Market update: Stocks, bonds, Bitcoin drop

5 Feb

by Mihály Tatár

 

Good Morning!

 

  • Friday’s trading turned into a heavy selling not seen for a very long time (SPX -2.12%, Nasdaq -1.96%,  DAX -1.68%, Nikkei -2.34%, Hang Seng -1.18%). As usual after such moves, suddenly multiple reasons popped up (weak reports from Facebook to UPS and Daimler exposing rich valuations, the Republicans revealing the devastating FISA memo on the FBI – which, contrary to mainstream media whitewashing, shows the agency bending the rules and acting very stupid to help its favorite candidate just before the elections, which will not be forgotten by voters), but the main trigger, without question, was the very strong monthly US employment report: Not just another 200.000 jobs were added, but hourly earnings rose by 2.9% Y/Y, the highest since 2009, hinting that wage inflation is around the corner. As this would mean several more Fed rate hikes, the bond market tanked immediately (US 10Y yield 2.87%, German 10Y yield 0.77%), and traders retreated from risky positions (WTI 64.90, Brent 68 USD – attributed to the news that American active rigs jumped to the highest in six months, but personally I suspect some had simply enough of not breaking through the key levels). The Dollar itself moved little again (EURUSD 1.2450, with traders still unsure what to do with the ECB and the Fed both looking more hawkish, and after the rattling ’trade war’ speeches at Davos. Bitcoin continued to crash (7845 USD, -22% in three days, this is of course no surprise for regular readers), and analysts noted that Turkey’s trade deficit ballooned by 64% in December, to 13% of its GDP. (Greece’s trade deficit reached a mere 8% before the 2012 collapse, by the way. One has to wonder how long this can continue even with Qatari financing – as discussed last year, rising yields and Libors will make unbalanced emerging economies very shaky.)

 

  • While Merkel continues to wrestle for a coalition with the SPD in Germany (while her own party is already debating her eventual successor), the approaching Italian elections (4th of March) get more and more attention: A center-right majority by Berlusconi is more and more likely, with the ruling Democratic Party sinking and the wildcard Five Star stagnating. As mentioned earlier, this is not an existential election for the Euro – neither party wants to replace it – but a heavy victory for the Right would still have domino effects (Berlusconi wants more concessions from Brussels on spending and monetary issues, and the Northern League promises to deport 150.000 migrants in its first year of office (!)). Many are also wary of the ECB ’s tightening on Italy’s fractured banking system, and it emerged that hedge fund giant Bridgewater is shorting Italian banks and companies in the tune of 3 billion USD.

 

  • According to unconfirmed roumors and reports, contrary to Moscow’s announcements that Russian troops are being pulled  out of Syria, in fact, Russia is adding four more air bases and sends some 6.000 extra troops into the country. This is probably to answer the US doing the same (keeping and expanding a chain of military bases), and of course it humilities EU capitals with their peace demands on the Assad regime. In the meantime, US Secretary of State Tillerson threatened Venezuela with full-scale oil sanctions  (meaning that no oil company would dare to touch the country anymore), to ’bring this to an end more rapidly’.

 

Have a nice week,

Mihaly

 

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