Market update: Oil prices and yields rise in the bullish mood, Huawei worries the US

10 Jan

by Mihály Tatár

Good Morning!


  • The slowing rally continued on Tuesday (SPX +0.13%, Nasdaq +0.09%, both new records of course, DAX +0.13%, Nikkei -0.21%), but the main event stealing the spotlight has been the US 10Y yield breaking through the key 2.50% level (now trading at 2.56%, pulling the whole bond market with it, the 10Y Germany yield to 0.47% for example). The particular move is attributed to the Bank of Japan’s decision to scale back bond purchases – joining the Fed and the ECB in tightening at the same time, ups-, but as discussed here before, if you drop a major tax reform on a 3% US growth and a 4% global growth what you get is yields – and inflation expectations – running higher.  (As a sidenote, the two major benchmarks of global financing costs, the 3M and 12M Libor, now trade at 1.71% and 2.15%, respectively). In this growth-bullish environment, a report of a massive drop in US crude stockpiles (11.2 mio barrels last week, which is the biggest decline since 1999), was enough to send oil prices even higher (WTI 63.50, Brent 69.20 USD), with the WTI arriving at the important 64 USD level. The Euro Area unemployment rate just dropped to the lowest since 2009 – as always, this masks huge differences, Germany’s is at record low with 5.5%, Italy’s is 11% or the same as in 2012 – but traders cared little and pushed EURUSD to 1.1920 to make some fun of overexcited longs. Speaking of Italy, the general election will be held on the 4th of March – Brussels and the mainstream media look very unhappy that Berlusconi seems to become a kingmaker again (Forza Italia and Northern League 34%) instead of the ’well behaving’ Democrats (25%), but the market doesn’t look too worried for now with anti-euro and anti- establishment Five Star Movement polling a mere 26%, pointing to a mild political chaos but little else.


  • The US-Pakistani relationship cascaded even lower, with the Pakistani Defense Minister announcing that the military and intelligence cooperation has been suspended (this claim has been denied by the US), and that the US is facing defeat in Afghanistan, despite spending hundreds of billions of Dollar on the war and on nation-building. The idea of blocking US food and military supplies towards Afghanistan also came up again, together with the threat to hike NATO transit fees by 100% (nice). In return, with an interesting timing, Moody’s warned Pakistan on its debt affordability again, and the international media is suddenly reporting that aid donors are freezing their already late aid payments (EU, US, UK, Japan, Saudi Arabia, 1.4 billion USD in total).


  • The Wall Street Journal ponders about the future of global telecom networks, with Huawei having morphed from a second-tier competitor into a dominant player, just when US carriers are expected to invest about 300 billion USD into 5G (fifth-generation) networks. Huawei’s rise (it had a revenue of 80 billion USD in 2016, leaving behind Ericsson, Nokia and Cisco by far in telecom sales) is also stoking national security fears in the US and in the EU, and the Trump administration just killed a large deal between the Chinese company and AT&T.



Have a nice day,



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