Market update: The global rally continues, Pakistan retaliates

8 Jan

by Mihály Tatár


Good Morning!


  • The New Year Rally – or should we call it the ’no chance for US tax reform’ rally – continued without pause on Friday (SPX +0.70%, Nasdaq +0.83%, DAX +1.15%, ), with analysts noting that the Emerging Market universe had quite a January so far, too (YTD China +6%, Brazil +5.3%, Thailand +4.2%, Poland +4%). In contrast, currencies remained passive (EURUSD 1.2020, EURHUF 308.40, EURPLN 4.155), as did commodities (WTI 61.60, Brent 67.70 USD, Gold 1320 USD, with the market talk focusing on the imminent jump in shale production as prices are significantly over the breakeven 50 USD now –  offset by the speculation that Trump will use the Iranian protests as an excuse to re-impose the heavy sanctions on Teheran lifted by Obama’s nuclear deal). While in Germany, Merkel formally starts the latest round of negotations with the SPD today – the plan seems to be to make SPD give up on its pro-migration stance in return of expanding health and old-age benefits, with the German media wondering that if this plan fails, then this is it for Merkel and Schulz -, France’s Macron arrives in Beijing to demand more access and recoprocity for the EU, and to somehow narrow France’s brutal, 36 billion euros trade deficit with China. (Hey, wasn’t this populist when Trump called for it? Anyway, I guess Macron will return with some nice Airbus orders and unspecified promises, as smartly, these days Beijing positions itself as the champion of global free trade).


  • One didn’t have to wait for long for Pakistan’s retaliation after Washington’s financial aid suspension: Islamabad ordered its 1.4 million Afghan refugees to leave the country – if executed, in the middle of the winter, the resulting chaos and humanitarian crisis will push the pro-US government in Kabul to near-collapse – and moved to an even closer alliance with China, entering into a currency-swap agreement with Beijing and allowing China to build a large military base (!) in the port city of Gwandar. (Some geopolitical analysts interpreted the news as Pakistan giving up its economic soverignty, which is somewhat overblown.) Also, there is talk that Pakistan may close down NATO’s main supply route to Afghanistan, but that is unlikely for now, as it would mean a point of no return (and a new magnitude of US-Indian alliance). The Pakistan Rupee, in the meantime, kept slowly depreciating  – 110.75 against the Dollar, from 104.80 one year ago -, and the Karachi stock exchange is still lower by 14%  – the Indian Rupee appreciated 8% and the Indian stock exchange rallied 30% in the same period.



Have a nice week,


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