Market update: Eurozone growth the fastest in 10 years, stocks fall on tax reform anxiety

10 Nov

by Mihály Tatár

 

Good Morning!

 

  • Investors were suddenly reminded that markets are not one-way on Thursday (SPX -0.38%, Dow -0.43%, DAX -1.49%, Nikkei -0.81%), as the US Senate insisted postponing the corporate tax reforms to 2019, angering even House Republicans. (As said before, this would be political suicide, so stay tuned.) Chinese markets couldn’t care less (Shanghai +0.80%), and the Trumphoria was reinforced by the announcement that Beijing removes foreign ownership limits on banks and funds – another step towards opening up the economy – on top of the 250 billion USD worth of US-Chinese business agreements. The news were positive in Europe as well: The European Commission bragged that the euro-area economy will grow at the fastest pace in a decade this year, lifting its forecast from 1.7% to 2.2% (just to show who is the boss, it has cut its prediction for UK growth), and more importantly, the ECB proposed a ’more flexible’ handling of bad loans (this of course has nothing to do with Italy, Unicredit +1.5%, BPM +4%, BPER +10%). Several veteran analysts commented that with the new German government installed at the end of the year (with the anti-easing FDP taking over the Finance ministry), and Italian banks getting out of existential danger, the pressure will be enormous on the ECB to normalize rates in 2018.

 

  • Even with Russia announcing the restructuring of USD 3 billion loans towards Venezuela (an amount tiny compared with the crushing 120 billion USD debt of the country), Venezuelan bonds just crashed to fresh record lows (some to 27 cents on the Dollar, including its power utility company), after the US sanctioned another 10 government officials. (To give a feel of the situation, one of the sanctioned persons, who should be in charge of the debt renegotiation with international creditors, was linked to drug trafficking by Washington). One has to wonder what will happen to the population – 32 million people – after even the most speculative funds had enough of financing Caracas.

 

  • The last ISIS stronghold in Syria, Abu Kamal, was recaptured yesterday (very tellingly, not by the Syrian army, but by Iranian-led Hezbollah and Iraqi Shite elite forces, not making the US and Israel happy), formally finishing the anti-ISIS efforts in the country. Showing the rising tensions in the Middle East, Saudi Arabia ordered its citizens to leave Lebanon, while Iran threatened Saudi Arabia, Abu Dhabi and Dubai to lift the blockade of Yemeni ports or else it will equip the Yemeni rebels with hundreds of ballistic missiles. (Such a missile was luckily intercepted on Nov 4, aimed at the Ryiadh airport, by US Patriot batteries.)

 

Have a nice day,

Mihály

 

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