buying of own shares by the affected companies is also possible. Bernstein Bank is keeping an eye on the matter for you – we wish you successful trades and investments!

Important Notes on This Publication:

The content of this publication is for general information purposes only. In this context, it is neither an individual investment recommendation or advice nor an offer to purchase or sell securities or other financial products. The content in question and all the information contained therein do not in any way replace individual investor- or investment-oriented advice. No reliable forecast or indication for the future is possible with respect to any presentation or information on the present or past performance of the relevant underlying assets. All information and data presented in this publication are based on reliable sources. However, Bernstein Bank does not guarantee that the information and data contained in this publication is up-to-date, correct and complete. Securities traded on the financial markets are subject to price fluctuations. A contract for difference (CFD) is also a financial instrument with leverage effect. Against this backdrop, CFD trading involves a high risk up to the point of total loss and may not be suitable for all investors. Therefore, make sure that you have fully understood all the correlating risks. If necessary, ask for independent advice.

We have written repeatedly about the final outcome of a bull market in equities. As long as central banks print money in huge quantities, the only risk to stock markets is rising bond yields. But is rising yields really that important? Say from 1% to 1.75% on 10-year US Treasuries?

DXY

The importance of this indicator can be seen by looking at the forex market situation. Why the EUR/USD is most likely to fall, we wrote the other day. Today is a more global view. And the DXY dollar index is ideal for it.
Let’s look at the daily chart above, which we have deliberately compressed so that a longer term picture can be seen. The yellow moving line on the chart is the 200 SMA. Two days ago the dollar index broke through it from the bottom to the top. This has not happened since last May. That was when the world was sitting on a global lockdown and U.S. lawmakers started handing out money left and right en masse.
What happened next? That’s right, the dollar began to fall against most of the world’s currencies. After a while, the amount of unsecured money began to accelerate dollar inflation. So there were fewer and fewer people willing to buy US bonds at the lowest yield.
As a result, their yields began to rise rapidly. And the dollar index began to rise behind the rise in yields. Unsecured money continues to flow into the economy, but the dollar is no longer falling, but rising.
Now imagine that the yield on 10 year US traded bonds is close to 3% at some point in time. A huge amount of assets around the world would be sold off, and the money freed up would be moved into 10-years with such an attractive interest rate. This will cause the US dollar to rise even faster and stock markets around the world to plummet.

14.00 German consumer price index for March
16.00 US Consumer Confidence Index for March

Important Notes on This Publication:

The content of this publication is for general information purposes only. In this context, it is neither an individual investment recommendation or advice nor an offer to purchase or sell securities or other financial products. The content in question and all the information contained therein do not in any way replace individual investor- or investment-oriented advice. No reliable forecast or indication for the future is possible with respect to any presentation or information on the present or past performance of the relevant underlying assets. All information and data presented in this publication are based on reliable sources. However, Bernstein Bank does not guarantee that the information and data contained in this publication is up-to-date, correct and complete. Securities traded on the financial markets are subject to price fluctuations. A contract for difference (CFD) is also a financial instrument with leverage effect. Against this backdrop, CFD trading involves a high risk up to the point of total loss and may not be suitable for all investors. Therefore, make sure that you have fully understood all the correlating risks. If necessary, ask for independent advice.

Indeed! If you look at the daily chart of the gold metal below, few people would want to trade it, either way. Investors are also becoming less and less interested in gold. The fall has been going on for 7 months now, after hitting highs above $2000 in August 2021.

Gold

In the meantime, there may soon be a lot of interesting things waiting for us. Let’s start with the basics. When does gold rise? Many will say that gold rises during a crisis. And they would be wrong. If you look at the chart, you can see that in all of the last crises (the worst one was in 2008), the gold metal went down with the stock markets.
In fact, gold has mainly risen in 2 cases: money printing by central banks and/or rising inflation.
On throwing huge amounts of new money into the market, the gold metal made all-time highs last year.
But why has it been falling in recent months? Three main reasons can be identified:
1.Profit taking
2.Investor capital flowing into bitcoin
3.Rising interest rates
There seems to be a negative connotation on all sides. But we are forgetting the second ingredient leading to the rise of the gold metal – inflation. That is inflation, which is accelerating rapidly, not only in the US, but all over the world. Money is starting to depreciate in the real sense of the word.
How long will it last? No one knows the timing. However, sooner or later, investors will realise that cheaper gold is once again a great asset to protect them against inflation.
A strong signal from a technical point of view is likely to be a long green candle on the chart, showing the start of a new trend. But, if you look closely at the chart above, something can be seen right now. The yellow metal broke through the strong downward channel it has been in since early 2021.
No one has paid any attention to this so far. But we are paying attention to our subscribers.

