Market update: Chinese shares plunge to three-year low, Swedish opposition proposes Swexit

20 Jun

by Mihály Tatár

 

Good Morning!

 

  • The trade war theme kept dominating the sentiment on Tuesday (SPX -0.40%, DAX -1.22%, Nikkei +0.53%, Shanghai -0.51%), with Chinese shares dropping to a 3-year low and the Yuan experiencing the largest two-day drop since the 2015 China panic. (To put things into perspective, the Shanghai stock exchange lost 18% since January – while the SPX eased by 3% and the Nasdaq rose 3% in the same period – but hey, supposedly, Trump’s tariffs hurt the US just as much as China. Also, analysts outdo themselves to portray the effects on China as mild – UBS talks about -0.1% of GDP, Deutsche Bank -0.3% – which is, of  course, nonsense, and reminds me of the crappy Brexit effects forecasts just with an inverted bias: The low profit margin of Chinese products is legendary, companies and banks are overleveraged, and if nothing else, the evaporation of US investments in China would be very painful. Not to mention the majority of the population – which still works for wages that are a fraction of that in the West –  simply isn’t psychologically prepared for hard times after being promised richness in return for accepting the Party rule.) The Dollar quietly strengthened further (EURUSD 1.1560 – traders prepare another siege of the key 1.15 level), and the usual suspects were sold again (USDTRY 4.757 – bonds fell to a fresh record low, the Turkish 10Y yield is now trading at a whopping 17%), with even the Swedish Koruna, of all currencies, extending its losses on global trade fears and with the main opposition party calling for a referendum on EU membership and campaigning for Swexit. (This ’humanitarian capital of the world’ project seems to have backfired, too ). Crypto currencies dropped again after another hacking scandal (Bitcoin -4%, Ether -3%), at trading portal Bithumb – it’s worth noting that investors were reassured that their assets were safe because they were moved to a so-called cold wallet, meaning disconnected from the Internet. (Ups, here goes the utopia of the online nation.)

 

  • Heavy two-way trading went through the Forint, not seen for a long time, during and after the Hungarian Central Bank (MNB) decision: While the central bank reiterated it is committed to loose monetary policy, it removed the reference for ’extended period’ and added that this means potential tightening in the foreseeable future. The change – which is essentially a verbal intervention, as forecasted here – helped the EURHUF to ease from 325 to 321.50, with old Forint sellers taking profits and pass for a better opportunity to test the MNB’s willingness to actually raise.

 

Dear Readers, the next issue of Market update will be published on the 6th of July as I am leaving for summer holidays. Have a great time and may the tweets avoid you,

 

Mihály

 

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