Market update: The stock rally continues as Brent oil hits 70 USD, the ECB forgets to talk down the Euro

12 Jan

by Mihály Tatár


Good Morning!


  • Led by energy and consumer companies, the rally continued (SPX +0.70%, Nasdaq +0.81%, MIB +0.64%, Shanghai +0.09%, with the DAX, -0.59%, being held back by the tense and so far fruitless late-night coalition talks between Merkel and the SPD). The optimism was also fueled by the latest set of US producer price inflation data – at 2.3% showing no inflation -, blocking the rise in yields  (US 10Y 2.54%) and questioning again the value of central banks’ cult-like trust in the Phillips curve. (However, at least some wage inflation is  definately on its way even in the US  – Wall Mart just raised salaries, 18 US states plan to raise minimum wages this year and Fiat Chrysler just announced paying bonuses to its 60.000 workers from the tax cuts – but hey, we were told that tax reform is bad for the people). In a typical ECB communication flip-flop, the central bank’s meeting minutes showed that the ECB plans to change its forward guidance in early 2018  on the favorable economic conditions. In human speak, it means that the ECB is less sure it won’t normalize rates as soon as in 2018, and the EURUSD reflexively jumped to 1.2060. (I guess now policymakers are working hard on comments-to-be-dropped to counter the Euro rise). Oil prices pushed another leg higher (WTI touching 64.70 and Brent 70 USD at one point but slipping back later, as said 64 is a strong level in WTI), somewhat lamely attributed to the extreme cold whether in the US. (It’s worth mentioning that China just announced it imported a record amount of crude last year, becoming the world’s biggest buyer with an average of 8.4 million barrels per day in 2017. That is a 10% rise Y/Y. This is pretty significant from a country of this size. Just saying.)


  • The UK, Germany, France and the EU urged the US to not to tear apart the Iran nuclear act before Trump’s decision today on the sanctions. (There are a lot of deals going on right now in the background in Washington, with the most likely outcome being that the accord stays for now – with sanctions on Teheran’s oil exports and central bank remaining lifted – but Iranian officials and Hezbollah will be increasingly targeted and the US seems to be making a policy U-turn on withdrawing troops from Syria.) In the meantime, not helping Pakistan’s international image, leading opposition party PTI formed an alliance with the Islamist party (JUI-S) just a few months before the elections. (The latter is the party from which all the Taliban spiritual leaders are coming from, to give a feel of this development.)


  • In the latest he-said-that media scandal on Trump, it was leaked that that during a bipartisan meeting on immigration policy with Democrats, the US President called Haiti and African nations ’shithole countries’.  While the use of words is undefensible – or rather, deliberately politically incorrect – the self-generated media rage forgets to mention the context: Trump questioned Democratic lawmakers why the US shoud legally accept illegally arriving people from failed states like Haiti rather than naturalize workers for example from Norway – completely mistifying Democratic politicians at the event. This inability of understanding the question, in my personal opinion, shows the complete ideological  blindness of the Left, which remains and will weigh heavily at elections.


Have a nice day,



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