Market update: Yields, Gold and the Euro jump, self-driving cars keep crashing

15 Jan

by Mihály Tatár

 

Good Morning!

 

  • With today’s US holiday in mind, traders wasted no time on Friday and all the favorite investment themes were pressed further: Stocks rallied higher (SPX +0.67%, NASDAQ +0.68%, all fresh records of course, DAX +0.32% held back by the stronger Euro, MIB +0.53%, Nikkei +0.29%, Hang Seng +0.76%), led by energy and consumer good producers. The EURUSD rose rapidly to 1.2240 in the wake of the hawkish ECB minutes and on the news that Merkel and the SPD reached a preliminary accord on the next Grand Coalition. (It rather seems to be a symbolic first step, the SPD is very afraid of the reaction of its own base – voters just punished their previous coalition with the worst result since World War II – and therefore keeps shifting its demands, frustrating the CDU/CSU.)  A healthy US retail sales data and a slightly higher-than-expected inflation number (core CPI 1.8% Y/Y) was enough to alert bond traders and kick yields higher (US 2Y 2%, the highest since 2008, US 10Y yield 2.59%, German 10Y yield 0.60%, with the 12M Libor galloping to 2.17%). (To give a feel of the global pull of these movements, the 2019 USD bond yield of Croatia, for example,  jumped from the 2.40% of the autumn to 2.90% last week.)  Cryptocurrencies were shunned with the chaotic Asian ban-or-not-ban news (Bitcoin -5% to  13,700 USD), and as a warning sign for 2018, Gold kept flying higher despite all the good news (1343 USD, up 9% since early December).

 

  • As widely forecasted, Trump extended the nuclear sanction waivers on Iran on Friday – meaning no change, but also declaring that ’this was the final time’, basically handing the lobbying-hard EU an ultimatum to rework the nuclear deal within 120 days. The first reactions were of no surprise – Iranian President Rouhani announced that the ’US failed to undermine’ the accord in a ’long-lasting victory for Iran’, while European capitals were unhappy and talked about ’the endangered world peace’. Interestingly, the only Russian comment was that the US decision to withdraw is ’already being made or is about to be made’, and geopolitical analysts mention the fact that despite the announcements, nor the Russian nor the US military is pulling back from Syria (to the contrary, the US is now busy building a 30.000-strong well-equipped army from the former rebel militias, angering Syria, Iran and Turkey).

 

  • In closely watched news, Alibaba’s Artifical Intelligence model outperformed humans in the reading comprehension test of Stanford University. (This is not ’real’ reading comprehension, in my opinion, but indeed its a feat and doesn’t bode well for human employees of customer services, online or phone problem solving service providers or even museum guides.) The news coming from self-driving tests were much less inspiring, with a self-driving Ford crashing in the US sending two people to hospital and Uber having constant problems with its self-driving Volvo fleets. (We know that in California, a self-driving accident happens after every 5,000 miles. As mentioned earlier, the main issue with AI driving is that driving is, in fact, not a physical but a social activity – and I suspect the problems will be eventually solved by dumbing down the traffic instead of making the chips smarter.)

 

Have a nice week,

Mihály

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