Market update: US yields and Dollar rebound, CEE growth in focus

15 May

by Mihály Tatár

 

Good Morning!

 

  • Stock markets remained on a slow burner on Monday, with traders noting that the Chinese macro data was less than stellar and that the US 10Y yield moved above the psychological 3% level again (SPX +0.09%, DAX -0.18%, Nikkei -0.06%, Shanghai -0.34%). The latter made a short work of the Euro’s correction against the Dollar (EURUSD 1.19), and put emerging currencies under pressure again (Turkish Lira – a fresh record low, not helped by President Erdogan promising that ’after switching to a fully presidential system’, no-one can stop lowering interest rates -wow, you can not say he is not honest, but one has to wonder if Turkish corporates and banks survive the project, South American currencies taking another hit – Brazil Real-2%, Mexican Peso -2%, Argentine Peso -10%, the Zloty and the Forint still disliked – EURHUF 315.70, EURPLN 4.273).

 

  • With growth figures to be published today in most of central and eastern Europe (forecasted: Y/Y Romania 5.5%, Poland 4.8%, Slovakia 3.6%, Czech Republic 4.8%, Hungary 4.2%), economists are wondering if the post-financial-crisis peak has been already reached, and some warn of a fizzling out dynamic with governments handouts dropping in case of Romania and EU subsidies in jeopardy in case of Hungary and Poland. It’s worth mentioning however that 1. Growth in the region was systematically under- estimated since 2008, especially household consumption 2. Governments learned – the hard way – the lesson of the financial crisis and their room of manouver against a slowdown is much larger than 10 years ago 3. come on, stepping back and looking at it from perspective, around 4% growth with these demographics is pretty brutally good still.

 

  • As discussed last week, Trump’s Iran decision humiliated the entire EU political elite, and resulted in a strange psychological derangement syndrome. Normally polite German newspapers simply went crazy (’Trump showed us the middle finger’ – Der Spiegel, ’trans-atlantic cooperation on economic and security policy doesn’t exist anymore’, ’the US is now a rival for Europe’ – Die Zeit), with German politicians talking as if the US just declared war on the continent. While whether the Iran decision was a good one can be argued about – the fact that the EU is not a global player has little to do with Trump and more to do with the failures of EU politicians. (Rapid-deployment EU army of 60,000 troops, anyone? That promise is from 2000, that was 18 years ago. Common financial ministry for Eurozone? That idea is more than 20 years old.) One can only hope that cool heads prevail in Berlin, Trump is quite consistent in his approach and if EU politicians insist on getting into a fight, the German trade surplus towards the US will be next item on the agenda.

 

Have a nice day,

Mihály

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