Market update: Sentiment positive on trade peace news, Italy challenges Brussels and the ECB

14 May

by Mihály Tatár

 

Good Morning!

 

  • In absence of major developments, trading slowed down on Friday, with the sentiment remaining positive after Trump’s promise to put back Chinese telecom giant ZTE into business (SPX +0.17%, DAX -0.17%, Nikkei +0.42%, Shanghai +1.12%). The latter was interpreted as a ’retreat from trade war’, and ’Trump understanding its mistake’ by the clearly perplexed analysts – personally I am not sure what these people are smoking, this was simply a classical act of power play, with the US President even trolling Beijing by tweeting about ’too many jobs lost in China’. The Dollar correction – weakening – continued (EURUSD 1.1960, this fight for 1.20 in the coming days will be interesting regarding the Dollar’s trajectory in 2018), and oil prices slipped lower (WTI 70.50, Brent 76.70), attributed to the OPEC talk about ’limiting the effects’ of the Iran sanctions – but more likely the market has simply run out of Middle Eastern bad news as hostilities ceased for now. (Again, it’s worth mentioning that while commentators turned very bullish – Bank of America forecasts WTI at 100 USD by next year- Washington is looking unhappy and we have mid-term elections in November.) The Turkish Lira extended its slide after President Erdogan raged that ’he will emerge victorious in his fight against interest rates’ – shocking even the polite economists of Bloomberg, who were waiting for a ’charm offensive on investors’, and the Italian situation is getting more interesting by the day with the Five Star and the Leage almost completing their coalition talks. (Flat tax of 15%, guaranteed income for the poor, lower retirement age, expulsion of illegal immigrants, ’fiscal certificate’ – a stealth way of re-introducing the Lira – Brussels and the ECB better prepare for a tough 2019.)

 

  • While the mainstream media is keeping the narrative that there are really no news on North Korea – and God forbid that Trump handled the issue better in one year than Obama in eight – it looks very likely that the deal between Trump and Kim is already mostly done: Mike Pompeo talked about ’security guarantees given to the regime’ and ’US private companies investing into the country’, if the North Korean nuclear weapons are fully dismantled – something that is hard to imagine without an understanding before the  12/June summit. In the meantime, National Security adviser John Bolton gave an another warning to the EU, saying that ’it is possible’ that European companies are sanctioned directly if they keep doing business with Iran.

 

  • Confirming the suspicion of many, Facebook – which threw crypto currencies under the bus at the exactly right time last year – leaked that it is working on its own cryptocurrency project. Bitcoin traders, understandably, weren’t too happy (-10%, trading at 8360 USD, despite the price forecasts ranging from 30,000 USD to one zillion, and even ignoring the first ever serious blockchain trade finance deal between HSBC, ING and Cargill – removing paper reconciliation).

 

Have a nice week,

Mihály

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