Market update: Stocks bounce and bonds fall on Trump’s spending plans, German politics keep going South

13 Feb

by Mihály Tatár

 

Good Morning!

 

  • Waiting for the important US inflation data due on Wednesday, and liking the sound of Trump talking about the 1.5 trillion USD infrastructure plan, stock markets continued to bounce (SPX +1.39%, DAX +1.45%, Hang Seng +1.50%). The notion that the US plans to run one-trillion-USD yearly deficits going forward – spending much more on military, infrastructure and a lot less on welfare – however, kept bond markets under pressure, with the US 10Y yield touching 2.89%, and hammering bonds around the globe. (To name just a few, the Croatian 2023 bond started the year at 3.25%, now its 3.84%, the Serbian 2021 bond at 3% and it now trades at 3.60%. Even the Hungarian Forint 10Y yield – which dropped to the surrealistic 1.90% in January on the Hungarian Central Bank massage – jumped to 2.56%).  Currency markets remained on a slow burner (EURUSD 1.2320,  EURPLN 4.1670, EURHUF 312), and oil traders were clearly unsure what to do after the breakout higher failed (WTI 59.60, Brent 63 USD). (Interestingly, OPEC is still very bullish, expecting a rebalanced market soon, looking little worried about shale producers – and indeed, somewhat drastic had to happen in credit markets to slow down global growth in 2018.)

 

  • It is no wonder the CDU and the SPD in Germany were so afraid of new elections: According to the latest Die Welt poll, the mainstream parties were never before so unloved in post-war Germany: CDU dropped under 30% while the SPD collapsed to a historic  low of 16.5% (the hated-by-the-media AfD is at 15%, mind you). On the polite surface, all is well in Germany, but the political capital of the governing parties is almost depleted and we might see the weakest German government in generations. (Hey, it tells you something about Merkel’s position that she had to give the Finance Ministry to a 16.5% party. I guess this can happen if you force out any disagreeing voice from public debate and voters can’t see where the CDU starts and where the SPD ends.)

 

  • While massively underreported in Europe, the political winds are changing rapidly in Asia, which could be well observed at the ’Managing Disruptive Transitions’ conference in India. Traditionally, international events were used by India to warn against the threat posed by Islamists and Pakistan, but not this year – the number one issue became China and its Belt and Road Initiative, nothing less.  The fear of China – both economically and militarily –  in Asia is now so widespread that the Quad – US, India, Japan, and Australia – are now openly debating how stop Chinese expansion.

 

Have a nice day,

Mihály

 

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