Market update: Venezuela is now officially in trouble, Bank of England raises for the first time in 11 years

3 Nov

by Mihály Tatár

 

Good Morning!

 

  • After all the leaks, Trump’s nomination of Jerome Powell – dubbed as ’Yellen Clone’ by traders – to lead the Fed was met with minimal market reaction (SPX +0.02%, DAX -0.18%, Hang Seng +0.34%, EURUSD 1.1660) – altough US banks did stage a moderate rally as Powell is an anti-regulation Republican (Goldman Sachs +1%, Bank of America +2%, Wells Fargo +0.5%, with European banks less happy, as this development further distorts the already uneven competition.) With mixed newsflow on the tax reform, the market focused on Apple’s forecast of a record high revenue – somewhat funnily, this is propelled by surging IPad and Mac sales -, resulting in a 3% rally, and on Tesla’s troubles: The latter dropped 10% in two days, after it became clear that according to the tax reform plan,  the 7.500 USD credit for electric vehicle purchases will be gone.  Oil traders remained optimistic (WTI 54.90, Brent 60.80 USD), and the market was shocked to learn (forecasted here in August), that Venezuela announced it is seeking to restructure its global debt, blaming US sanctions. (This is going to be ugly – with these sanctions in place, the restructuring will probably spiral into a chaotic default, wiping out over-greedy bondholders in the process.)

 

  • The Bank of England delivered a textbook ’dovish rate hike’ yesterday – raising rates for the first time in 11 years but communicating so dovishly that the GBP weakened from 1.33 to 1.30, or about 2%. The new benchmark rate is 0.5%, and its worth mentioning that British manufacturing is expanding much faster than the entire ’forecasting industry’ expected, reaching a three-year high in October.

 

  • On Friday, the US President will start his highly anticipated 11-day Asian trip, visiting five countries, including China. (To give a feel of the excitement in the region, an all-woman Japanese bodyguard unit was set up to protect Melanie and Ivanka Trump – they are fashion stars in Asia -, and governments are enlisting expensive local celebrities to entertain the US delegation.) For market and geopolitics watchers, the Trump – Xi meeting will be the critical moment – it is unlikely that Trump would want to return home without some victory regarding North Korea. (For good measure, US Secretary of State Mattis warned that Trump ’can order an attack on North Korea without any further approval from Congress’, but at the same time, the issue of Chinese tariffs seems to have disappeared.)

 

  • The US Justice Department is charging six members of the Russian government for ordering the hacking of the servers of the Democratic party in 2016. The seemingly unimportant news stunned the cyber community – state-sponsored, state-of-the-art hackings are extremely hard to track down in detail and therefore it is suspected that A. somebody from Russia was talking to investigators B. the US has a way of tracking web traffic we haven’t been told before.

 

Have a nice day,

Mihály

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