Market update: All eyes on surging bond yields, US goes softer on Russia, newslines push oil higher

24 Apr

by Mihály Tatár

Good Morning!

 

  • The entire market was watching what bonds were doing on Monday, as yields continued higher (US 5Y 2.82%, US 10Y 2.99% – just shy of the 3% ’kill zone level’, German 10Y 0.64%, Dollar-denominated Serbia 2021 3.8%, Hungary 2021 3.36%, Deutsche Bank 2025 5% to name a few for the feel). The US Manufacturing PMI data was very strong– 56.5 for April, making fun of the recession-callers – and reinforced the ’better growth, higher inflation, faster rate hikes’ narrative, resulting in a non-stop Dollar rally and emerging currency profit-taking (EURUSD 1.22, GBPUSD 1.39, EURHUF 312.40, USDHUF 256, EURPLN 4.203, USDPLN 3.448, USDCZK 20.87, Thai Baht 31.57, Mexican Peso 18.93 – not helped by far-left and anti-oil Lopez Obrador leading in the election race, this is a 5% crash with many wondering if this will not turn into a Venezuela 2.0, Brazil Real 3.452, TRY 3.114). In contrast, stock markets were not sure what to do next – partly because this is the most intensive week of the earnings season – (SPX +0.01%, Nasdaq -0.25%, DAX +0.25%), with the exception of the Asian markets which welcomed the stronger Dollar (Nikkei +0.86%, Shanghai +1.88%). As mentioned earlier, Trump seems to had enough of Washington’s anti-Russia pushes and the US Treasury just gave a lifeline to nearing-collapse Aluminium giant United Rusal, offering sanctions relief if owner Oleg Deripaska leaves the company and extended the sanction deadline for business partners by five months. (This caused Aluminum to plunge by 10%, and Palladium by 7%, with Rusal shares jumping 36% – I suspect hedge funds, which speculated on total chaos in the industry, just lost a lot of money and won’t have happy client after this).

 

  • The dip was swallow and oil prices remained well supported as predicted (WTI 69.10, Brent 75 USD), despite the stronger Dollar, helped by pretty much all the newslines (the Colombian President’s warning of an imminent collapse in Venezuela, the US CENTCOM – American Central Command – commander paying an unprecedented visit to the Israeli chief of staff, the topic would not surprise you -, and most importantly, despite the wishful media talk that he would be declined, ’superhawk’ Mike Pompeo just won the Senate votes to become the new Secretary of State). It’s worth mentioning that French President Macron is currently touring  hard Washington as a quasi EU foreign minister to convince the Trump administration to keep the Iran nuclear deal – given that by now everyone is long oil, even a temporary compromise will cause large swings. (But for a real shift in direction, in my opinion, weaker growth data and/or a Trump – OPEC clash would be needed.)

 

  • As discussed back in 2015 here, Merkel’s open borders immigration policy gradually turned into an unmitigated disaster, and in a shocking change of perspective, Germany’s left-leaning Der Spiegel (not a racist hate site, mind you!) began to worry about the future: Currently, every fourth child born in Germany has a foreign mother (!), with 40% of mothers giving birth in Hamburg being born of outside of Germany. (And 20% of people living in the country are first or second generation immigrants, but these data also includes Eastern Europeans and Italians.) While it is true that the surging crime is done by a small minority of migrants – sounds reassuring until you realize that only the Syrians take 10% of all Hartz IV payments – but even a small minority is capable of making life harder, and introducing new cultural norms, like spitting and groping headscarfe-non-wearing women, as in Essen. In my personal view, it’s not hard to forecast that German politics will soon look like the US states with the worst racial tensions.

 

Have a nice day,

Mihaly
 

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