Market update: Yields break out, dominate trading, Dollar soars

16 May

by Mihály Tatár

 

Good Morning!

 

  • As consistently forecasted here, there has been plenty of room for US yields to normalize, and the issue was rather about timing, with investors and fund managers giving up on this theme several times. However, ever since the US election day (9th of November 2016, when US bond yields exploded higher), all the stars were aligned, and yesterday the US 10Y yield finally broke through the psychological 3% level (now trades at 3.07%). The move has entirely dominated the trading day: The EURUSD dropped to 1.18 – with cooling Western European growth not helping: Germany 0.3% Q/Q, along with rumours that the Five Star and the Leage in Italy are seriously considering to demand a 250 billion euro debt write-off from the ECB. Stocks went into risk-off mode (SPX -0.68%, Nasdaq -0.81%, DAX -0.06%, Nikkei -0.37%, Shanghai -0.30%), with emerging currencies getting hit again: The Turkish Lira collapsed to a fresh record low (4.475 against the Dollar, that is -20% YTD and -80% since 2014) after even Moody’s warned about the banking system, South American and Asian currencies continued downwards and the Zloty and the Forint remained under pressure (EURPLN 4.30, EURHUF 317.60 – this is an important level regarding the future, USDPLN 3.64, USDHUF 268), with traders happy to go after dovish central banks. Even Gold and Bitcoin were sold off (the former crashing under 1300 USD, both making fun of the notion of being a great way of storing value.) Naturally, bond markets followed the US developments (German 10Y yield 0.65% feeling the heat, the Hungarian 10Y yield jumping above 3% – it was trading at 2% in January, the Serbian 2021 Dollar bond yield spiking to 4.20% – it traded at 2.9% in September, and the Deutsche Bank 2024 bond yield reaching a flashing 4.7%.) In oil markets, the WTI kept moving sideways (71.20 USD), while Brent reached a fresh high (79.50 USD), after quite entertainingly, Iraqi elections defied analyst expectations (’nothing is going on’) and resulted in favorite Al-Abadi becoming weaker and radical cleric Al-Sadr gaining popularity in a low-turnout, undecisive outcome. (This is actually a blow both to the US and Iran – Shia parties suffered a heavy defeat -, with even the Guardian talking about ’peak Iran’ after the recent political developments.)

 

  • It seems the avalanche of bad news simply can not end for Tesla: After conflicts with analysts on cash flow survivability and media disasters regarding self-driving and fatal crashes, this time it was reported that Elon Musk had to pause producing Model 3s and reorganize the entire company, resulting in another 5% drop in the stock price (this is -28% from the 2017 top). Musk himself became quite irritated, and attacked ’really incredibly irresponsible journalists’ – which, of course, is true, but somewhat rich from someone who strived to become a media darling his entire life. (And by the way, if he thinks he is mistreated by the media, he should try to say anything negative about paperless, illiterate migrants to a German journalist.)

 

Have a nice day,

Mihály
 

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