Market update: Turkish Lira in freefall with the crisis now official, China makes gestures

23 May

by Mihály Tatár

 

Good Morning!

 

  • As expected, the ’US-China trade truce’, or ’Trump retreated’ rally was not a particularly serious notion – tellingly, China announced it will cut its car import duty to 15%, and we can suspect it was not their own idea – and with investors starting to really worry about Italy and Turkey, markets became more risk-averse again (SPX -0.31% and Dow -0.72%, weighted down by energy shares as oil traders sold heavily into Brent over 80 and WTI over 72 USD, Nikkei -1.15%, Shanghai -0.78%, EURUSD 1.1760, the exemption being DAX+0.71%, with BMW and Daimler rising on the Chinese news – one wonders if they are grateful to Trump of hammering this out). The freefall of the Turkish Lira continued (4.82 against the Dollar, that is 14% in 2 weeks and 27% this year, after even Fitch became wary of the situation), and while Italian assets bounced a bit (10Y yield 2.33%, MIB +0.50%, Unicredit +2.4%), one has the sinking feeling that in contrast to the Eurozone debt crisis in 2012, this time markets not over- but underestimate the risks in both countries. In Turkey, the analyst sentiment is that the ’crazyness will go on until the central bank is forced to intervene’ and than its over, and investors  lost a lot of money on betting against the Eurozone the last time around as the ECB stepped in and allowed Italy to survive with its monetary easing. However, it is hard to see what can Turkey do if the Libors and the Dollar move higher – Turkey’s trade deficit was 6.1 billion USD last year, and this is before the now unavoidable bailing out of banks and FX-indebted companies -, and the media tends to underestimate the Italian populist parties’ determination and capacity to undermine the Eurozone rules – causing a fresh European crisis just when Britain leaves. In the meantime, Mark Zuckerberg mostly sidestepped the grilling questions of the European Parliament (Facebook -0.48%, with Mark avoiding a gaffe but showing limited understanding of the hostility around him), and Bitcoin dropped under 8000 USD again (7907 USD or -53% since January, I suspect a lot of millenials will have to finally write a CV).

 

  • Showing that the unprecedented demographic winter is by now felt everywhere, Chinese (!) companies and academics called for ’baby bonuses’ to reverse the population decline. (This is tough in a country which just left its decades-long one-child policy and usually implents changes in every five or ten years only. Typically, the main argument is that ’the Han should avoid the fate of the Japanese.’) Not unrelated, causing a massive scandal, Romania is now considering a complete overhaul of its failing pension system and dismantling the private payment pillar (this comes at a growth rate of 6%!), and Chicago’s pension troubles turned into a horror show as the authorities experiment with implementing real estate taxes for pension purposes.

 

Have a nice day,

Mihály

 

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