Market update: Traders U-turn on Asian tensions, Merkel sending the EURUSD above 1.20

30 Aug

by Mihály Tatár

Good Morning!


  • Helped by Trump’s uncharacteristically reserved reaction to the North Korean provocation (’all options are on the table’), and the US Consumer Confidence index jumping to the highest level since 2000, most markets rebounded from Tuesday’s losses (SPX +0.08%, Nasdaq +0.30%, Nikkei +0.60%, Shanghai +0.05%, Gold eased back to 1310 USD). European stocks weren’t so lucky however (DAX -1.46%, MIB -1.46%), as Merkel’s comments, that she is not worried about the strong Euro, was used as a perfect excuse to push the EURUSD through 1.20 and clear all the stops until 1.2070 – making the life of export-oriented Eurozone companies harder. (Tellingly, the exchange rate later U-turned and finished under 1.20 – one would need Draghi on steroids at the 7/September ECB rate decision to fundamentally justify this squeeze from 1.08 to 1.20). Speaking of position squeezes, long Forint traders were also decimated yesterday, as the EURHUF rallied to 306 on the Hungarian Central Bank (MNB) threat to finally ease more at the September rate meeting (19/Sept). (I guess, the officials at the MNB also read the bank recommendations to speculate on a move to 290, and were not positively excited.)


  • There are several conflicting interpretations of the last 24 hours regarding North Korea – for example, why the US and Japan made no effort to shoot down the missile – with the most plausible being that the goal of the regime was to drive Japan into a hysterical reaction that alienates China from quietly supporting Trump. This clearly did not happen, and personally I find the US President’s Twitter silence more menacing that an outburst. (The latest news are that Russia is ordering the evacuation of its citizens from its North Korean border and that the once-pacifist South Korean PM requested that the US moves B-1B strategic bombers and F-35 stealth fighters to its air bases.)


  • China just created the world’s biggest power company (China Energy Investment Corp.) by merging the nation’s largest coal miner, Shenhua, with one of the largest power generators (China Guodian Corp.) The move is only the first step of a gigantic consolidation campaign (currently, China has 40% more generating capacity than the US, from about  1 trillion USD worth of assets). With China slowly becoming dominant in high-tech manufacturing, and currently spending 1 trillion USD on foreign trade infrastructure overseas, one has to wonder what global trade economists mean by ’good for everyone’ competition, in my personal opinion – currently, California’s major concern, for example, is to issue ’male, female, and non-binary’ identification cards.



Have a nice day,


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