08.00 UK retail sales for February
13.30 US Personal Income for February
13.30 US Personal Spending in February
15.00 US Consumer Confidence Index for March University of Michigan

Important Notes on This Publication:

The content of this publication is for general information purposes only. In this context, it is neither an individual investment recommendation or advice nor an offer to purchase or sell securities or other financial products. The content in question and all the information contained therein do not in any way replace individual investor- or investment-oriented advice. No reliable forecast or indication for the future is possible with respect to any presentation or information on the present or past performance of the relevant underlying assets. All information and data presented in this publication are based on reliable sources. However, Bernstein Bank does not guarantee that the information and data contained in this publication is up-to-date, correct and complete. Securities traded on the financial markets are subject to price fluctuations. A contract for difference (CFD) is also a financial instrument with leverage effect. Against this backdrop, CFD trading involves a high risk up to the point of total loss and may not be suitable for all investors. Therefore, make sure that you have fully understood all the correlating risks. If necessary, ask for independent advice.

Of course we are talking about the GBP/USD. It is out of the corridor it has been in for the last few months. Which we have written about several times before. Below is a chart which you have already seen several times in its unchanged form.

GBP/USD

In a newsletter to our clients a week ago we wrote the following:
“What is the main risk of this scenario (continued upside in the channel)? It is that the upward movement within this channel on the daily chart has been going on for about 5 months. This is a very strong trend that only extremely lazy traders have not identified.
From an “evil market” point of view, of course, one wants to break the channel with a sharp move down and take off a large number of stops.”
Which is exactly what happened on Tuesday and Wednesday. The attentive reader will ask the question. Why are we talking about Tuesday and Wednesday if the breakout occurred on Tuesday? On the chart we are using a daily timeframe. From the point of view of classical technical analysis, it is not enough for the price to simply break through the channel. It has to close below it (which happened on Tuesday) and better yet, we should get a confirmation the next day (we got it on Wednesday) that the price did not immediately reverse and break back into the channel.
Now we look at the chart. There are two possible developments:

1. If the breakdown is not false, then from the TA point of view, the Pound/Dollar pair is in for a real disaster. The daily chart does not show a support level. Perhaps the nearest one is the horizontal line at 1.285. From this level the price has pushed back several times before. And this is the potential for a 9 figure drop

2. From a long-term trend and “evil market” perspective, the price should return back to the rising channel after some time. Fundamentally, we maintain our forecast for the Pound/Dollar pair at 1.50 for the end of the year. And the ‘angry market’ is very keen to retake the stops. This time, those traders who went short on the breakdown of the channel

09.30 Swiss National Bank interest rate decision
13.30 Annual US GDP data for Q4

Important Notes on This Publication:

The content of this publication is for general information purposes only. In this context, it is neither an individual investment recommendation or advice nor an offer to purchase or sell securities or other financial products. The content in question and all the information contained therein do not in any way replace individual investor- or investment-oriented advice. No reliable forecast or indication for the future is possible with respect to any presentation or information on the present or past performance of the relevant underlying assets. All information and data presented in this publication are based on reliable sources. However, Bernstein Bank does not guarantee that the information and data contained in this publication is up-to-date, correct and complete. Securities traded on the financial markets are subject to price fluctuations. A contract for difference (CFD) is also a financial instrument with leverage effect. Against this backdrop, CFD trading involves a high risk up to the point of total loss and may not be suitable for all investors. Therefore, make sure that you have fully understood all the correlating risks. If necessary, ask for independent advice.

Right now the pair is trading near 1.19. Before you read the text below, answer the question. Where do you think the EUR/USD is going, 5 figures up or 5 figures down? You can also answer the second, no less interesting question “why exactly”?

