Market update: Traders wary before the big news, the GBP and the Turkish Lira get hammered

4 May

by Mihály Tatár

 

Good Morning!

 

  • Traders remained wary before the monthly US employment report today and before any news leaking out on the China-US trade negotations (SPX -0.23%, Nasdaq -0.19%, DAX -0.88%, Shanghai -0.16%, EURUSD 1.1990, with  yields and most emerging currencies relaxing a bit on the dovish Fed meeting, US 10Y yield 2.95%, EURHUF 313.80, EURPLN 4.265). It’s worth mentioning that in the media, it has become fashionable to talk about an ’unclear’ and ’un-understandable’ US trade position, versus the ’one-voice Chinese strategy’, which reminds me of the Western journalist championing the Soviet side during the Cold War. (Very tellingly, the Chinese state agency warned against ’unreasonable’ US demands, which shows who has the upper hand here – their demand is to not to lose too much.) The victims of the day were the British Pound (GBPUSD 1.3540 – losing 6% in two weeks, EURGBP 0.8840, as it was leaked that by now even British officials think the transition period will have to be extended way beyond 2020 – as discussed before, this happens if people who don’t want a Brexit are left in charge to execute it, and Brexit voters won’t be grateful at the local elections), the Turkish Lira (USDTRY 4.2245, a new record low, this is a 25% depreciation since September and 109% since 2014, stocks dropped to a 5-months low and the Turkish 10Y yield approaches 14%), and the Argentian Peso collapsed (-11% in three days, 22% since January), partly on policy missteps but generally on investors being very afraid of South America. In contrast, oil prices jumped back up following the ’buy before the news’ drill (WTI 68.40, Brent 73.60 USD) with Teheran ruling out any modification or addition to the nuclear deal (good luck with that), and the market talk about Saudi Arabia needing an even higher oil price (some calculate 88 USD+ in WTI) to be able the spend on its wars and transformation projects.

 

  • After spending a decade or two on quietly building artificial islands on the South China sea – while everyone talked about capitalism turning Beijing into a friendly democracy and the US and Japan did exactly nothing – China has now installed anti-ship and anti-aircraft missile systems on the its new bases. The move will have serious geopolitcal consequences – the Phillipines and Malaysia already more or less joined the Beijing camp and others may follow – and real US-Chinese naval clashes are hard to avoid from here. (Seaborne oil shipments and insurance costs in the region will be then re-priced quickly.) In the meantime, the next Trump-Germany conflict is approaching rapidly, after the scandal that after decades of defense spending cuts, most of the German military simply doesn’t exist  (according to the German media, about 70% of helicopters are not fit for service with pilots losing their licenses due to not flying enough, and only 10 of Germany’s 128 Eurofighter jets are combat-ready at any given time). Berlin still plans to spend only 1.28% on its military in 2019 and ’in the coming years’ (the NATO target is 2%), which won’t fly well with Washington. (On the blog picture you can see a German export tank in the Middle East. This was deployed.)

 

 

Have a nice day,

Mihaly

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