Market update: Traders focusing on the Middle East after Trump’s missile comment, Russia, Turkey sold, oil and gold bought

12 Apr

by Mihály Tatár

 

Good Morning!

 

  • The prospect of a Middle East showdown dominated the trading on Wednesday, after the US President tweeted that ’Russia vows to shoot down any and all missile fired at Syria. Get ready, Russia, because they will be coming, nice and new and smart !’. This was reinforced by less than encouring newslines: Iran promised  ’to answer’ the Israeli air strike, UK submarines were heading Syria, Russian warships left the port of Tartus – most likely to be able to launch counterstrikes as Moscow threatened to go after the missile launchers -, and excited analysts were debating whether the fearsome Russian S-400 anti-missile system was able to shoot down US cruise missiles. (Hint: If they actually did it, it would expose such American weakness that the US would be forced to go all-in.) The only positive sign was that amid the pressure-and-counterpressure tactics, Putin used Israeli PM Netanyahu as a backchannel to Trump (don’t forget that Russia and the US can’t officialy talk to each other anymore), and the Russian Kommersant hinted that ’Moscow expects to get air strike coordinates from the US to prevent Russian losses’, meaning, it might compromise and skip an outright war. Investors, naturally, run for cover (SPX -0.55%, DAX -0.83%, Shanghai -0.54%, the Russian Rubel at one point extended its slide to 13% but later reversed on heavy intervention – even their bond auction had to be cancelled, for the first time since the 2015 crisis -, the Turkish Lira dropped to another record low at 4.20 per Dollar – to get a feel, it was trading at 2.00 back in 2014). Oil and gold traders, however, enjoyed the show (WTI 67.10, Brent 72.20, Gold 1360 USD, MSCI Energy +4%), and airliners dropped on the higher fuel prices (from Korean Air -6% to Lufthansa -2.5%). In the meantime, commodity trader Glencore had to declare force majeure on 50.000 tons of aluminium contracts, that tells you something about the market turmoil in Russia.

 

  • It’s worth mentioning that two developments were completely pushed aside by the Syria tensions: 1. The US CPI data showed a accelerated inflation in March (2.4% Y/Y – this is not your ’even-hard-to-spot’ inflation anymore, it’s no wonder the Fed is becoming more hawkish by the day) and 2. after the unguarded ECB comments about rate hikes, the EURCHF quietly broke out and now trades near 1.19. (As some Swiss Franc mortgage borrowers might remember, it traded at 1.60, or 165 against the Forint instead of the new normal 280, before the financial crisis.)

 

  • As discussed earlier, the comic tragedy of Brexit is that in essence, lawmakers and politicians who were against it are now trying to execute it, resulting in awkward mismanagement and steady retreat from the original goals of the Brexit referendum, infuriating voters from both the Left and Right. As the latest step of this dynamic, even May’s last red line is now dropped – it was leaked that her government wants to keep the UK in the European customs union after Brexit. (It will be kind of hard to strike trade agreements with other countries as an independent country, to put it mildly, but yes, it is good for British business). Germany, naturally, would support this turn of events (a Brexitless Brexit, in my opinion), and many note that the new German Finance Minister, Olaf Scholz, is a longtime friend of British diplomacy, contrary to ’in or out’ Wolfgang Schauble.

 

 

Kind regards,

Mihály

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