EURUSD

What is the first thing investors pay attention to when they look at the EUR/USD pair? Of course the ever-increasing yield spread between 10-year US and German government bonds. It is already as high as 2% (200 basis points).
In the meantime the EURO is still rather comfortable. It is resilient and does not want to fall too much. However the longer this spread stays at current levels, the more pressure on the EUR will be put on it.
Imagine this. You are a big investor and you want to invest your spare money for the next 10 years. And you are thinking, take the dollar and American Treasuries, getting a 1.7% p.a.. Or enter Euro bonds at minus 0.3%? The answer is obvious. Very few people want to invest in European currencies.
Not enough of that. The US economy is recovering much faster than the European economy. And the United States is also ahead in vaccination rates.
So why isn’t the EURO falling? There is only one answer. Because everyone sees it and waits for it. When everyone in the market is waiting for the same thing to happen, it can happen much later than most people think. That is, once many of us get tired of waiting, the pair can go towards the 1.15 level in just a few trading sessions.

08.00 UK consumer price index for February
09.30 German PMI for March
10.00 EU Manufacturing Activity Index for March
10.30 UK PMI for March
13.30 US Durable Goods Orders for February

Important Notes on This Publication:

The content of this publication is for general information purposes only. In this context, it is neither an individual investment recommendation or advice nor an offer to purchase or sell securities or other financial products. The content in question and all the information contained therein do not in any way replace individual investor- or investment-oriented advice. No reliable forecast or indication for the future is possible with respect to any presentation or information on the present or past performance of the relevant underlying assets. All information and data presented in this publication are based on reliable sources. However, Bernstein Bank does not guarantee that the information and data contained in this publication is up-to-date, correct and complete. Securities traded on the financial markets are subject to price fluctuations. A contract for difference (CFD) is also a financial instrument with leverage effect. Against this backdrop, CFD trading involves a high risk up to the point of total loss and may not be suitable for all investors. Therefore, make sure that you have fully understood all the correlating risks. If necessary, ask for independent advice.

23.03.2020 – Special Report. Next round in the old game: the Turkish lira is plummeting. The Sultan in Ankara has fired yet another central bank chief. In recent months, he had successfully propped up the dwindling currency with higher interest rates. Now the bizarre Erdoganomics is on the agenda again – the bears are sharpening their claws.

Four months of stabilisation

Once again we have to deal with the Turkish lira and the incomprehensible monetary policy in Neo-Ottomania, to say the least. Head of state Recep Tayyip Erdogan dismissed the head of the central bank, Naci Agbal, on Saturday night. The ruler had only appointed him to office last November. During his short term in office, Agbal had raised the key interest rate by 875 basis points to 19 per cent.

Unexpectedly high interest rate hike on Wednesday

But last Wednesday, Agbal broke the camel’s back: The unexpectedly high interest rate hike of 200 points sent the lira soaring. But the head of the central bank had finally made trouble with Ankara. The Erdogan-owned tabloid “Yeni Safak”, for example, raged. But the central bank had no other choice – because inflation in Turkey is galloping. It is at 15.6 percent, the official target value is 5 percent. For the fifth month in a row, the inflation rate had increased, for example because of rising oil prices. Phoenix Kalen of Société Générale applauded the rate move, saying it “will go a long way towards bolstering both retail and foreign investor confidence that the CBRT under Governor Agbal will stay engaged in addressing deterioration in inflation expectations.”

Bizarre Turkish monetary policy

But now the cold shower. While the majority of economists assume that a currency increases in value when interest rates rise because they then get a higher return on their investment, Erdogan sees things quite differently. Contrary to doctrine, the president assumes that it is high interest rates that fuel inflation. In doing so, he confuses cause and effect. The financial blog “ZeroHedge” called this a “bizarro monetary policy”.

The successor even sees the zero interest rate

Agbal’s successor will be Sahap Kavcioglu, a finance professor and former MP from Erdogan’s AK Party. The scholar of the Marmara University has, by the way, already been a frequent columnist for “Yeni Safak”. Kavcioglu also opposes a restrictive interest rate policy – and even considers negative interest rates advisable, as the “Middle East Eye” reported. Listen and be amazed: zero and negative interest rates are usually a means against deflation, intended to force cash-hoarding investors to invest. And they are highly inflationary, which Turkey really does not need.

