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Monday, December 6, 2021

Commentary: Paul Ebeling on Wall Street


For all the stress, worries and concerns about trade disputes, geopolitics and a slowing and overly indebted global economy, Y 2019 may be the best year investors have ever had.

The numbers are staggering

Global stocks have piled on more than $10-T, bonds have been on fire, Crude Oil has risen almost 25%, former crisis spots Greece and Ukraine have Top-performed, and even gold has shined bright

Wall Street .SPX and MSCI’s near 50-country world index .MIWD00000PUS have both stormed to record highs after 30% and 24% leaps. Europe, Japan, China and Brazil are all up at least 20% in USD terms too.

Y 2019 is mirror image of Y 2018, when almost everything fell.

The important drivers.

One was China showing it was serious about stimulus for its $14-T economy. The other was the screeching change of direction by the world’s Top central banks, led by the Fed, which cut US interest rates for the 1st time since the financial crisis more than a decade earlier.

Whereas a year ago the Fed was raising rates and earnings were rolling over, this year you have felt the Fed has been on your side,” said the asset manager at Jupiter’s Absolute Return Fund.

They are willing to do QE-4 at a stock market (record) high, which is extraordinary,” he added, referring to Fed efforts to bring down a spike in money market rates that some suggest could presage a 4th round of quantitative easing asset purchases.

Graphic: Global markets in Y 2019 – here

Reuters Graphic

That Fed shift and the worldwide stream of rate cuts that have come since have fired bond markets up.

US Treasuries, the world’s benchmark government IOU, have made a 9.4% after yields plunged as much as 120 bpts. That followed a near 40 bpt fall in Q-4 of Y 2018, after 5 Quarters in which they had consistently risen.

German Bunds, Europe’s safest asset have had their best year in 5 years, making roughly 5.5% in Euro terms as the ECB has reversed course too. The yield on 10-year debt dropped below 0% for the 1st time since Y 2016 in March and dived as deep as -0.74% in September.

Graphic: US Treasuries vs German Bunds – here

Reuters Graphic

In commodities, oil has raced up almost 25% following its best Q-1 since Y 2009. That, plus Key dividend rule changes, has made Russia’s stock market the best in the world with a 40% rise and also made the Rouble a Top 3 currency.

Metals have been mixed

Copper is only 4% higher after buckling badly when trade tensions flared in the middle of the year, and aluminum is down 2%.

Palladium, used in car and truck catalytic converters, has rallied 55%, while gold has had its best year since Y 2010 with a 15% YTD move.

A statistic likely to make most jaws drop is that Greek banks, as you will remember all that Euro debt crisis and capital controls stuff a few years back have been some of the world’s best-performing stocks this year.

The country’s biggest lender Piraeus Bank (BOPr) is up 250%, as is smaller Attica Bank (BOAr), helping make Athens Europe’s strongest exchange this year.

But even those gains look skimpy in comparison to California video streaming darling Roko (ROKU), whose shares have risen 440% this year.

Tech has remained Top more broadly.

Apple (AAPL) may just have lost its crown as world’s most valuable firm to Saudi Aramco but it can console itself with its 77% leap this year.

Facebook (FB) has surged 57%, Microsoft (MSFT) 53%, Google (GOOGL) 30%, Netflix (NFLX) 24% and Amazon (AMZN) 19%. China’s tech sector .CSIINT is right in mix too with a 64% rally and online giant Alibaba (BABA) up 53%.

Cryptoassets have been typically wild. Bitcoin was up over up 260% in June but it has been hauled back to around 85%.

Riskier high-yield debt, corporate bonds and local currency emerging market bonds and have all brought in between 11%-14% while Ukraine’s dollar bonds and Greece’s euro bonds have piled on over 30%.

It is just a great year for the asset class,” said Pictet’s emerging market debt portfolio manager.

It has been a relentless rally across the board over the last couple of months and it is possible that it continues into next year.”

Graphic: Emerging market hard currency bonds in Y 2019 – here

Reuters Graphic

Despite almost daily BREXIT chaos, the loss of another Prime Minister and a snap election, UK gilts have returned 4.5% and a near 6% rise could land GBP its best Quarter since Y 2009.

In contrast, the Fed’s pirouette and easing of trade tensions means the dollar index .DXY is about to experience its worst quarter in 1.5 years. It is still clinging to a 1.5% gainer for the year, though, meaning it will be the euro’s EUR= 5th Red year in 6.

As usual the big swings have been in emerging markets. Argentina’s peso ARS= and Turkey’s lira TRY=, 2018’s punchbags, have taken another beating. Argentina’s woes have worsened such that it is restructuring its debt again while Turkey’s worries have not really gone away.

At the other end of the spectrum, a new president and a new reform agenda have seen Ukraine’s hryvnia UAH= rocket 19%. Russia’s rouble is up 11% and Egypt’s pound EGP= is sandwiched in between with a 11.7% gain.

Graphic: World stocks pile on more that $10-T in Y 2019 – here

Reuters Graphic

Graphic: All aboard the emerging market express – here

Reuters Graphic

Data Source: Thompson Reuters

Have a Happy Holiday Week.

Paul Ebeling
Paul A. Ebeling, a polymath, excels, in diverse fields of knowledge Including Pattern Recognition Analysis in Equities, Commodities and Foreign Exchange, and he is the author of "The Red Roadmaster's Technical Report on the US Major Market Indices, a highly regarded, weekly financial market commentary. He is a philosopher, issuing insights on a wide range of subjects to over a million cohorts. An international audience of opinion makers, business leaders, and global organizations recognize Ebeling as an expert.   

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