Market update: S&P at a fresh record high as markets stage a relief rally, China electric car comments capture the imagination

12 Sep

by Mihály Tatár

Good Morning!

 

  • With Hurricane Irma being downgraded from the ’storm of the century’ to being a mere 50 billion USD annoyance, and Washington clearly preferring sanctions to carpet bombing on North Korea, for now, the end of the world got officially postponed and markets staged a relief rally (SPX +1.08%, that is a fresh historical record high, DAX +1.39%, MIB +1.64%, Nikkei +1.24%, Shanghai +0.18%), with traders selling their hedges (Gold 1324 USD, EURCHF 1.1440, JPY 109.40). Naturally, insurers advanced the most (the giant Muencher Rueckversichering jumped 3.8% and Swiss Re 4%), and the US Dollar also strengthened (EURUSD 1.1940), as the hot money was leaving US Treasuries (10Y 2.14%). Part of the optimism is also the growing realization – forecasted here during the summer – that Trump is pushing towards the political left, making deals with parts of the Democratic party and trying to weaken the Republican establishment, creating a kind of ’Republican Workers Party’ (the expression of the New York Post) in the process. If he succeeds in this, the expectations for a lame duck Trump presidency will end up just like the Hillary victory predictions, in my personal opinion, as Trump voters mainly care about immigration, and feel contempt for their own party leadership and their supposedly conservative agenda.

 

  • Regional currencies, which were overlooked last week, did little now (EURHUF 306.50 – with the latest easing expectations, the Hungarian 3Y yield dropped to a historical record low of 0.59% – just imagine the country having this funding cost any time during the 20th century -, EURPLN 4.2480, EURRON 4.60), and market watchers rather focused on the Turkish banking system: Halk Bankasi dropped 15%, after a former Turkish minister and senior managers of the bank were charged by the US with laundering hundreds of millions of dollars through the US financial system for the benefit of Iran and Hezbollah. (Erdogan seems to become so obsessed with the prospect of the Kurdish indepedence that a tactical alliance is forming between the two countries, which will certainly irritate Washington, especially with the Iranian expansion into Syria and Lebanon).

 

  • The Chinese comments, that following France and Germany, Party policy makers are considering a ban on fossil fuel powered cars (planned in several phases until 2040), received worldwide attention. Not everyone is happy, of course – environmentalist warn that most of the necessary electricity for this will come from coal, German automakers are frantic to catch up, and Washington is worried that the result will be another wave of forced technology transfers towards China, eventually undercutting Western carmaking.

 

Have a nice day,

Mihaly

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