The trust is gone

Be that as it may: Kavcioglu is the fourth head of the central bank in twenty months. The “Neue Zürcher Zeitung” wrote: “The confidence gained in Turkish economic policy in recent months is gone. Moreover, the Turkish economy has been in crisis for three years. And this despite the fact that the cheaper money in the meantime has at least boosted the construction sector and the Turkish economy has grown by 1.8 per cent, better than expected, despite Corona. Only: foreign capital is still giving the country a wide berth. Now probably more than ever. The unemployment rate is officially 13.4 percent; the real figure is probably closer to 30 percent, according to the publication “AL-Monitor”.
And the treasury is pretty empty. Goldman Sachs estimates that Turkey spent more than 100 billion dollars on support purchases for the lira last year alone. The former finance minister and Erdogan’s son-in-law, Berat Albayrak, was primarily responsible for this. He had resigned in protest against the appointment of the now fired central bank chief Agbal; the international financial community had registered the departure of the son-in-law with relief.

The return of consumption

Our conclusion: Hard times are ahead for the lira. For traders, the new crisis offers enormous short opportunities in the lira. However, you should be aware that the central bank could always destroy shorts overnight with sudden interest rate hikes in the repo market. Or Ankara could use emergency loans – from China and Russia, for example – to buy lira unexpectedly.
Investors will otherwise note the new volte-face with raised eyebrows and perhaps, perhaps decide to invest their capital in a less erratic country after all. Especially since Turkey risks a war with Greece over the exploitation of oil and gas deposits, has an expensive military engagement in Syria and the foreign exchange earner tourism remains stifled because of Corona. A nasty toxic cocktail for the Turkish economy, which looks very much like an economic crisis and, at the bitter end, a currency reform. Bernstein Bank is keeping an eye on the situation for you – we wish you successful trades and investments.

Important Notes on This Publication:

The content of this publication is for general information purposes only. In this context, it is neither an individual investment recommendation or advice nor an offer to purchase or sell securities or other financial products. The content in question and all the information contained therein do not in any way replace individual investor- or investment-oriented advice. No reliable forecast or indication for the future is possible with respect to any presentation or information on the present or past performance of the relevant underlying assets. All information and data presented in this publication are based on reliable sources. However, Bernstein Bank does not guarantee that the information and data contained in this publication is up-to-date, correct and complete. Securities traded on the financial markets are subject to price fluctuations. A contract for difference (CFD) is also a financial instrument with leverage effect. Against this backdrop, CFD trading involves a high risk up to the point of total loss and may not be suitable for all investors. Therefore, make sure that you have fully understood all the correlating risks. If necessary, ask for independent advice.

Last week saw the end of the Fed’s regular meeting. Immediately after the results of the meeting, volatility in the market increased, something that has not happened in quite a while. Let’s get into the details.

S&P 500

Investors were interested in two main questions. Whether inflation will rise. And if it does, what is the Fed going to do about it. The answers were as follows. Inflation will rise and the Fed is not planning to do anything in the near future. That is, money will continue to be printed, with interest rates remaining low for a long period of time. And a very important clarification. It’s about the rates that the Fed is setting.
The promise to keep today’s pace of asset purchases at $120 billion per month, along with a zero rate for as long as necessary. There was also a more optimistic outlook for economic growth. Labour market expectations are also seen as better.
The most important thing the Fed is focusing on is inflation. Or rather its prospects. The Fed believes that we are only seeing a short-term spike which will not continue into 2022 and 2023.

Did the markets believe what they were told?

The emotional reaction on Wednesday evening was convincing. Stock markets, oil and gold rose. And the dollar index fell. However, already on Thursday the correction began. Investors, after rethinking what they heard, came to the conclusion that the Fed was not convincing enough.
The best proof is the continuing rise in the yields of American Treasuries. For 10-year bonds investors can currently expect a yield of 1.75%. Compare that to the declared zero interest rate from the Fed.
Recently we have taken a detailed look at the relationship between the stock market and bond markets. And we explained that there was no bubble in stocks because bond yields were extremely low by historical standards. We also showed why rising bond yields are extremely dangerous for the stock market. Nothing terrible has happened yet. But the trend set is becoming less and less pleasing to big investors and “smart money”.

