Market update: No Italian news is good news, tech helps stocks higher, Merkel just declined deeper EU

5 Jun

by Mihály Tatár

 

Good Morning!

 

  • In absence of fresh Italian developments – Berlin congratulating the new Conte government but warning about sticking to fiscal rules hardly qualified, and clearly, Merkel’s inner circle is expecting a Greek-style post-election political reversal, good luck with that – stock markets followed the US higher on positive tech news (SPX +0.45%, Nasdaq +0.45%, DAX +0.37%, Nikkei +0.17%, Shanghai +0.48%, Microsoft buying coding site GitHub for 7.5 billion and Apple introducing a series of new services, both resulting in fresh record share prices.) With no theme to freak out on – Reuters dramatically reported that Canada plans to punish the US by introducing duties on Maple Syrup, no kidding – risk sensitive currencies continued to bounce (EURPLN 4.274, EURHUF 318.70, EURCZK 25.70, even USDTRY 4.585), and money moved out of safe bonds (US 10Y yield 2.94%, German 0.42%), Gold (1290 USD) and the Swiss Franc (EURCHF 1.1560). The underperformers were the British Pound (GBPUSD 1.33 – while Brexit is less than 10 months away, both sides’ play-with-time strategy worked so well that not a single major decision has been taken), and the Mexican Peso (USDMXN 20.12, losing 12% since April, with the country not bending on NAFTA and hated-by-business, ’Chavez light’ Obrador rising unstoppably in the polls just before the elections.) The EURUSD itself did not move for now (1.17), with some analysts noting that in essence, Merkel poured ice cold water on Macron’s big EU visions when she refused any material step towards fiscal or debt union. (To be sure, from a German viewpoint, the notion that the German parliament must be able to control the spending of German taxpayer money is rational – but hey, if it’s Germany First, what have they been talking about? The dreams about a Federal Europe are now officially over.)

 

  • The dead cat bounce in oil prices didn’t last long and traders sold again (WTI 65, Brent 75.50 USD). This was attributed to further OPEC noises on relaxing output curbs, but the market talk is simply that moves towards 80 USD in Brent were overdone just on Iran sanctions and to break this level, a fresh dramatic development would be needed. Regarding Iran, it seems Teheran was hardened by the European and Asian sympathy, and Supreme Leader Ayatollah Ali Khamenei ordered preparations for enrichment of uranium without delay. He also reiterated he would never accept limits on the ballistic missile program and for good measure called Israel a ’cancerous tumor that needs to be removed’. This probably won’t fly well with Washington – Pompeo, in my view, is the most energetic Secretary of State since Dick Cheney -, and according to rumours, Israel is already testing its brand new F-35 stealth jets inside Iran.

 

Have a nice day,

Mihály

 

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