Market update: Traders return and sell, Trump attacks Amazon, all eyes on the new oil benchmark

3 Apr

by Mihály Tatár

 

Good Morning!

 

  • After a somewhat funny and bizarre Easter holiday – during which the Pope admitted he doesn’t believe in hell (one has to wonder what will come next from this Marxist guy), the US media attacked Trump for wanting to introduce a European-style, payed maternity leave (monster! his approval rating just jumped to 50%), and Saudi Crown Prince MBS talked about Israel’s right to exist (making the US-Saudi-Israeli alliance all but formal) – traders returned and continued to sell: Stocks dropped (SPX -2.23%, Nasdaq -2.74%, Nikkei -0.55%, Shanghai -0.71%), led by tech shares (Amazon -5% on Trump and US senators essentially calling it a monopoly, this is -15% since March, Facebook -3%, or -20% since February, with the goodwill towards the company evaporating faster than towards Kim after the hydrogen bomb test, Google -2.4% or -14% since March after global calls for regulation) and Tesla (-5% and -30% since February as it is running out of cash and its famous Autopilot software clearly preferring accidents to slowing down). The money fled into bonds (US 10Y yield 2.73%, German 10Y yield 0.49%) and Gold (1338 USD), while currencies did not really understanding what’s the stress about and moved little (EURUSD 1.23, GBPUSD 1.4050, EURHUF 312.50, EURPLN 4.21). Oil prices got under pressure, too (WTI 63.10, Brent 67.80 USD), attributed to growing recession fears. (Trade war and the somewhat softer US macro data of late, but the truth is, analysts expect a recession whenever the stock market turns South. In my personal opinion, the hot money now simply takes profit on the ’Bomber Bolton’ trading theme and lets call options expire worthless before buying again on Iran.)

 

  • Traders – and not just oil traders – are watching closely the fortunes of the Yuan-denominated oil futures launched last week. (This project was 25 years in the making, and showing the scale of the expectations – or, according to some, Beijing’s determination to make it a success – the new contract’s trading volume surpassed Brent’s (!) on the first day.) China doesn’t make a secret of that it wants to eventually replace the Dollar to Yuan in its oil trading  – given China’s weight in global oil demand, this will have serious currency market and geopolitical consequences – and it already launched a pilot project to price some of its oil imports in Yuans. (In my view, the new contract will have a hard time functioning normally in the short term – simply, the jungle of Chinese markets and the  unconvertibility of the Yuan are still chasing away non-speculative foreigners – but soon we will all have to get used to the new oil benchmark, and this is also a sign that the Yuan will become a widely used international money within years.)

 

Have a nice week,

Mihály

 

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