02.30 People’s Bank of China interest rate decision
15.00 US secondary housing market sales for February

Important Notes on This Publication:

The content of this publication is for general information purposes only. In this context, it is neither an individual investment recommendation or advice nor an offer to purchase or sell securities or other financial products. The content in question and all the information contained therein do not in any way replace individual investor- or investment-oriented advice. No reliable forecast or indication for the future is possible with respect to any presentation or information on the present or past performance of the relevant underlying assets. All information and data presented in this publication are based on reliable sources. However, Bernstein Bank does not guarantee that the information and data contained in this publication is up-to-date, correct and complete. Securities traded on the financial markets are subject to price fluctuations. A contract for difference (CFD) is also a financial instrument with leverage effect. Against this backdrop, CFD trading involves a high risk up to the point of total loss and may not be suitable for all investors. Therefore, make sure that you have fully understood all the correlating risks. If necessary, ask for independent advice.

In yesterday’s newsletter we asked you to consider where the biggest tax hike in 30 years will lead. That is what the new White House administration is proposing to do to cover the budget deficit. Let’s think now about where it will lead.

S&P 500

Classical economic theory says the following. An increase in taxes on companies, such as income tax from 21% to 28%, leaves less money for the companies themselves. So they have less opportunity to invest in their development.
This is a very important point. Why are stock returns higher than bond yields over the long term? The fact is that bond yields are close to bank interest rates. And companies borrow money from banks to expand production. This means that when they borrow money, they don’t just expect to pay it back with interest, they expect to earn money. Otherwise, private businesses would simply not borrow money.
By leaving companies with less money, once taxes are raised, the US government is taking a very big risk. A decline in investment rates does not just lead to a decline in GDP rates. It hits the entire economy. Demand for labour decreases, wage growth declines, and business activity declines.
How should stock markets react to this, according to that same classical economic theory? At the very least by a decline in growth, and at the very least by a sharp fall.

What will happen after the highest tax increase in 30 years?

Firstly, it must be understood that no one has raised taxes yet. The bill may not pass the US Senate or may be heavily amended.
Secondly, it is worth remembering that the monetary stimulus has turned the economy upside down. If the same issue had arisen 10-20 years ago, with tax hikes, no one would have doubted the future course of events.
And now there are very strong doubts that the markets will react to the tax hikes, according to the economic theory we are accustomed to. After all, they continue to be flooded with newly printed money.
However, we do know what the analysts will say in about 1-2 months, if a hard fall takes place. They will say that this declines were to be expected. And the final nail in the coffin was hammered in by Joe Biden’s drastic tax increases. And, interestingly enough, for once, the analysts will be right.

01.30 Australian retail sales for February
04.00 Bank of Japan interest rate decision
13.30 Canadian retail sales in January

Important Notes on This Publication:

The content of this publication is for general information purposes only. In this context, it is neither an individual investment recommendation or advice nor an offer to purchase or sell securities or other financial products. The content in question and all the information contained therein do not in any way replace individual investor- or investment-oriented advice. No reliable forecast or indication for the future is possible with respect to any presentation or information on the present or past performance of the relevant underlying assets. All information and data presented in this publication are based on reliable sources. However, Bernstein Bank does not guarantee that the information and data contained in this publication is up-to-date, correct and complete. Securities traded on the financial markets are subject to price fluctuations. A contract for difference (CFD) is also a financial instrument with leverage effect. Against this backdrop, CFD trading involves a high risk up to the point of total loss and may not be suitable for all investors. Therefore, make sure that you have fully understood all the correlating risks. If necessary, ask for independent advice.

18.03.2020 – Special Report. Wait a minute: Fed Chairman Jerome Powell has just promised low interest rates until further notice. Nevertheless, high-tech stocks are selling off for the time being. And bond yields are rising. Because the market believes in an interest rate hike in the wake of the feared inflation. But the Fed could also help the Nasdaq and Treasurys in the near future: Traders and investors should keep an eye on the acronym SLR. We take a closer look at the Federal Reserve’s latest major policy announcement.

