Market update: GBP sinks as revolt starts against May on soft Brexit, Asian traders take profits

6 Dec

by Mihály Tatár

 

Good Morning!

 

  • Stock traders were clearly puzzled on how to proceed after the big tech sell-off, and Western markets remained slow on Tuesday (SPX -0.37%, DAX -0.08%, Facebook +0.52%, Apple -0.10%), with the profit-taking moving over to Asia (Nikkei -1.97%, Shanghai -1.54%) and to industrial metals (Copper -4%, Iron Ore -3%) also on the speculation that Asian economies won’t take the US tax reform too well. (As discussed earlier, no-one knows for sure how much Dollar liquidity will leave the region and how the behavior of large US corporate investors will change.) In currencies, while the EURUSD moved very little (1.1820), the Forint slightly weakened further as expected and EURHUF now trades over 314 – its worth noting that neither the adjusted-higher GDP (3.9% Y/Y in Q3 instead of 3.6%) nor the robus retail sales data (6.3% Y/Y in October) made any trader think twice with the ongoing Hungarian Central Bank  (MNB) easing efforts. The real victims of the day were, however, the British Pound – GBPUSD dropped back to 1.34 – as several key cabinet members, including Boris Johnson, revolted against May on her plans to keep UK regulations aligned to the EU (one has to wonder that with so many consessions from May, what is the point of Brexit at all – it is very telling that these days, the EU works heavily to stabilize the British Prime Minister), and Gold, which quietly dropped to 1260 USD (it used to trade at 1350 USD even in September), as inflation is nowhere to be seen yet and disaster scenarios failed to materialize.

 

  • Police forces around the world are preparing for Trump’s likely announcement today that the US recognizes Jerusalem as the capital of Israel and instructs the relocation of the US embassy from Tel Aviv. Predictably, the brutal symbolic message (this has been a political no-go for five decades), resulted in angry warnings from Muslim leaders from Egypt to Jordan (Turkey even threatened that it would sever ties with Israel), and brought also harsh criticism from EU politicians, who talk about the danger to the peace process in the region. (Personally, I am not sure I saw the benefits to the peace process up until now, the EU has some honesty issues here.) It  seems to be clear that Trump used this move as a threat for demands on Arab countries and those demands were not met. The real question is whether the Syrian-Russian-US post-war process will be derailed by this policy turn.

 

Have a nice day,

Mihály

 

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