Market update: World exports rise 5%, Saudi risk drops as analysts rather watch Pakistan

28 Nov

by Mihály Tatár

 

Good Morning!

 

  • Markets remained slow with traders mentally preparing for a rough week with the US tax reform debate, GDP figures, the OPEC meeting and the latest European inflation data (SPX -0.04%, DAX -0.46%, Nikkei-0.09%, Shanghai -0.11%, EURUSD 1.19, WTI 57.80, Brent 63.60 USD). The tax showdown in the coming days will be critical – Republicans invested a lot of political capital in that the first major tax reform since Reagan will pass this year, and while the mainstream media tends to hate the whole issue and treats it as it were a tax increase, US voters are watching closely. The Eurozone inflation numbers on Thursday will also be closely monitored, as large market players speculate on a much-sooner-than-communicated ECB rate hike, arguing that the German economy is overheating and that with higher commodity prices, headline inflation will soon approach 2%. (The ECB so far was quite adamant that exactly nothing will happen in 2018, as nobody wants a skyrocketing Euro – and we are pretty far away from an overheating Italy, for example.) In the meantime, the ’massive global growth theme’ is getting more traction, as forecasted here at the beginning of the year, with banks from Goldman Sachs and Barclays expecting 4% global (!) growth in 2018 and world exports rising 5% Y/Y in September.  (In  the latter, the Euro Area jumped 6% and Emerging Asia by 10% – I can not exactly see the collapse in world trade many star economists predicted last year).

 

  • Bloomberg notes that one can see how the US shale industry upended the oil market on how uncertain the OPEC and the whole oil profession has become: Forecasting output growth used to be a relatively simple undertaking, while now even OPEC analysts’ expectations range from 500.000 barrels a day to 1.7 million – meaning the margin of uncertainty is bigger than the entire output cut the group agreed to a year ago.

 

  • Amazon surged to a fresh record high (closing at 1195 USD, delivering a whopping 60% rally this year) with the media excitement on record Black Friday and Cyber Monday online sales. The market, however, was rather talking the underreported news that Chinese bank giant ICBC is teaming up with the Internet retailer JD.com to offer digital banking services – a first in China and if successfull, a potential role model for online banking. (Customers will be able to request credit services through the online platform and receive documents like a shopping delivery).

 

  • With Trump being pretty clear on his supportive position, market perception of the Saudi risk dropped in the last few days – the 5Y CDS of the Kingdom returned to before-the-purge levels and the stock market rallied 2.4% from its low (still down 7% from the summer though, as investors are wondering about the fate of large business transactions). Geopolitical analysts are more worried about Pakistan, and to a growing extent, Chinese loans to Pakistan (’China needs to make sure Pakistan doesn’t turn into Venezuela’ – CDB just lost billions of Dollars with the default of Caracas and its party built high-speed railway has been vandalized).

 

Have a nice day,

Mihály

 

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