Market update: Yields dominate movements, China signals compromise, UN warns on food demand

26 Apr

by Mihály Tatár

 

Good Morning!

 

  • US yields continued higher relentlessly on Wednesday (US 10Y 3.03%), pushing global bond and currency markets with them (Deutsche Bank 2021 Dollar bond yield 3.92% from 3% in December, Hungary 2021 yield 3.50% – from 2.65%, Serbia 2021 3.90% from 3.10%, Pakistan 2022 6.42% from 5.50%, EURUSD 1.2160, USDJPY 109.50, EURHUF 313.50, EURPLN 4.238, THB 31.64), with investors having no idea where the domino of repricing would stop. (Hint: With the US growth expected above 3% this year, and inflation picking up, there is plenty of space for normalization.) Equity markets were saved from falling further by several semi-good news (it is reported that Trump will send a powerful trade negotiation team to Beijing, including Treasury Secretary Mnuchin, US trade chief Lighthizer, ’Mr.Anti-China’ chief adviser Navarro and Economic Council director Kudlow – this looked like a huge step forward from mutual threatening, especially as China is suddenly considering cutting import duty on imported cars by half – but hey, don’t forget the mantra, the US will only lose if a trade war breaks out  – , and Facebook reported super-strong sales after market, jumping 5% –  altough mind you, the money was collected before the data scandal broke out), and stock traders were unsure of the next move before today’s all-important ECB decision (SPX +0.18%, DAX -1%, Nikkei +0.52%, Shanghai -1.67%). Normally, Draghi should perform the balancing dance act (’growth, inflation all better, but not there yet, don’t get excited’), but the market is very interested on what the ECB has to say on the weaker first quarter and the recent hawkish chatter about next year’s rate hikes. (It’s worth mentioning that the EURCHF now trades at 1.20, which was originally forecasted to happen only in 2019 by bank analysts.) Oil prices kept making volatile U-turns as forecasted with the approaching Iran decision (WTI back 68.40, Brent to 74.50 USD as a frustrated Macron told the media that he thinks Trump will scrap the nuclear deal ’for domestic reasons’ – I guess, this was surprising for a European head of state).

 

  • The UN estimates that by 2050, world population will exceed 9 billion (it’s not that far away in time and shows brutal fertility in some parts of the world) and warns that food production must increase by 70%, including a 50% jump in cereal production – which is especially challenging – to satisfy demand. Compared to industrial processes and high-tech supply chains, agriculture in general is still un-efficient and looks as if left behind in the 19th century – just think of masses of smallholder farmers in developing countries. This giant asymmetry is exciting a lot of businesses these days, from big agricultural multinationals to blockchain startups, but a real solution is still far away.

 

Have a nice day,

Mihály

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