Market update: Stocks rise as tariffs go live, Merkel’s survival pushes Euro higher

6 Jul

by Mihály Tatár

 

Good Morning!

 

  • On an otherwise bizarre summer day – on which Facebook’s supposedly intelligent content AI blocked the US Declaration of Indepedence as hate speech, Germany accidentally announced a 4 billion euro increase in military spending just days before the NATO summit with Berlin visibly feeling good about itself and Israel hosting a United Arab Emirates military delegation (!) – , the financial media concentrated on the first wave of US tariffs on China going live today (’the trade war officially started’). From the looks of it, this was a sell-the-rumour-buy-the-news exercise (SPX +0.75%, DAX +1.19%, Nikkei +1.16%, only Shanghai -0.12%), even as Trump threatened to widen the scope of the tariffs to 500 billion USD, – to all Chinese imports, that is. (It’s worth repeating that so far, ’the US shooting itself in the leg’ narrative doesn’t resonate much with markets, SPX is +2% for the year, DAX is -3.5%, while Shanghai is -16%.) The Euro crawled higher as Merkel seemed to be succeeding in hammering out an immigration compromise between CSU, CDU and SPD and thus surviving  (EURUSD 1.17) – her situation is now getting very similar to Britain’s May: She is only allowed to keep going because there is no alternative and the governing parties rightfully fear the results of a snap election. (Let’s see if the deal can last at the next immigration scandal.) Even as Iran stepped up it’s threats to block the strait of Hormuz, oil traders sold the recent highs aggressively (WTI 73, Brent 77.20 USD) with the market talk being that the US and Saudi Arabia must have reached the understanding that Washington will reduce or eliminate Iran’s oil export revenues in return of Riyadh guaranteeing and stabilizing supplies. (As said before, Trump doesn’t like high oil prices before the November mid-term elections at all, and tweeted ’REDUCE PRICING NOW’, in all caps, two days ago. It’s also worth mentioning that if Teheran would, for some reason, make good on the threats and block oil trading, Pompeo and Bolton  would be more than happy and send in the aircraft carriers.)

 

  • In the generally positive sentiment, regional currencies strengthened (EURCZK 25.92, EURPLN 4.352, even the Turkish Lira moved along sideways), with the Forint appreciating the most (EURHUF 323.50 – hey, by now this level feels like strong, doesn’ it?), also helped by the central bank minutes released on Wednesday, in which the MNB reminded itself that with adverse international moves it may no be able to sustain its ultra-loose stance. (This is, of course, has been evident to all sides. What traders have learned from this six-week – and unsurprising for regular readers – rampage is that if there is any  trouble,  the 330-zone is easily achieved and indeed, the MNB  prefers any other kind of action to an actual rate hike.)

 

  • The slow-motion collapse of the Democratic Party continued with 28-year-old Alexandria Ocasio-Cortez not just unseating the fourth most powerful Democrat but also becoming a rising media star and ’the future of the party’ within two weeks. While whether one likes her person is of course a question of world view, but what is really interesting about her that  1. She represents a new, South-American style of Leftism, from the ’free everything and abolish profits’ variety, so successfully implemented in Venezuela, and  2. the rise of Latino and Asian leaders, displacing the White ’old guard’ is becoming a trend. (The latter, of course, is a natural consequence of identity politics and changig demographics – but one has to wonder if center-left White voters appreciate the changes by 2020.)

 

Have a nice day,

Mihály

 

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