Market update: Traders have high hopes for Powell, Russian stocks jump to record high after investment grade

27 Feb

By Mihály Tatár

 

Good Morning!

 

  • Markets kept trading in an optimistic manner before the first Jerome Powell  – the new Fed chairman – speech today, anticipating a careful and dovish communication in the style of Yellen (SPX +1.18%, Nasdaq +1.15% – tech stocks led the rally, Apple +2%, HP +6%, Qualcomm +6%, Amazon +1.8%, DAX +0.35%, Nikkei +0.84%).  Investors didn’t appreciate the Chinese Communist Party’s proposal to let President Xi rule indefinitely (Shanghai -1.37% – hey, if I had received one Dollar every time an intellectual was talking about China becoming a democracy…), yields retraced a bit further (US 10Y 2.83%), but Euro gains were capped by Draghi talking about ’closely monitoring currency markets’ (EURUSD 1.2320). Despite the bullish sentiment oil traders were clearly wary re-testing the key levels before the Powell speech (WTI 63.80,  Brent 67.40 USD, with the key levels being 65-66 and 70-71 USD where mass profit taking ensued in January).

 

  • As some banks noted, nobody seems to care about the quickly approaching Italian elections (4/March, with the Italian 10Y yield trading sideways at 2% and the Italian stock market up 5% this  year), despite the pro-EU Democratic Party led by Matteo Renzi sinking steadily and the center-right Forza Italia coalition strengthening quickly. (As said before, investors became relaxed when even the most eurosceptic parties in Italy – learning from the example of the French elections – dropped the scrapping of the Euro from their programmes. However, they don’t have warm feelings for Brussels or Berlin and campaign promising massive government stimulus and the kicking out of migrants. I smell heavy conflicts in the air.)

 

  • In the latest twist in the surreal Brexit process, UK Labour leader Jeremy Corbyn gave a speech on Monday, attacking May on the ’directionless’ Brexit, proposing a customs union with the EU and demanding a Parliament vote at the end of the negotations. (Both weaken May’s position and expect Brussels to do its best to strengthen May again – maybe there will be a longer interim phase after all.)

 

  • The Russian stock exchange jumped to a fresh record high (up 12% this year) and the Rubel strengthened to 55.60 against the Dollar (a 1Y high, approaching levels last seen in 2015) after S&P lifted the country to investment grade (BBB-). Just  three weeks before the presidential presidential election, this was only the confirmation of what the market already knew for a long time, namely that the post-Crimea sanctions did not work and the Russian economy is quite solid. (At the time, countless predictions forecasted the collapse of the country and the Russian banking system, a delusion refuted here at Market update.)

 

Have a nice day,

Mihály

 

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