May 2023 Flow Report
May 2023 Flow Report
In May 2023:
1/The US Debt Ceiling Deal, 2/US Regional Banks, 3/The Technology Surge, 4/Japan’s Performance YTD
1/The US Debt Ceiling Deal. Tensions over the US potentially failing to honor the payments of debt got cleared. In January, the US breached the constitutional limit of $31.4tn; they owe more than $31.7tn. Since the end of 2022, the CDS aims to protect against the US government defaulting on its debt. In less than 1 year, the CDS jumped by 160bps to 177bps – a level not seen during previous crises. Once the deal was cleared, the CDS came back below 10bps and volatility on bonds and equity declined.
2/US Regional Banks. After SVB’s bankruptcy and JPM’s purchase of First Republic Bank, regional banks were under pressure. The US regional bank index – as measured by the KRE US – declined by 13.12% on the first week of May before a recovery supported by the prospect of a Fed likely to pause to end up the month at -2.88%.
3/The Technology Surge. Over the last 2 weeks of May, Nvidia fueled the appetite for the Technology sector, as it rose 30% higher, increasing its value by 2.77 since the start of the year. The SPX was dragged higher by the highly traded Facebook, Apple, Amazon, Netflix and Google – as measured by the NYFANG, which was in overbought territory.
4/Japan’s Performance YTD. The TOPIX rose by 21.08% so far this year to come back to level last seen in June 1990. Currency-hedged Topix ETF helped capture this performance without being exposed to the deprecation of the Yen. The EUR-hedged TOPIX (TPXH) has delivered positive performance month after month compared to the TOPIX libeled in EUR (TPXE), which is exposed to the EURJPY. When the EUR appreciates against JPY, the TPXE underperforms the EUR-hedged TPXH and inversely. So far this year, the EURJPY rose by 10.37%.
May Performance highlights (USD)
Equity Indices: MSCI EUROPE: -4.34%, SX5E: -3.72%, MSCI WORLD: -.28%, SPX: +0.90%, TOPIX: +2.20%, NASDAQ: +8.49%,
Bonds: GER 10Y: 3bps, US 10Y: +12bps, GER 2Y: +9bps, US 2Y: +31bps,
Commodities: Gold: -1.17%, Oil: -7.28%,
FX: DXY: +1.97%, USDJPY: +1.67%
From a regional perspective, International DM, Europe, UK and Swiss equities were bought, while Nordics, US and Germany were sold. On the fixed income side, EU, US and Italian government bonds were in demand.
More specifically:
On equity indices: The S&P500, MSCI WORLD, STOXX EUROPE 600 recorded a mixed activity. The NASDAQ, MSCI EMU ESG, DAX and MSCI WORLD VALUE were sold. The MSCI WORLD ESG and the MSCI USA ESG were bought.
On fixed income: US TREASURIES were bought across the curve with the US 1-3, 3-7Y, 7-10Y and 20Y+. The European EONIA as well as the EU 1-3Y Govt Debt were also in demand.