Market update: North Korean explosion in the center of attention, monster US manufacturing data, Merkel-Schulz debate little exciting

4 Sep

by Mihály Tatár

Good Morning!

 

  • The North Korean nuclear test – 10 times stronger than a year ago and probably indeed being a hydrogen bomb explosion – resulted in the usual reflexive market movements this morning (safe-havens up: Gold 1337 USD, JPY 109.20, profit-taking in equities: SPX futures -0.40%, Kospi -0.70%, Nikkei -0.92%), and by now not even the most robotic analysts believe that ’exactly nothing will happen’. (The test itself was a message to China, which just hosted the BRIC meeting, losing face, and Trump, sensing this, began to talk about sanctioning and halting trade with ’any nation’ that is doing business with North Korea. This of course did not make traders happy.) Otherwise, the sentiment was pretty good on Friday: While the US monthly employment report slightly missed (156.000 jobs created in August instead of 180.000), the ISM Manufacturing index jumped to a monster 58.8 – the highest reading since 2011 and demonstrating the healthy effects of the weaker Dollar. (For the exact same reason, – the weak GBP – the UK’s manufacturing index also printed a very sound 56.9, and of course as a further offence to Brexit ’immediate economic collapse’ forecasters). Risk taking was also helped by the ECB – which, as expected here, is quietly panicking about the EURUSD -, with the latest leak that the exit plan ’may not be ready’ by September (SPX +0.20%, DAX +0.72%, MIB +0.87%, EURUSD 1.1860). This week, Monday should be fairly quiet (US Labor holiday), and traders prepare for Thursday’s critical ECB meeting.

 

  • The Merkel-Schulz television debate turned to be quite a non-event (Merkel easily won at all the pollsters), with Schulz, uninspiringly, attacking from the left (why didn’t the Chancellor pressure Eastern Europe more on migrants, or seriously punish carmakers, and so on). In my personal opinion, it is hard to generate excitement if rivals have exactly the same position, which is, as it happens, the same opinion the whole German elite is having – the mental low point of the debate was when both condidates called for being ’tougher’ on Turkey, while, of course, not threatening the refugee accord.

 

  • According to the latest estimation, the damage from Hurricane Harvey can reach USD 180 billion. Interestingly, adding to the human and material losses, the disaster also has a brutal political angle: Given that the region most hit hosts the most illegal immigrants in the US, bailing everyone out from taxpayer money is not as obvious as it seems. (Democrats – and some Republicans – are already furious that Trump just killed Obama’s favorite immigration amnesty programme- this will be another point where political interests will clash in September. )

 

  • After taking on the electric car battery manufacturing, China is challenging Tesla in another area: Beijing wants to build a ’high speed magnetic leviation train’, even faster than Musk’s Hyperloop (travelling at 4 000 km per hour, or 10 times faster than the world’s fastest bullet train – which is also in China).

 

Have a nice week,

Mihály

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