Market update: Stocks rally further, but Gold is rising too, Pakistani-US relationship in freefall

5 Jan

by Mihály Tatár

 

Good Morning!

 

  • Stock markets continued their non-stop 2018 rally on Thursday (SPX +0.40%, DAX +1.46%, Nikkei +0.84%, Shanghai +0.16%). Oil traders looked a bit unsure what to do up this high (WTI 62, Brent 68 USD), while in currencies, EURUSD kept testing the magic 1.20 level (now 1.2070), with regional currencies strengthening further (EURPLN 4.14, EURHUF 308, EURRON 4.63). Traders noted, however, the odd rise in Gold prices (1320 USD, up 7% in the last three weeks), which is pretty strange in an everything- is-perfect sentiment. (There are several theories, 1. large actors started to hedge their portfolio 2. some are speculating on the return of inflation in 2018  3. with the super strict regulations, the only way to untransparently protect yourself against geopolitical risk is Gold 4. Russia and Asian nations are increasingly buying it to back up their anti-Dollar politics – we know for a fact that Russia increased its total holdings by 12%, or 214 tons, in 2017). The victim of the day was Tesla – as mentioned last year, the market is very sceptical about the pioneering company’s finances – and as the stock price keeps underperforming (-20% since September), Tesla bonds dropped sharply (2025 USD yield 6.13%, that is the yield level of Indonesia).

 

  • The US announced that it is indeed suspending the security aid to Pakistan, as ’Islamabad hasn’t been taking the necessary steps’. As reported earlier this week, Trump’s ’we only got lies in return of our money’ Tweet was like a nuclear bomb in the pride-centered Asian political culture, and Pakistani politics blew up in rage, with politicians from Pervez Musharraf to every newspaper editorial critizing Trump and woving ’not to bow to US pressure’. Pakistani Foreign Minister Khawaja Asif went so far that even demanded USD 9 billion from the US for services like using Pakistani air bases for military actions. (The White House reacted by adding insult to the injury, and put Islamabad on the list of Religious Freedom Violators. It’s not hard to forecast that the relationship will turn much worse before it gets better, with diplomatic and economic retaliations. Also, several Muslim countries now find out that Trump is deadly serious with his threats: After the conflict over Jerusalem, the Palestinians and Lebanon just learned that their aids will be suspended as well. This, by the way, resulted in Iran promising to pick up the bill.)

 

Have a nice day,

Mihály

 

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