Market update: Trump goes full-in on China, investors panic, BIS goes after cryptos

19 Jun

By Mihály Tatár

 

Good Morning!

 

  • The already tense markets weren’t exactly relieved when the US President went on to increase the pressure on China, and threatened to set tariffs on an additional 200 billion USD worth of Chinese imports, followed by on another 200 billion in case Beijing retaliates (!). Pressed on the fear button, investors ran for cover in almost every asset class (SPX futures -1%, DAX -1.36%, Nikkei -1.44%, Shanghai -3%, safe havens strengthened, JPY 109.70, Gold 1283 USD, US 10Y yield 2.88%, growth-sensitive metals dropped, Copper -3%, Steel -3.6%, Iron Ore -5.8%, even risk sensitive currencies weakened further, EURPLN 4.31 and EURHUF 324.10 – the latter before today’s unusually significant MNB rate decision). As discussed before, at this point things will get  interesting – in 2017,  the US imported 505 billion USD worth of goods from China, and exported only 130 billion USD in return, meaning Beijing will run out of guns very quickly. (It can, for sure, make the lives of US companies invested in China a living hell, but the price of not accomodating Trump would be a dramatic slowdown of the entire export-based economy. In that case, by the way, the German economy would be hit the most as collateral damage, as China has been their most dynamic export market.) The Euro itself didn’t move too much (EURUSD 1.1625, as said before 1.15 is a crucial long-term level), but traders already wonder how a sudden Merkel resignation should be traded (1.11?) and noted that in Italy, for the first time, the League has overtaken the Five Star in popularity (29.2% versus 29%, if the two together poll 58%, imagine how popular pro-Brussels parties are now).

 

  • The well-respected Bank for International Settlements (BIS) released a devastating report on cryptocurrencies, explaining why they would never become a real asset class. (As a sidenote, while I am also sceptical of Bitcoin and its variations, I does strike me that a bank for international settlements probably doesn’t like the idea behind them at all.) According to the report, it’s not just that they are unstable (any minute someone can launch a new one and a large player can push liquidity away from the old ones), they consume way too much electricity – Bitcoin miners eat about the same amount of electricity as Switzerland – and consume an insane amount of server capacity – according to the researchers, using Bitcoin as real money in any country would bring the Internet to a halt – , and their decentralized nature is rather a flaw than a strength with a million ways for fraud and cyber attacks.  In my personal opinion, the electricity and server capacity issue is something that can be solved by technology later – the real problem is stability. (And by the way, if one day a large bank or country decides to back a certain crypto currency, the others will fall – and you can bet the chosen one won’t be fully decentralized anymore.)

 

Have a nice day,

Mihály

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