Market update: Selling of Italy continues, the US goes after Iran

22 May

by Mihály Tatár

 

Good Morning!

 

  • Traders took themselves semi-seriously on Monday and used the ’trade war on hold’ newsline as a good excuse to take some profits on the one-way selling (EURUSD jumping to 1.18 from 1.17, US 10Y yield easing to 3.05% from 3.12%, SPX +0.74%, Nasdaq +0.54%, EURHUF 318 from 319.50, EURPLN 4.288 from 4.315). What actually happened was Secretary of Treasury Mnuchin suspending the trade tariffs on China – prompting the entire media to rage, from the mainstream media and Democrats talking happily about a ’pushed around  by China’ US President to the alt-right calling it ’capitulation’. Personally I wouldn’t read too much into the story – as discussed many times here, Trump tends to pull back time to time, to test the reaction of opponents, besides, he needs Chinese assistance on North Korea for now – and  its no coincidence that Chinese shares forgot to rally (Shanghai -0.72%). In contrast, the selling of Italy (10Y yield 2.42% from 1.70% in one week, Italian stocks -6%, Unicredit -9% with investors slowly waking up to the reality that the Five Star and the Leage are deadly serious, for example about launching a quasi parallel currency disguised as small value certificate notes, playing with one of the world’s largest debt market) and Turkey (Turkish Lira new record low at 4.593 with the market deciding that the Turkish central bank is simply not allowed to forcefully intervene) continued, with the Pound (GBP 1.34) heavily underperforming as well on the market talk that a fresh snap election in Britain looks unavoidable – but hey, Theresa May is greatly talented and surpasses even Margaret Thatcher, as we were told.

 

  • As predicted here, the US wasted no time regarding Iran, and Secretary of State Pompeo promised ’unprecedented financial pressure’ and ’the strongest sanctions in history’ on the country, unless it meets 12 demands. (Don’t waste your time reading them – they are rather meant to be a declaration of war, with the demands ranging from a complete pullback from Syria to the stopping of threatening neighbours and Israel.) This underpinned oil prices at the highs (WTI 72.50, Brent 79.40 USD), and traders also noted that Washington hit Venezuela with fresh sanctions as well (a ban on purchasing government and state-owned debt, including the state-run oil company). It’s also worth mentioning that after the media called Trump ’an idiot and a liar’ for stating that he was under surveillance by the Obama-led security agencies a year ago, – later confirmed to be true -, now the scandal broke out that he was even spied upon by an installed agent. The coming investigation will be a huge political show with many heads falling – this is a brutal breach of public trust – and  if even remotely true, the Trump-base will be fired up before the mid-term elections.

 

Have a nice week,

Mihály

 

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