Market update: 2018 starts with oil traders watching Iran, EURUSD testing 1.20

2 Jan

by Mihály Tatár

 

Good Morning and Welcome to 2018!

 

  • Traditionally the first to open, Chinese markets started the year in an optimistic fashion (Shanghai +1.25%, helped by healthy manufacturing figures), and while Western traders waited for the European open, oil prices remained well supported on the latest Iranian news (WTI 60.60, Brent 67.10 USD) – as was Gold (1308 USD). Bitcoin had a rough first day (13200 USD, down 32% from it’s December peak), and the end-of-year pressure stayed with the USD  (EURUSD 1.2030, GBPUSD 1.35), with some wondering whether the formation of the new German government would result in a runaway ECB rate hike speculation (the German 10Y yield jumped to 0.43%, which is not much in nominal terms, but definately refuses to follow Draghi’s narrative of an idle central bank. That is why the exhange rate sensitive DAX actually moved lower since November – dropping almost 5% -, while the S&P rests at a mere 0.80% from its latest record high). The Hungarian Forint staged it’s ’usual surprise rally’  to finish 2017 (and help official statistics) and traded around 310 against the Euro, while USD financing costs go into 2018  at normalizing, near-10-year-highs (3M Libor 1.70%, 12M Libor 2.11%), even with Trump just having started to talk about infrastructure spending. (Let us not forget, 2018 is a mid-term election year in the US – when to start spending if not now.)

 

  • The Iranian protests tipped over into exhanges of gunfire and with several Revolutionary Guard buildings being set on fire (12 people have been reportedly killed, but this is state TV news, as social media is mostly closed down).  While the demonstrations seem to be an order of magnitude smaller than in 2009, the situation had to be worrying enough for the Iranian leadership to call in the Guards to take over the security of Teheran. Trump, for his part, already supported the protests (Obama did exactly nothing in 2009), and in a somewhat sidelined news, promised to protect Syrian Kurds from Syrian and Iranian attacks. (Given that Russia is now also moving to recognize Syrian Kurds, the political realities in the region may change rapidly in 2018). Trump – as forecasted – also increased the pressure on Pakistan (he threatened to withhold USD 255 million of aid, raging that ’we have given Pakistan 33 billion USD of aid in 15 years and only received lies in return’, now that is a tough line in the pride-centered Asian diplomacy. (The Rupee market has not yet opened, but the development will surely not help the optics of the financial situation in Islamabad.)

 

 

Have a great year,

Mihály
 

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