Market update: Smiling Kim helps sentiment, German carmakers approaching a cliff

12 Jun

by Mihály Tatár

 

Good Morning!

 

  • Traders focused globally on the Trump – Kim summit in a positive mood (SPX +0.11%, DAX +0.60%, Nikkei +0.61%, Shanghai +0.82%, even Italian stocks +3.42% on the new Financia Minister Giobanni Tria ruling out a euro exit, again), waiting for the event to pass and make place for bets on the volatile Fed and ECB rate setting meetings.  The underperformers of the day were the Forint (EURHUF 321.80, on a day where the EURUSD barely moved around 1.18 and the Zloty strengthened to 4.264 against the Euro – as discussed before, the Hungarian Central Bank’s super dovish monetary policy, in a time of global tightening, is getting attention), and crypto currencies – Bitcoin dropped to 6842 USD (-11%, or -65% from December, this is of course no surprise for regular readers) after large South Korean exchange Coinrail reported a cyber attack on its system and an unknown quantity of digital currency has been stolen. (Wait, were is the deposit insurance? Just kidding.) Oil prices kept moving roughly sideways (WTI 66.20, Brent 76.50 USD), attributed to traders being not sure about Saudi Arabia and Russia convincing OPEC to allow pumping more (the Saudis are clearly serious, however, their daily output jumped to 10.03 million barrels per day in May, the highest since early 2017), and the risk/reward being low in either direction.

 

  • Several commentators note that the German car industry may soon get into serious trouble: After the G7 meltdown , the US tariffs –  Trump threatened with a 25% duty several times in the past  – on European car imports are now very likely, just when Brexit makes the lives of German automakers very hard.  The promised EU retaliation won’t make Trump tremble from fear: Exports equal 46% of German GDP but only 12% of the US. Even worse, even if the EU wanted to wave tariffs on US cars to appease Trump – because the EU is not innocent in regard of car protectionism  – , then it had to extend the same zero rates to China, India and South Korea, to comply with WTO rules, making European cars an easy prey for Asian competitors. (Especially for non-German mid-tier carmakers and the future electric car market. But hey, these treaties are really great for everyone.) Ironically, Berlin seems to hope that 1. they can win time and Trump won’t get re-elected – this is a very dangerous strategy in my opinion – or 2. they can eventually get a ’TTIP-lite’ with the US – to eliminate bilateral tariffs – which is somewhat tasteless given that Brussels now refuses this exact solution towards the UK. It’s also worth noting that the anti-Trump EU and the mainstream media seems to think that Trump is just being irrationally aggressive here – ’this idiot doesn’t know protectionism is bad for everyone’, while, in reality, this is a very clear policy headed by the ultra-hawkish White House trade adviser Peter Navarro. Navarro has been arguing for decades that Germany has locked in an unfair, permanent trade advantage through the undervalued euro (just imagine where the Deutsche Mark would trade these days, not at 1.18 against the Dollar, but over 2.00 for sure), resulting in a ’trade account surplus black hole without corrective forces’. Whether this is entirely true is a world view question, but the point is, the tariff quest against Germany is not just a part-time hobby for Trump, and won’t cease just because the EU talks back to the US in a tone usually reserved for third-world dictatorships.

 

Have a nice day,

Mihály

 

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