Market update: Bonds, stocks under pressure again after the bullish Fed, electronic trucks breaking the laws of physics

22 Feb

By Mihály Tatár

 

Good Morning!

 

  • The Minutes of the final Yellen-led Fed meeting reinforced the market perception that wage inflation and interest rates increases will speed up, putting fresh pressure on stocks and bonds  (SPX -0.55%, DAX -0.14%, Nikkei -1.13%, Hang Seng -0.85%, US 10Y yield 2.95%, Walmart dropping another 3%). The Dollar continued to advance (EURUSD 1.2260 – going down ever since curiously failing at the ECB-feared 1.25 level -, GBPUSD 1.39 – not helped either by May fighting her own party and unemployment slightly increasing on the Brexit uncertainty, USDHUF 254.50, USDPLN 3.40). Commodities felt the bullish Fed, too (Copper -1.6%, WTI 61.10, Brent 65 USD, Gold 1324 USD – even with the news circulating that Russia added 19 tons to its reserves in January, now owning 1858 tonnes, surpassing even China’s inventory. It seems not everyone sees crypto currencies as the future.) Regional currencies weakened in the risk-off mood, especially the Forint and the Zloty, with the media analysing the German plan to link fund payments to ’human rights and rule of law’ (aka migration ’solidarity’) conditions (EURHUF 312.50, EURPLN 4.175) – if I would be the V4 I would suddenly show a lot of  ’solidarity’ with the UK. Needless to mention, USD bonds in Europe followed the US yields and yields gyrated higher (Deutsche Bank 2021 3.55%  from 2.6% in September, Serbia 2021 3.78% from 2.90%, Croatia 2024 4% from 3.26%, Eni 2027 4.50% from 3.80%), a bad news for debt-issuers but some oxygen to battered pension funds.

 

  • The Telegraph notes that the development of Opec forming a permanent alliance with the Russia-led bloc of producers (dubbed ’Ropec’), with its compliance rate now at 133% (!), would have been an earth-shattering geopolitical development any time in the last several decades. Today, however, it feels like a logical (or rather awkward) answer to the threat of American shale production: The IMF expects that the exploding US production in 2018 may match the entire growth in oil demand from China and the rest of the world, the US leapfrogging Saudi Arabia and Russia to become the world’s biggest producer with a record 11 million bpd output. That may force Ropec to extend production cuts into 2019 – altough OPEC seems to be optimistic, calculating that US frackers will exhaust their  best shale sources in a few years and won’t be able to replace them with fresh fields. (Opec made a huge miscalculation in 2016 already  however – it was convinced that the oil price crash would bankrupt the entire shale industry, while in reality, firms were indeed driven out of business but their assets were snapped up by private equity groups.)

 

  • In a somewhat funny interview, Daimler Head of Trucks Martin Daum told reporters – who were asking him about Tesla’s plan to deliver electronic heavy trucks as soon as next year – that ’laws of physics even apply to Tesla’, and that ’current battery technology doesn’t allow it’. ’If Tesla delivers on his promise, we will obviously buy two trucks from them, one to take apart one to test because then we have miscalculated things to an unimaginable degree’. He also added that ’trucks have to run for 1.5 million miles and then there’s a used-truck buyer too after that – – we don’t know how batteries will react after being used for four or more years’. Of course, Daimler has a lot to lose if Musk succeeds with the 500 mile semi-truck – while it is known best for its luxury cars, it is also the world’s biggest truckmaker.

 

 

Have a nice day,

Mihály

 

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