Market update: Stocks retreat as China strikes back, Merkel is in trouble, Forint slides

18 Jun

by Mihály Tatár

 

Good Morning!

 

  • The sentiment remained wary with the first US – China tariff exchange and with the news of Merkel’s unprecedented fight for survival after 13 years in office (SPX -0.10%, Dow -0.34%, DAX -0.74%, MIB -1.32%, Shanghai -0.53%). It’s worth noting that the news themselves were not too dramatic: Trump’s 58-page list of affected Chinese imports could be described still as a warning shot, as the list doesn’t include computers, smartphones and plasma screens – the key Chinese export products to the US – and Beijing threatened to mainly target US agricultural  products as a retaliation, and not the much more painful market access issues. In the case of Merkel,  Interior Minister Seehofer, pulled back a bit an talked about ’no one in the CSU having an intent to topple the chancellor’. Both uncertainties, however, freak out investors, as they are part of a larger trend with too many unknowns: For example, will the US-Chinese trade blows spiral so out of control that Trump will bomb Chinese high-tech exports into unprofitability (possibly causing China’s first modern recession) while Beijing burns US companies invested in China by informal means? Regarding Germany, even the mainstream media  is noting that by now, Merkel is trying to deflect attention from the internal political crisis by hoping that the EU will take care of the immigration problem (Seehofer told Bavarian leaders he ’can’t work with the woman anymore’, and Merkel adopted Victor Orban’s ’flexible solidarity’ expression on immigration, hey, imagine these lines even one year ago. ) Several news agencies, like Bloomberg, warned that Merkel’s fall would put Macron’s plans for EU reforms in jeopardy – this shows again, in my personal view, journalist’s warped sense of reality  (the reforms are already dead, a weak Merkel successor will mean the end of the EU as we know it, and Italy humiliating France and Spain this weekend shows how incredibly dumb it was in 2015 from Merkel to make immigration the flagship project of the EU, instead of, let’s say, launching massive employment programmes in the South, bulding up an EU army, or, whatever, announce a mission to Mars).

 

  • Emerging currencies remained under pressure ever since the hawkish Fed meeting (USDTRY 4.77, approaching the record lows again, the Pakistani Rupee trades around 122 per Dollar – making it the worst performing currency in Asia, the Thai Baht depreciated to 32.76 per Dollar, or by 5% since late April). The Forint’s underperformance also continued (EURHUF 323, USDHUF 278.50,  with more and more global commentators noting that the Hungarian Central Bank (MNB) ’has a seemingly low interest’ in following other central banks towards tightening.  (Simply said, the MNB wants to push growth and avoid raising rates as long as possible. The current market talk is that EURHUF 330 is the pain treshold where the MNB will be forced to do something to strengthen the Forint – in my personal view, verbal and quiet FX interventions are more likely than any shift in actual policy.) In the meantime, oil traders didn’t like the Russian-Saudi talk of boosting output by 1.5 million barrels per day (WTI 64 USD, Brent 72.90 USD, to put this amount into perspective, this is next year’s entire oil demand growth, according to the IEA), despite Iran and Iraq doing their best to convince traders they won’t let OPEC change course on Friday. (Some geopolitical strategist also added that with the Saudi – UAE  forces looking quite successful – they just captured key parts of Hodeidah in Yemen using extensive US support – Trump’s alliance with ’the two princes’ looks firmly in place, and, well, if more pumping is bad for Iran, then it will more pumping.)

 

 

Have a nice week,

Mihály
 

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