Market update: Traders at odds on Germany with RWE having no regrets, Tencent overtakes Facebook

21 Nov

by Mihály Tatár

 

Good Morning!

 

  • Markets clearly had a hard time assessing the seriousness of the German situation (the EURUSD for example made a yo-yo movement down to 1.17, back up to 1.18 and down again, German yields remained under pressure, but the DAX finished at +0.50%), especially with Merkel signaling that she is open to new elections but at the same time pushing President Steinmeier to pressure the other parties back to negotation table. It’s worth mentioning that after the initial shock, the media found its voice and is united in blaming the Free Democrats – which is somewhat strange because very tellingly, the key topic that brought down the coalition building was the Greens’ insistence on refugee family reunion (resulting in another million of invited migrants to Germany), which both the CDU and the Free Democrats vehemently opposed. (As said at the time, the refugee issue is coming back to haunt Merkel and the EU). Otherwise, trading has been quiet, with the US already in Black Friday mood (SPX +0.13%, Nasdaq +0.12%), but Asian tech stocks rallying (Nikkei +0.80%, Shanghai +1.57%, Tencent +3%, Alibaba +1.8%, with Tencent just surpassing Facebook in market value, oops.)  In the region, the Forint somewhat weakened (EURHUF 312.50), anticipating fresh monetary easing from the Hungarian Central Bank (MNB) – and the very gradual depreciation of the Romanian Leu (EURRON 4.648) also continued as the market expects overheating from the mind-blowing growth rate. (In a typical, complete turnabout from the summer, analysts now forecast a fast falling Forint and Leu, with Citi targeting an EURHUF of 318, for example.)

 

  • In a somewhat funny example of how the German coalition failure is not bad news for everyone, electricity giant RWE jumped 4.6% (extending its rally to 69% for this year), as another aggressive condition of the Greens was to immediately close down the ’dirtiest’ power plants (coal plants). RWE owned about 10 gigawatts of lignite power capacity at the end of last year – about half of Germany’s -, and the Greens wanted to shut down 8.4 gigawatts of the total capacity.

 

  • Brexit watchers are wondering about the stress test results of the Bank of England at the end of this month – the exercise tries to simulate the effects of a disorderly Brexit, which seems more likely by the day, on British banks. (The worst result would be a warning that a massive amount of extra capital is needed as a buffer, which would either hit lending by the banks, or the bank investors through adding equity by diluting existing shareholders.)

 

  • Geopolitical analyst note that the coup in Zimbabwe will go down in history books as the first Chinese colonial intervention – China has huge investments in the country including in tobacco, diamonds and power generation – with the country’s army clearly having asked for a ’green light’ from Beijing just before removing President Mugabe.

 

Have a nice day,

Mihaly

 

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