Market update: Fed tries to cool expectations, Tesla and emerging currencies drop

3 May

by Mihály Tatár

 

Good Morning!

 

  • Sensing the stronger-than-ever market expectations on monetary tightening, the Fed tried to avoid pouring gasoline on the fire and communicated in a a slightly dovish tone (noting the softer first quarter growth and looking patient about inflation developments). The positive reaction was limited, however, with traders concluding that at this point, ’Dollar monetary conditions tighten themselves’, as one strategist put it, and as the US and China exchanged trade threats before the negotations starting today (Washington, for example, is considering executive action to restrict Chinese telecom sales – this is a move against Huawei – , while Beijing quietly stopped buying any soybeans that was produced in the US and President Xi called ramping up home-made microchip production a ’national priority’. The Chinese, by the way, seem to be clearly shocked to find themselves on the receiving end of protectionism, and the state media even found it necessary to go after Peppa the Pig. Yes, the cartoon character.) Stocks retreated (SPX -0.72%, Tesla -4.5% – funnily for everyone but his investors, enbattled Elon Musk called analysts ’boring’ and ’uncool’ during the first quarter conference call, when asked about burning 1 billion USD of cash in a single quarter, resulting in a 4.5% drop in the share price, Nasdaq -0.42%, Hang Seng -1.62%), and the Dollar appreciation slowed down (EURUSD 1.1980, GBPUSD 1.36 – British PM May just faces another revolt from pro-Brexit party members who want a clear break with the EU customs union, USDHUF 262.40, USDPLN 3.577). It’s worth noting that emerging currencies are weakening ever since the US 10Y yield touched 3% (EURHUF 314.60, EURPLN 4.277 – the EU structural payments cut story didn’t help of course, Mexican Peso -6% and Brazilian Real -8% since early April despite the super strong oil prices, the Turkish Lira testing another record low at 4.20, also weakening on Erdogan spending a nice USD 6 billion on pension bonuses right before the early elections), and its not hard to forecast that when US yields move another leg higher, Dollar-financing-vulnerable companies and government bonds will be next.

 

  • In a further humiliation for the once-powerful Deutsche Bank, and not sending a favorable message on the traditional banks VS fintech competition, analysts noted that Germany’s biggest bank made less profit in the first quarter (USD 146 million), than digital currency exchange operator Binance (USD 200 million, starting only in mid-2017 and operating with less than 200 employees). The market perception on Deutsche Bank did not improve with any of the leadership changes: The share price now trades at a mere 11 euros compared with 90 euros before the crisis or 34 euros even in 2014.

 

  • Bloomberg reports that Europe’s and Asia’s campaign against coal is actually making coal producers very rich (this seems to be the case whenever international organizations intervene, in any market, by the way). As new coal businesses are extremely hard to put online because of hostile regulation and expensive financing, production failed to keep pace with demand and prices are rising (US futures are 50% higher on average than in 2016).

 

Have a nice day,

Mihály

 

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