Market update: Oversold markets rebound, all eyes on US tariff tactics

31 May

by Mihály Tatár


Good Morning!


  • Attributed to the Five Star and the League stating they ’never sought euro exit’ and are willing to propose a new finance minister, oversold markets U-turned for a correction on Wednesday (SPX +1.27%, DAX +0.93%, MIB +2.09%, Nikkei +0.84%, Shanghai +1.56%, EURUSD 1.1670, US 10Y yield 2.85%, Italy 10Y yield 2.90%, EURHUF 319.60, EURPLN 4.311).  Personally I believe the bounce was partly technical – 1.15 in EURUSD is a very strong, important level, attracting bargain hunters -, and partly because many investors simply don’t think Italy falling into chaos should effect the valuation of Apple or Amazon, for example.  (Regarding the Italian political drama, don’t trust anybody who says ’never’ for too many times, and I find it a very bad sign that in her speech, Merkel could only come up with one reason to keep the euro: It’s the ’best guarantee to preserve peace’. Oh, I thought that was NATO and the US heavy tank divisions stationed here, the Euro was something cool to boost economies and trade.)   For good measure, Moody’s put Italian banks on review for downgrade (Unicredit is down 22% for May, almost 60% down since 2015, Intesa -21% for May, -30% since 2015 – but hey, according to Unicredit’s CEO, fears are unjustified and everything is great, in the fashion of ’nothing to see here folks, keep moving’). Even oil prices jumped after the one-way selling (WTI 68.10, Brent 77.30 USD, Exxon +4%, Total +1.7%, BP +2.5%, Shell +1.9%), and the focus is now shifting back to world trade issues: Washington’s deadline before implementing the 25% steel and 10% aluminium tariff on Mexico, Canada and the EU expires on Friday, and the US trade team travels to China for the weekend. (It’s worth noting that the EU still doesn’t really comprehend that the US is done with patience and is serious: The EU vowed that it won’t discuss trade matters before the tariff issues have been resolved – ’while there is a gun pointed to our head’, as Macron put it – to which US trade chief Ross coldly retorted that ’God knows there are plenty of tariffs the EU has in place on us’. The ’God knows’ really says it all and as forecasted here last year, instead of the ’trade war’ the media relentlessly talks about, China is actually retreating: It has just cut tariffs on a wide range of consumer goods from clothing to washing machines and healtcare items, roughly halving them.


  • Not making inflation-sensitive Germany happy, prices jumped by 2.2% Y/Y (while unemployment fell to  another record low, 5.2%). This will cause further tensions at the ECB, which be under heavy Southern pressure to continue with easing. In the meantime, Polish first quarter growth was revised higher to 5.2% (not bad, with the boom years in CEE supposedly having topped out last year), and the Croatian economy also accelerated to 2.5% in Q1.


  • There were some interesting figures in a report on the Internet published yesterday: The number of global Internet users surpassed 3.6 billion – or more than 50% -, with people spending twice as much time – six hours a day – on the web each day than a decade ago. Almost all the growth has come from mobile users – little surprise here – and e-commerce has reached a 13% share in all retail trade. What will have enormous implications worldwide is the rise of e-commerce in Asia – China is already on par with the US in leading Internet companies and it is very telling about the scales of economy that while WhatsApp barely started serious business in India, it already has 200 million users.


Have a nice day,



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