Market update: Trump delivers a fiery speech at the UN, Ukraine issues debt, the MNB delivers

20 Sep

by Mihály Tatár


Good Morning!


  • Markets remained wary before the Fed meeting tonight (SPX +0.11%, Nasdaq +0.10%, DAX +0.02%, Nikkei -0.04%, Shanghai +0.37%, EURUSD 1.20, WTI 49.80, Brent 55.30 USD), and traders killed the time by selling Turkish assets (the stock exchange fell 5% in September, becoming the worst-performing major market). Part of the uncertainty is that while inflation is nowhere the Fed expected it to be – forcing rate setters to make dovish U-turns in communication-, the market conditions are actually perfect to normalize interest rates and tigthen liquidity from Yellen’s standpoint: Growth is strong but not overheated, market volatility is minimal, and even more importantly, yields are roughly where they were one year ago despite three rate hikes. In the meantime, the media watched Trump’s UN speech in blind contempt – focusing on the US President’s warning that the US has no choice but to destroy North Korea if necessary, and that the story of the Iran deal is not over -, while in my personal opinion, a few years from now it will be remembered as an important symbolic event: Essentially Trump argued that sovereign nation states are the best vehicle to advance humankind, and he will defend them from its enemies, let them be neighbor-threatening rough states like North Korea or anti-nationalist progressives (supranational entities and the Mark Zuckerbergs come to mind). While whether one agrees or not is a world view question, it is not hard to forecast that this conflict of political philosophies will dominate the next few decades. (China was barely mentioned during the speech – one can see that Steve Bannon is out of the White House – , but for good measure US trade tzar Robert Lighthizer warned that China represents an ’unprecedented threat to the world trading system’.)


  • The Hungarian National Bank (MNB) acted more or less as expected: It cut the overnight bank deposit rate by 10 basis points to -0.15%, boosted the volume of its currency swaps and cut the cap of the 3M deposit facility down to 75 billion. Most importantly, it warned that it is ready to cut further and introduce new easing tools (translation: we are serious), and that it expects further drops in yields. Traders acted in the classic ’buy the rumour sell the news’ fashion (EURHUF 308) before the Fed, but personally  I doubt anyone had the appetite to target sub 300 levels again.


  • Investors rushed in to Ukraine’s first international debt issuance since Russia’s annexation of Crimea in 2014, allowing the government to sell 3 billion USD of 15-year bonds cheaper then expected. Even so, the yield ended up at 7.37%, and geopolitical analysts don’t look to be as optimistic as investors (the latter have little else to buy these days, of course): Poroshenko’s (or Porky, as called by Ukranians) poll numbers are at single digits, official inflation is at 16%, and a political solution is more far away then ever since 2014. (By contrast, ’will collapse by 2016’ Russia’s unemployment just fell to a record low and retail sales are at the highest since 2014).


  • Making some rounds in the press, the worst suspicions turned out to be true regarding the EU’s ’new, local approach to immigration’: Italian newspapers found out that one of the new partners is  ’the Uncle’ Dabaschi in Libya, a people smuggling warlord who now turned into being a payed migrant keeper with his 500-strong militia. One has to wonder what will happen if the EU forgets a payment or the black market price of smuggling goes up.


Have a nice day,


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