Market update: Bonds tank on the US inflation data, European growth picks up speed, Turkey-Greece tensions flare up

15 Feb

by Mihály Tatár

 

Good Morning!

 

  • The US CPI data showed an increasing, but nothing-dramatic-yet inflation (2.1% Y/Y), which was enough to send bond yields even higher (US 10Y yield 2.93%) and push market  expectations to four Fed rate hikes this year, but other than that, caused little anxiety  (SPX +1.34%, DAX +1.17%, Nikkei +1.50%, Shanghai +0.80%, altough it is also true that traders expected the worst and were relieved.) With the emerging details of Trump’s giant spending spree – from upgraded airports to a new supersonic Concorde airplane and high-tech weapons including hypersonic missiles and anti-missile laser weapons for the military  – the Dollar weakened further (EURUSD 1.2470, GBPUSD 1.40, USDPLN 3.33, USDHUF 250), – as mentioned before, the market speculates that Washington wants and needs a weaker Dollar to pull off this more-of-everything policy and to help the US trade deficit. (By the way, what is the EU doing? Apart from waiting for Merkel to form a government?)    In the positive mood and weak Dollar environment, commodities bounced higher too (WTI 61.40, Brent 65 USD, Copper +5%, Iron Ore +2.60%), and it’s worth adding that the European growth figures for the fourth quarter came out as rock solid: Y/Y Germany +2.3%, Netherlands+2.9%, Hungary +4.4%, Poland +5.1%, Romania +6.9%. (Italy was the weakest link again, growing a mere 1.6% Y/Y. It seems that failing miserably to put the banking system in order had the same effect as the Brexit-uncertainty had on the British economy.)

 

  • As US Secretary of State Rex Tillerson heads for Turkey trying to stabilize the freefalling relationship between the US and its NATO ally, the conflict between Greece and Turkey also flared up: Turkish military vessels routinely provoke Greek ships around Cyprus these days, as the gas resources of the island got the interest of Ankara. (On Monday, Turkish warships blocked access to a deepwater drilling rig, where Italian energy company Eni operates. This finally got Brussels’ attention and Juncker critized the ’Turkish behavior in the Aegean sea’. Where is the EU fleet? Oh, wait.) In the meantime, while the protests became too small for the mainstream media to care about, clearly not everything is well in Iran: The turnout for the Sunday celebration of the 1979 revolution was shockingly low, and the Iranian Rial hit a fresh historical record low (50,000 per Dollar, from 38,000 a year ago !), prompting authorities to arrest dozens of black market currency dealers.

 

Have a nice day,

Mihály

 

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