Market update: Yields, Dollar higher on tax reform speculation, Madrid losing its patience on Catalonia

14 Sep

by Mihály Tatár


Good Morning!


  • Stock markets eked out only a marginal rally higher on Thursday (SPX +0.08%, DAX +0.23%, MIB +0.00%), with Apple losing another 0.80% – its key Asian suppliers, Cowell and Pegatron shred 7% and 2% respectively – and after the Chinese macro numbers showed an ’unexpected’ slowdown, traders became more careful (Nikkei -0.23%, Hang Seng -0.40%).  (Industrial production and retail sales both missed, and fixed asset investment was the slowest since 1999 – while, of course, steel production reached a new record high.) The real action was going on in the US Dollar and the US bond market anyway: With the speculation that Trump plans another deal with the Democratic congressional leaders (insurance and immigration amnesty concessions for a tax reform), pressuring the Republican party further, the USD strengthened and the EURUSD dropped to 1.1870 (with the US 10Y yield running up to 2.19%). As said before, the market effectively priced in a dysfunctional US during the summer, and it may come as a shock that the Trump fiscal programme can actually happen. (As a sidenote, this is the first occasion of bipartisan lawmaking since Bush – where are the congratulations in the media?). With the jumping yields, regional currencies weakened (EURHUF 308.30 , EURPLN 4.285), and oil prices were pushed higher (WTI 49.30, Brent 55.10 USD) with the IEA and several analysts predicting higher demand growth for 2017. Today, traders focus on the critical US inflation data – as mentioned before, the Fed and virtually the whole economics profession believes that lower unemployment leads to higher inflation (Phillips Curve), and the total absence of price increases so far ( – most probably because of the ’Amazon effect’ – ), has driven the Fed crazy.


  • EU President Jean-Claude Juncker delivered his most ambitious speech on the future of the EU yet, essentially calling for the final steps of integration (EU finance and economy minister, direct election of a powerful single EU President, common consumer protection, EU army, every country using the Euro etc.). While personally I would be a big fan of a well-functioning EU, I still don’t see the change of mentality for the necessary reforms – for example, who took responsibility for Brexit and stepped down? Or who will stop a German-French coalition from inviting another hitoric wave of immigrants to massage their demographics even if half of Europe is opposing it?


  • It seems that Madrid finally had enough: Spain ordered the criminal probe of over 700 Catalan mayors, and threatened to send in the police to stop the referendum. Altough the irritation of the Spanish government is understandable, it is not hard to forecast that these will not turn the sentiment more pro-Spain in Catalonia.


  • While more and more parts of Syria go quiet, the US air campaign is getting more intensive in Afghanistan (jets and drones dropped more than 500 bombs in August alone to support the troop surge), and in Africa (three air strikes in Somalia in one week). Geopolitical analysts worry that while it is relatively easy to contain ISIS in Asia (strong and not too human-rights-sensitive local governments), Africa will produce another wave of failed states and ISIS-affiliates in the coming years.


Have a nice day,


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