Market update: Powell surprised the market, automakers forgot to collapse on the German decision

28 Feb

by Mihály Tatár

 

Good Morning!

 

  • Jerome Powell, the new Fed chairman, gave an upbeat view of the US economy, and did not make dovish safety remarks as the market expected (I don’t know what people were thinking – US and global growth is robust, unemployment has declined, why wouldn’t the Fed normalize its post-2008 monetary policy?). This ’hawkishness’ caught traders wrong-footed (SPX -1.27%, Nasdaq -1.23%, DAX -0.29%, Nikkei -1.02%, Shanghai -0.51%, US 10Y yield 2.90%, EURUSD 1.2215), and now the base scenario is four US rate hikes for 2018. (The 3M Libor was already 1.98% before Powell, just sayin’.) Commodities felt the heat, too – and the weak Chinese PMI (50.3, showing a slowdown) did not help either (WTI 62.70, Brent 66.20 USD, Gold 1317 USD, Copper -1.5%). The Hungarian Central Bank (MNB) did not  announce anything special or change at its rate decision either, but its dovishness clearly did not feel good in this environment (EURHUF 314.20). The top German court’s decision – to allow the banning of older diesel cars out of German cities by municipalities, knowing that there are 15 million diesel cars in Germany -, made some volatility in car stocks, but the end result was not nearly as dramatic as the financial media presented the story (Volkswagen -1.40%, BMW -0.15%, Porsche -0.30%,  Daimler -0.10%), with Merkel calling for cautiousness in applying the bans and the sentiment having been already anti-diesel for more than a year now. (It may prompt ambitious mayors in Western Europe to gradually copycat  the bans, tough.)

 

  • As the Wall Street Journal reports, big producers of daily household products were surprised  and shocked to find out that virtual assistants, like Alexa, are quietly disrupting their business: Unlike in the classical business model, where several brands get exposure either on the shelf or online, voice- assistants simply steer shoppers to a single product, selected by an algorithm with no input from the sellers. The effect is small at the moment (1-3% of the US staples turnover), but may jump to 18% in three years, according to e-commerce experts.

 

  • Veteran geopolitical strategist David Goldman notes that a tidal wave of refugees is coming, and Westerns are still not grasping the magnitude of the problem: While fertility declined in almost all of the well-off parts in the world, in Africa and South Asia the number of people aged 20 to 30 years will grow from 1.2 billion to 4 billion in the present century. (To give a feel, Pakistan’s population, already 208 million, will jump to 400 million by 2047). Considering that a few million migrants turned the EU inside out and motivated the election of Donald Trump, we have seen nothing yet. It’s also worth mentioning that, underreportedly, the US is increasingly an extra-continental immigration target, as well, with Southern Asians leaving for Brazil and then trying to reach the US from the South. (The EU seems to be in a massive denial, still, with Germany just opening ’job centers’ in Ghana, with the goal of finding local employment for would-be migrants. Needles to say, most of the few hundred people turning up want to leave for Germany, instead.)

 

 

Have a nice day,

Mihály

 

 

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