Market update: The Fed turned out to be hawkish, Bubor and Hungarian yields crash since Tuesday

21 Sep

by Mihály Tatár


Good Morning!


  • Surprising the market (but not regular readers), the Fed turned out to be pretty hawkish, talking about a robust economy – the growth forecast for 2017 was even raised from 2.2% to 2.4% -, a final rate hike in 2017 and three more in 2018. (Yellen called the missing inflation simply ’a bit of a mystery’, devastating too-serious macro analysts and sending them to their psychologists.) As said earlier, the least resistance in yields was higher anyway, and the comments resulted in tough movements along the US yield curve: The 2Y yield jumped to 1.44% (the highest since 2008), and the 10Y to 2.28% (the July ’no tax reforms’ turning point). Naturally, the Dollar rallied (EURUSD 1.1860, JPY 112.60, USDHUF 260, PLNUSD 3.60), while stock markets were pretty unsure what to do (SPX +0.06%, DAX +0.06%, Nikkei +0.29%, Shanghai +0.30%), especially as traders kept selling Apple (-2.8%, or -5.4% since the August record high). Hearing the bullish talk, oil prices also advanced (WTI 50.70, Brent 56.20 USD, partly helped by US gasoline supplies dropping to the lowest level since 2015), touching the technically important 200-day moving average for the first time since May. Last but not least, as expected, with its Tuesday demonstration the Hungarian Central Bank (MNB) finally managed to hammer the overnight Bubor into negative territory (-3 bp), and the 3Y yield to a fresh record low of 0.45% (!) – good luck to Forint bond investors.


  • Thyssenkrupp and Tata reached a tentative deal to merge their European steel business to create Europe’s second largest steel producer (after ArcelorMittal). It’s worth mentioning that while the companies talk about ’synergies’ and ’the necessary consolidation’, the merger is more about pure survival against the restless attack of cheaper Chinese producers.


  • Further humiliating world recession forecasters (many are in hiding by now), world-trade-indicator Japanese exports surged 18% in August Y/Y, despite the strong Yen. (This is the fastest increase since 2013, and its worth adding that Y/Y exports to the US and China jumped more than 20%, not making either country happy.)


  • Ever since Trump’s ’total destruction of North Korea’ line at the UN, the mainstream media is criticizing the speech overtime and wonders what this sentence means (typically, South Korea and Japan was very pleased with it). It is only hard to understand for the average journalist, tough: If you have once joined the countries of the nuclear weapons club, but talk about destroying other countries every second day, nobody will take the chances of a conventional war with you and will fly the nukes as soon as possible. (This is actually the US and Russian military doctrine – assuming the worst and using nuclear weapons to take out the command and control centers of the other side. No military planner ever seriously believed in tank battles in Germany during the Cold War, for example.) In the meantime, quite underreported in the media, the US escalated its war in Yemen, surpassing 100 air strikes in three months (!) against Al Qaeda.



Have a nice day,



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