Shared financial market

Divided joy on the financial market: The yield on ten-year US Treasurys has again reached the 1.75 percent mark, which is considered a critical level before the Fed intervenes. In addition to bonds, interest-sensitive growth stocks were also in a sell-off. The old economy was quite different: the Dow Jones just crossed the 33,000 mark for the first time ever as the Fed forecast the strongest growth in almost 40 years. The DAX also marked new records. The US Federal Reserve has announced that it will keep interest rates down until 2024.

The Fed lets the chips fall where they may

A mixed reaction to the coming floods of cheap money. The Fed is obviously willing to let inflation run – besides a Corona recovery, low permanent interest rates are fuelling the financial market. And they are causing a sell-off in government bonds. Which makes yields rise. For the danger of economic overheating looms – and the Fed has signalled that it will do absolutely nothing about it. Many traders believe that the Fed will have to raise interest rates at some point.
Let’s look at the context again: If you invest in long-dated bonds, you will get back much less money than you paid in at maturity in the event of inflation. An unprofitable investment. Hence the recent sell-off in Treasurys. And also the scepticism about growth stocks, where investors look closely at the returns. Because with high-tech stocks there are often no profits yet but a lot of hope: And for pricing, many analysts use the discounted cash flow model for their forecast of the future share price, where a higher interest rate leads to a lower share valuation.

More inflation

Accordingly, Jonathan White, Head of Investment Strategy at AXA IM Rosenberg Equities, commented: “Rising real rates have created a hostile environment for longer-duration growth factors. Looking ahead we continue to believe the environment should favour value stocks over growth stocks. “Neil Dutta of Renaissance Macro explained: “Passive easing continues. GDP has been revised up. Inflation has been revised up. Unemployment has been revised down. Despite all this, the median dot still at zero through 2023 though a few more see a hike. Chair Powell probably has time to help these folks understand the new policy framework.”

Look for the abbreviation SLR

The yields for US government bonds rose mainly because Powell avoided a clear statement in this direction. However, he could make up for this in the next few days. For the market, the important watchword SLR – Supplemental Liquidity Ratio – was still missing. In other words: this limitation for banks with regard to the amount of Treasurys versus reserves and account deposits could soon be relaxed. The financial blog ZeroHedge suspects that this could result in over $1 trillion more in bonds moving out of the market and onto bank balance sheets – which would lower yields again. Interestingly, Powell announced in his press conference that he would comment on SLR in the coming days. We add: The Fed could also additionally buy more long-dated US government bonds to push down bond yields. For now, the Fed continues to collect $120 billion worth of US Treasuries and mortgage-backed bonds per month.

These are the disruptive factors

Our conclusion: We assume that the Lord of Money will soon remove the last of the scepticism about interest rates. Then high-tech stocks should also rise, as well as Bitcoin. The dollar is facing hard times. And what else could stop the new money wave rally? For one thing, a prolonged dithering by Powell plus strong economic data – this would push bond yields up further. Then there are tax hikes in the US. It is fairly certain that the Democrats will raise taxes on corporations and high earners. Unless some members of Congress get in the way.
Furthermore, a continuation of the Corona lockdowns could spoil the party. For example, if the vaccinations had strong to fatal side effects. These obviously exist to a much greater extent than known so far. Interestingly, we have so far only noticed a well-founded, critical article on vaccination in the dissident medium “Achse des Guten” (Axis of Good) – one of the few publications that still makes a difference to the GDR in our press landscape. According to it, more than 1,500 people died in the USA between December 2020 and the beginning of March 2021 shortly after Covid vaccinations. That would be a completely new dimension. The website refers to the Vaccine Adverse Event Reporting System. The pro-government mass media in Germany and the USA are silent on this – of course, otherwise the rulers will turn off the money tap. So we are curious to see if the claim proves to be real – and if vaccinations are stopped. Which would be a new blow to the global economy.
Or else, Sleepy Joe will be replaced sooner than expected by Vice President Kamala Harris. Which would result in even more left-wing policies in the US – completely open borders, even higher taxes, a radical New Green Deal with the end of the US oil industry. Interestingly, the first ever press conference in front of the capital press is to be held next week with the aged and presumably demented president. Incidentally, after lapses at a smaller press event in Houston, even Democratic congressmen have demanded that Biden hand over the briefcase with the nuclear codes. We are keeping an eye on the matter for you – Bernstein Bank wishes successful trades and investments!

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