Market update: Equities zoom higher on the latest tax news, traders ponder exit points

19 Dec

by Mihály Tatár


Good Morning!


  • With the news that even Republican lawmakers Ted Cruz and Susan Collins, the two remaining anti-heroes of the tax reform, gave in, equity markets zoomed higher and forced short sellers to capitulate (SPX +0.54%, Nasdaq +0.84%, Dow +0.57%  – all new record highs , DAX +1.59%, Shanghai +0.91%). In other assets, trading already looked like it was Christmas (EURUSD 1.1780, US 10Y yield 2.40%, WTI 57.30, Brent 63.50 USD, essentially unchanged), with traders contemplating whether Januar will start in a huge profit-taking exercise – the S&P for example, rallied 20% this year and 300% since the 2009 Fed intervention – or Trump’s re-emerging infrastucture spending talk will keep the markets optimistic for a while. The Pakistani Rupee was less fortunate again (110.20 per Dollar), and not helping the situation, the government decided it has to talk (’no plan to further devalue the currency’, which is ’positive’anyway, and don’t worry, the ’inflation effect will be minimal’). Despite the supposedly dovish Fed rate meeting, USD financing costs continued to surge into the year-end (Libor 3M over 1.61%, 12M 2.05%), and on the rumours of further US and Chinese military preparations on the Korean peninsula, Gold stopped falling and bounced (1365 USD).


  • With the Indian government setting the more-than-ambitious target to create a 100% electric car fleet in the country by 2030 (the urgency comes from the fact that the 6 Indian mega-cities are all on the WHO’s ’Top 15 most air polluted cities in the world’ list), companies turned into overdrive about how to grab a share of this potentially 300 billion USD market. Japanese auto major Yamaha is thinking in flooding the country with electric motorbikes and locally made batteries, while Chinese car makers like Nio are hoping to kill competitors like Tesla by sheer pricing force.  (How confident Chinese electric car makers have become, can be seen on that development that China plans to phase out domestic subsidies on e-cars sometime next year).


  • In a somewhat misreported major policy speech, the US President announced the new US National Security Strategy – a dramatic shift away not only from Obama’s, but also from Bush’s approach to the world. While the media focused narrowly on its two favorite topics – Trump cut out climate change as being ’the major threat’ (putting climate change in group with with ISIS and nuclear North Korea showed serious civilizational problems, in my opinion), and even worse, called Russia and China rival  powers instead of mumbling about great friendships. But the new Strategy is actually much more than that – it calls for an urgent reinvestment into the US industrial base, scientific and technical education, in response to China’s rapidly rising challenge. (EU, are you following?) The document also calls for a multi-layered missile defense system that can destroy hostile nuclear missiles before launch – now this will freak out Moscow and Beijing – and pretty much warns Iran to stay home or else  (it is mentioned 16 times).


Dear Readers, this was the final Market update for 2017. I hope you enjoyed reading them through the year, and wish you happy holidays and a successful 2018 !


Kind regards,


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