Market update: Stocks and oil blast higher, second iteration effects of the Iran decision come into play

10 May

by Mihály Tatár

 

Good Morning!

 

  • Far from being concerned about the Iran deal developments, stock markets rallied on Wednesday (SPX +0.97%, DAX +0.24%, Nikkei +0.39%, Shanghai +0.08%), led by oil companies (Exxon +2%, Total +1.8%, Shell +3.4%, BP +4%) on the commodity rally and banks, on the rate normalization theme (Bank of America +2.8%, Citi +1.4%, Barclays +1.6%, Commerz +2.5%), with traders also probably relieved that the US 10Y yield stayed under 3%. Generally, currency markets slowed down (EURUSD 1.1860) before today’s  US inflation data – a high-stakes event  with the market pricing an uncertain 50% chance of as many as four Fed rate hikes in total this year. (Showing how important this topic has again become, after a CPI read of 2.3% Y/Y, the Hungarian Forint weakened to a two-year-low – EURHUF 315.80 -, and bond yields jumped, despite the inflation figure being the same as forecasted.)

 

  • Oil prices kept marching higher (WTI 71.70, Brent 77.80 USD) as developments in the Middle East unfolded rapidly: Iran, for the first time, attacked Israeli military positions with rockets, resulting in massive Israeli airstrikes on Iranian positions in Syria, including Revolutionary Guard buildings as a message. While one couldn’t see it on the price action, after the verbal intervention of Saudi  Arabia and Kuwait (’will mitigate the effects of any sanctions’ – almost surely on US pressure), traders began to talk about a radically different-than-planned OPEC meeting for June, potenitally resulting in gradual output raises rather than cuts. The anxious EU suddenly looked uncharacteristically busy to protect companies trading with Iran from the US sanctions – the ideas include resurrecting so-called blocking regulation that were used against extra-territorial sanctions back in 1996 and pushing the ECB to establish a clearing system to allow Iran to trade in euros -, but everyone is sceptical whether these could work (’probably Trump will get his way’, as the chairman of the Bundestag Foreign Affairs comittee admitted). In my personal opinion, the Trump-haters in Brussels probably skipped the speech of the US President – he is deadly serious on going after Iran supporters, and one has to wonder why it is worthwile to prefer trade ties with Iran over those with the US. (But hey, as then German Foreign Minister Gabriel put it last year, ’the days of the US being dominant in world affairs is over.’ Ha.) It’ also worth mentioning the most imporant stakeholder in this story from a political perspective – the Trump-base, who else – was fairly content, with the social media full of comments like ’Another promise kept. Good. Now build the Wall.’.

 

Have a nice day,

Mihály

 

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