Market update: Bit of a bounce but yields keep rising, causing 2008 flashbacks, Rubel becomes a safe haven

17 May

by Mihály Tatár


Good Morning!


  • Some mildly positive news – Italian parties distancing themselves from the debt write-off plan and later-denied rumours circulating about China-hawk adviser Peter Navarro being out of Trump’s favour – were good excuse to take some profits and markets bounced (SPX +0.41%, DAX +0.20%, Nikkei +0.66%, Shanghai -0.37%, EURUSD to 1.1825 from as low as 1.1770, GBPUSD 1.3570 on the UK now officially willing to stay in the customs union beyond 2021 – what a surprise, EURHUF 316, EURPLN 4.27, TRY 4.43). In reality tough, the focus remained on the bond markets: The US 10Y yield continued higher and reached 3.10%, pushing everyone into the usual paranoic thinking pattern (who is the most vulnerable? Will US stocks be really hit or with this growth they can withstand tighter financial market conditions? What will happen to global growth in a high-Libor, high-oil-price environment? Some economists, like Harvard’s Reinhart, already warn of a ’worse emerging crisis than in 2008’.  My personal view remains unchanged: There will be corrections from the long rally, re-pricing for risk, irresponsible companies and even governments will collapse in droves, but – that’s it. In 2008, nobody could really say what will happen to the global banking system because banks were full of toxic assets which nobody could quantify – this is not the case now.) Oil prices marched higher (WTI 71.80, Brent 79.40 USD) attributed to still falling US inventories – as always, analysts clashed on whether the high oil prices are good or bad for the economy (consumer spending lower vs increased energy investments), while tellingly, other commodities remained under pressure from the strong Dollar (Gold 1288 USD, Copper 308 USd).


  • The Rubel remained a safen haven amid the emerging markets selloff (USDRUB 61.72), helped by the rising oil prices but also with more and more traders expecting a turn in the US-Russian relationship. As veteran geopolitical strategist David Goldman notes, Russia’s quiet approval of the Israeli campaign against Iran in Syria was also a gesture to the US – if Moscow wanted to spoil US and Israeli efforts, it could have helped Iran and Syria shoot down the incoming combat jets. Instead, cynically, Moscow even stopped delivering the S-300 air defense system, saying that ’Syria has all the air defense it needs’, after the attacks destroyed a good part of the air defense batteries.


  • One should keep an eye on the winning Italian parties: While they both said a debt write-off is not on the agenda, League economic adviser Borghi said that there is ’simply the request for a change in accounting rules’. (Beware! These guys will be tricky!) Showing the magnitude the winners despise Brussels and its rules, League chief Salvini dismissed investors’ concerns by raging: ’The [German – Italian bond yield] spread is going up – do you remember the spread? The games at the table of big finance. Who buys, who sells, who sells. Do you remember how the last legitimate government, of Silvio Berlusconi, went home in 2011?’. Uh, someone remembers.  Not caring too much about the Italian developments, the EU anti-US mental derangement syndrome continued with European Council President Tusk talking about ’with friends like this, who needs enemies?’ , and Juncker stating that ’we don’t want this agreement  destroyed, it is important to maintain peace’. (Excuse me? Has the Middle East been peaceful between 2015 and 2018? How many Europeans soldiers exactly helped the US destroy ISIS, the most brutal movement since the World Wars? How many EU troops protect the US from an invasion? Since when exactly are the EU and Iran allies? Even if you disapprove Trump’s handling of the Iran deal, Eurozone leaders have serious reality issues.)



Have a nice day,




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