Market update: China freaks out investors but Larry Kudlow saves the day, Bitcoins drops, Egypt to become a key gas hub

5 Apr

by Mihály Tatár

 

Good Morning!

 

  • Even for veteran market watchers, Wednesday’s trading roller coaster was quite a show: China clearly didn’t want to arrive at the trade talks unarmed and threatened with a tariff package of its own (worth nicely 50 billion USD, aiming at US soybean, car, aircraft and chemical exports). This caused nothing less than a panic (at one point the Dow was trading at -2.5%, Boeing at -6%, Soybeans at -4%, with oil prices and the Dollar falling), only to reverse later as traders gradually realized that the Chinese package was rather meant as a deterrent (was not implemented yet), and Trump’s chief economist Larry Kudlow talked down the possibility of a trade war with a visibly optimistic attitude. (Evidently he was given the role of the good cop, while Trump was raging that ’we are not in a trade war with China, that war was lost many years ago. (..) when you are 500 billion USD down, you can’t lose’). Digesting Beijing’s list further, the market realized that the proposal wasn’t even that scary anyway – for example, the duties on aircraft exclude all planes above 45 tons, meaning all jets Boeing produces, and while the soybean tariff was meant to anger the producers in Trump’s base states, China has 400 million pigs to feed and there simply aren’t enough soybeans without the US to purchase. Also helped by a very strong employment report (+241.000 jobs added in March, meaning the US job market is still roaring), trading finished in a positive mood (SPX +1.16%, Nasdaq +1.45%, DAX -0.37%, Nikkei +1.78%, EURUSD 1.2270, US 10Y yield 2.81%, WTI 63.70, Brent 68.40 USD).

 

  • Contrary to traditional assets, cryptocurrencies did not turn and kept dropping (Bitcoin 6580 USD, or -66% since December, Ether 380 USD, or -55% since March). The latest fall is attributed to technical issues at large trading portal Binance, but personally I suspect that 1. retail traders, who have entered at the worst possible price are now getting anxious as forecasted before, 2. the leaks that contrary to popular wisdom, intelligence services did not have any problem tracking down Bitcoin trading persons made ’semi-legal’ actors think twice about these ’investments’ (aka money laundering). It’s also worth noting that the social media is now full of crypto company owners talking about this being the right time to buy (it will reach 50.000 USD you know), which I find more scary than any negative argument I read before.

 

  • Geopolitical analysts note that the Mediterranean gas tensions will only turn to the worse and ’gunboat diplomacy’ clashes will be the new normal, as Egypt, Israel, Greece and Cyprus are poised to become major energy hubs while Turkey and Lebanon won’t swallow easily losing out. With Ankara becoming increasingly threatening (in February, a Turkish warship blocked Eni’s drilling ship off Cyprus), the major investments are flowing towards Egypt, from where gas could be exported towards Europe. (In fact, if the reported size of the latest findings are remotely accurate, Egypt and Israel may become key gas traders in a few years). In the meantime, US and French (!) troops, equipped with armoured vehicles and heavy artillery, were poured steadily in Syria, to boost the defenses of Manbij.

 

Have a nice day,

Mihály

 

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