Market update: Oil and metal prices extend the rally, ZTE decisions shocks China

19 Apr

by Mihály Tatár

 

Good Morning!

 

  • The ’post-Syrian strikes’ relief rally continued on Wednesday, altough in a much slower fashion (SPX +0.08%, Nasdaq +0.19%, DAX +0.04%, Nikkei +0.38%, Shanghai +1.36%), with the money returning from safe bonds (US 10Y yield 2.86%) and the Rubel regenerating further (USDRUB 60.70, making back about half of its brutal 13% loss). As predicted, the profit taking in oil didn’t last long and traders used the fresh data, showing crude and refined product stockpiles sliding to a 3-year-low in the US, as the perfect excuse to add to long positions (WTI 68.90, Brent 74 USD, all eyes on the 12/May Iran decision by Trump). In currencies, while the EURUSD remained near 1.24, pushed higher by the ECB tightening speculation but pressured by another hawkish Fed talk, the EURCHF had no such issues and jumped to almost 1.20. (If anyone remembers, it used to trade at 1.60, before the Financial Crisis in 2008 made European investors run from Euros into Swiss Francs, sending CHF borrowers on an adventure.) Metals continued their crazy rally (Aluminium +28%, Palladium +15%, Copper +4%, for April, pushing mining companies and even currencies – like the  Australian Dollar – even higher), and Turkish assets rebounded (TRY +2%, stocks +3%) somewhat after Turkish President Erdogan suddenly announced early elections.

 

  • Veteran geopolitical strategist David Goldman notes that the Turkish President’s surprise move has wide-ranging consequences, completely missed by the mainstream media: 1. The American plans to retreat from Syria, and the sacrificying of Kurds to appease Turkey, put Ankara and Teheran as the only players in the power vacuum. This increases the likelihood of an Israeli-Iranian war, and forces Sunni powers, like Saudi Arabia, to ’sponsor’ financially troubled Turkey. 2. For its part, Turkey does everything it can to save the Iranian economy – it just introduced swap lines and Letters of Credits as the Iranian government, after the Rial’s collapsed, had to suspend foreign trade transactions and most Iranian banks became dysfunctional. 3. The election consolidates Erdogan’s one-man rule in what used to be the region’s lone democracy, putting the EU in a very dangerous position (just think of the stop-the- migrants agreement or the borders of Greece).

 

  • The US ban on selling chips to Chinese telecom giant ZTE clearly shocked the entire Chinese elite: At the moment, the only key manufacturing area the US is still dominating is microchips, and China spends 200 billion USD to import these into its value chains, as there is virtually no domestic production. The step was so unexpected that Chinese government newspapers called manufacturers ’lazy’, and funnily, complain that ’importing chips has been more easy and cost-effective than sourcing domestically’, ’hurting Chinese interests’. (Sounds familiar?)

 

Have a nice day,

Mihály

 

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