Market update: Bond yields rise alarming smart money, Sweden may deploy its army

19 Jan

by Mihály Tatár

 

Good Morning!

 

  • Stock markets shifted roles and the rally continued outside of the US (SPX -0.16%, DAX +0.74%, Nikkei +0.10%, Shanghai +0.73%), as the House passed the spending bill to avoid the US government shutdown but the Senate’s approval remained in question. The normally harmless spending melodrama – there was one shutdown even one in 2013 and not much happened – is gaining more significance now, as in an important development, the US 10Y yield broke through the key 2.60% level (2Y 2.05%, 5Y 2.43%, 10Y 2.64%, Libor 3M 1.74%, Libor 12M 2.21%). This level was called by several large fund managers as the ’red line’, where the bond and stock markets will shift to a ’different trading regime’. (Personally I would also add that Trump will only now begin to outline his infrastructure spending plan – this won’t be the happiest year of companies and governments who need USD financing for sure.)  Going somewhat against the journalistic theme of robotization, the weekly jobless claims in the US just fell to a 45-year-low, and the Chinese growth numbers – surprise – were stronger than expected (6.9% growth in 2017, and 6.8% in Q4). The Chinese Yuan strengthened two the highest level since mid-2015 (6.39 per Dollar), which may be also connected to the Trump administration threatening with  ’massive’ intellectual theft fines and anti-dumping actions against Beijing. Oil traders began to take some profits seeing that prices stopped dead at the key levels mentioned two weeks ago (WTI 63.20, Brent 68.60 USD), while regional currencies strengthened somewhat further (EURHUF 308.40, EURPLN 4.16, EURRON 4.655 – the latter barely reacting to the latest Romanian Prime Minister, Viorica Dancila, being agreed on.) The star of the day were the British Pound (GBPUSD slowly advancing toward 1.40 with bank analysts talking about the 55 billion USD Brexit bill ’being a bargain for this soft-Brexit’ and forecasting an exchange rate of 1.50) and the Thai Baht (appreciating to 31.82, a fresh 4Y high against the Dollar after the central bank, seeing GDP figures, called further montetary easing unnecessary).

 

  • In a sign of normalization after beating out ISIS and also a show of Iraqi control over the disputed Iraqi Kurdistan area, BP signed an agreement with Baghdad to expand oil production around Kirkuk. (Iraqi officials want to ramp up production in the oil-rich region to 750,000 barrels per day- up 60% from current levels.)

 

  • While the EU’s common army project is advancing in the same unbelievable speed as the banking union (nothing since 2000, that is), India just tested its latest ballistic nuclear missile (Agni-5), capable of hitting Pakistan and China. Showing the level of disruption in perceiving the reality, in my personal opinion, Sweden is distributing 4.7 million leaflets on what do in case of a Russian invasion – a highly unlikely event – while the immigrant gang crisis became so unbearable that the Prime Minister (not a populist party!) talked about the possibility of bringing in the military to make order. In the meantime, as Turkey kept amassing troops and tanks at the Syrian border, the operation suddenly hit probems as Syria threatened to shoot down any Turkish aircraft flying into its airspace. Erdogan quickly had to dispatch an envoy to Moscow (welcome to the new normal in the Middle East).

 

Have a nice day,

Mihály

 

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