Market update: Draghi and Trump try to calm currency markets, lithium becomes the new gold

26 Jan

by Mihály Tatár

 

Good Morning!

 

  • Markets were having a hard time digesting the Davos developments (SPX +0.06%, DAX -0.87%, Nikkei -0.17%, Shanghai +0.58%), especially as Draghi refrained from directly voicing concerns about the  too strong Euro, but instead, semi-politely critized the US on talking down the Dollar. (It seems there was some backdoor messaging as well, as Trump, uncharasteristically, began to talk about his preference of an ’ultimately’ strong Dollar’ and said that Mnuchin’s comments ’were taken out of context’, even before his Davos speech scheduled for today. This naturally resulted in some profit-taking and  the EURUSD came down from 1.2530 to 1.2370.) During the press conference, Draghi repeated several times that he sees very few chances at all for a rate increase this year – but as usual, the market didn’t seem to believe it, and Eurozone yields finished higher (German 10Y yield 0.64%). Following the Dollar moves, commodities slipped lower with no significant news of their own  (WTI 65.30, Brent 70.20 USD, Gold 1350 USD, Copper -0.65%), with analysts’ favorite theme being whether Shell is slowly overtaking its arch-rival Exxon in being the world’s biggest oil company. (Shell being somewhat  less mighty used to be a natural order of things, like Big Mac outselling Whopper or Google getting more searches than Bing.) The British Pound rally continued without pause (GBP 1.4350, up 7% this year and 20% from the post-referendum lows), fueled by the noises that the EU may be willing to push the expiration of the transition period to 2020 (as traders put it, forever), prompting hard-Brexit conservatives to talk about ’Britain becoming a vassal state’.

 

  • Veteran geopolitical analyst David Goldman notes that America’s Syrian humiliation with the Turkish military operation against the Kurds is even worse than it looks – its not just that Ankara had the confidence to ignore warnings and killed several hundred Kurdish fighters, diminishing the American-supported anti-ISIS and anti-Assad force – but Turkey is also leaving the West in economic sense as well, banking Chinese and Qatari financing. (Qatar is the largest foreign investor in Turkey, with more than 20 billion USD in commitments and another 18 billion USD in the pipeline for 2018. In return, Turkey became the guarantor of the Qatari royal family’s security, with a new military base in the tiny country, and shields it from the boycott of the Gulf States.) Even more alarming, Erdogan seems to has definetely obtained Moscow’s blessing for the operation (Russia controls the skies over Syria and no Turkish jet was shot down during the fighting, despite Syria’s rage over the invasion), which is probably a revenge for the latest sanction list of the US.

 

  • Bloomberg notes the underreported, brutal mining boom that Australia enjoys due to the rising demand for lithium – this is the critical ingredient in next generation battery storage and electric vehicle technologies -, with the country’s exports surging 84% in the last three years. (Australia now supplies about 40% of the whole global market.) The price of processed lithium carbonate jumped more than 30% in 2017, pushing large speculators into this market, and sending Chinese companies on a ’pre-buying’ investment spree from Congo to Chile. (China’s electric vehicle industry is already the world’s largest, Chinese companies are responsible for 25% of the world’s lithium-ion battery supply.)

 

Have a nice day,

Mihály

 

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