Market update: Rising US yields unnerve investors, Iran tensions jump

23 Apr

by Mihály Tatár

 

Good Morning!

 

  • Trading continued in a negative mood in Friday as well (SPX -0.85%, DAX -0.21%, Nikkei -0.28%, Hang Seng -0.33%), as investors watched yields ticking higher and higher (US 10Y yield 2.98%, closing on the psychological 3% level, which, according to several investment gurus, is the red line in this market cycle), and Apple led tech stocks lower (Apple -4%, Google -1%, Amazon -2%, Facebook -1.4%), after it became fashionable to forecast lower smart phone sales.  With the bond markets making fun of the  popular view that nothing would happen in them in 2018 (even the German 10Y moved higher to 0.61%) and the 12M Libor was flying to 2.76% after the hawkish Fed, several commentators noted with unease the similarities to the 2008 Financial Crisis (oil prices running higher? check. over-indebted governments and companies? check. rising financing costs? check. overbought emerging currencies and central banks tightening liquidity? check.) In my personal view, however, there are also huge, underappreciated differences: 1. Bank balance sheets are cleaned up, there is no CDS/CDO jungle with nobody knowing the real extend of danger. 2. Global growth is very strong, the US tax cuts / infrastructure spending barely started to have an effect, and Europe is just gearing up for some good-old government spending as well. I can easily imagine a sizeable correction in priced-to-perfection stock markets, the popping out of some of the real estate bubbles (you know, those prices that do not show up in central bank inflation reports), and some countries and companies getting into real trouble (China? Turkey? Pakistan?  Chinese overleveraged export companies and their overseas partners?), but that’s it – no 2008 style ’capitalism is over’ bestsellers kind of market storm.  (And remember, financing any country – let it be the US or Hungary – for ten years for getting 2% is not normal. Two-way, risky markets are the normal.) Naturally, the Dollar strengthened on the higher USD yields (EURUSD 1.2260, GBP 1.40, USDHUF 253, USDPLN 3.404, and traders started to close out emerging currency positions – Thai Baht 31.43, Mexican Peso 18.555, Brazil Real 3.413).

 

  • Even oil prices took a smaller hit (WTI 68.40, Brent 74.10 USD), after Trump’s shock tweet (’oil prices are artifically high and will not be accepted’ – ups, let’s see if this becomes an item on the US President’s ’todo’ list), but the main focus remains the 12/May US decision on Iran. Tensions keep running especially high in the Middle East: Iran threatened Israel (’finger on the trigger and missiles ready for launch’, ’you are surrounded from every direction and you have nowhere to flee except into the sea’, which comes as Israeli war preparations on Syria are intensifying – Jerusalem even pulled out figher jets from a drill in Alaska.

 

 

Have a nice week,

Mihaly

 

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