Market update: Sentiment bounces after Friday’s drama, oil prices drop

28 May

by Mihály Tatár

 

Good Morning!

 

  • From the near-panic of Friday – when, on top of all Italy worries, the Spanish opposition filed a no-confidence notion against Prime Minister Rajoy, prompting the EURUSD to drop to as low as 1.1650 – Monday morning turned into a relief rally with the Trump-Kim summit looking to be on again and Italian President Mattarella rejecting the anti-euro, anti-Germany financial minister nominee of the winning parties (Shanghai +0.60%, EURUSD 1.1730, EURHUF 318.80 from 320.20, EURPLN 4.304 from 4.325, EURCHF 1.1630 from 1.1530, even Turkish Lira 4.67 from 4.80). In my personal opinion, while these occassions are always happily traded, the Italian developments are in reality very negative for the long term: For another time, pro-Brussels officials just ignore the results of an election, sabotage the winners and are trying to assemble a more sympatethic caretaker style government – as Five Star Leader Di Maio put it, ’what is the point of going to vote since governments are decided by credit-rating agancies and financial lobbies?’. (Moody’s warned on Friday that it may cut Italy’s rating to Baa2.) Whether the winner’s programme is rational or not has nothing to with this, mind you – the democratic deficit will eventually became unsustainable. (One of the often overlooked dimension of the Brexit vote and the Austrian election was voters realizing that Angela Merkel single-handedly turned Europe into an immigration country, with none of their political establishments wanting or daring to stop her.) The selling of oil futures morphed into a mini-collapse after Saudi Arabia and Russia began to concretely talk about restoring some of the output (WTI 66.20 USD or -9% in three days, Brent 75 USD or -7%, this is of course no surprise for regular readers), and oil company shares got under serious pressure (Exxon -4%, BP -6%, Shell -7%, Total -7%).

 

  • Mediterranean tensions not only did not ease but the newsflow shows that a fresh crisis can arise any time in the coming months: 1. Rumors spread that the US plans to remove its nuclear arsenal from Turkey, a brutal symbolic decision with many practical geopolitical consequences. 2. Turkey is already furious that Greece gave asylum to soldiers linked to the 2016 coup attempt and that the US is not delivering the state-of-the-art F-35 jets.  3. Turkish military jets now routinely violate Greek airspace and Turkish vessels harass Greek trade ships. 4. As a latest signal how the relationship has deteriorated, the US has built a large drone base in Greece, and not in Turkey. The EU will eventually have to choose sides here, and one has to wonder what Erdogan will do with the millions of migrants kept there if the decision is not the ’right one’.

 

  • The EU turned full Tesla on electic cars and European Commissioner Bienkowska talked about ’the EU in a breakthrough moment’, where ’diesel cars are finished’, and ’the technology of the past’ must be ditched for electricity-ruled transport. She also called for a Europe-wide programme for battery production, and urged Eastern Europe to increase recalls of standards-violating diesel cars. (This is a typical EU-ism by the way: A sympatethic idea supported by exactly nothing, just like the EU-army. I save my excitement for the time when I see Volkswagen shares rally or when a fully capable electric truck can be used for a decade.)

 

Have a nice week,

Mihály

 

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