Market update: Commodities drop like stone, Trump grills NATO

12 Jul

by Mihály Tatár

 

Good Morning!

 

  • Wednesday was all about selling, with investors taking profits surprised by the swiftness and scope of the second-round US tariffs on China (SPX -0.71%, DAX -1.53%, CAC -1.58%). Beijing clearly got shocked, too: The state media called for ’calm’ – and Vice Minister of Commerce Wang Shouwen called Washington ’to resolve the conflict’ and declare that ’when we have a trade problem, we should talk about it and find a solution’. The latter news helped Asian markets to bounce overnight (Nikkei +1.26%, Shanghai +2.07%) – with traders hoping that with China finally getting nervous, a deal will be made. The selling in stocks was nothing compared to what went on in commodities, however – on the speculation that Chinese growth will hit a wall now, basically everything dropped like a stone – Copper (-5.5%), Zinc (-7%), Aluminium (-3%), and most of all oil prices (WTI 70.80 USD, Brent 73.80 USD – the latter straight from 79 USD!).  In case of oil,  there were actually several other reasons behind the explosive move lower as well, including the news the US may give waivers to some countries on importing Iranian oil – hitting an extremely long-positioned market – , and I suspect several big guns started selling after Trump’s ’reduce prices now’ Tweet, with the risk/reward being pretty cool at 80 USD in Brent.  Currency markets were quite busy, too: US Producer Prices suddenly showed a 3.4% rise , the biggest jump since 2011, and as forecasted here, the attention returned to inflation immediately, resulting in an USD-rally and emerging currency selling: EURUSD 1.1670, GBPUSD 1.32, USDJPY 112, EURHUF 325.50, USDHUF 278.60, EURPLN 4.35, USDPLN 3.72, with the Turkish Lira collapsing to a fresh record low – almost 5.0 against the Dollar – after President Erdogan declared that ’interest rates are going to go down’. Turkey’s Garanti bank managed to drop 12% after this verbal intervention – or 45% since February, and by now the market goes after the second-iteration victims, like Spain’s BBVA bank – which owns half of Garanti.

 

  • The NATO summit started roughly as expected – that is, Trump as usual attacked heavily to throw everyone off balance: He demanded spending 4% (!) of GDP on defense, after spending 2% ’immediately and not by 2025’, and called out Germany’s North Stream II deal with Russia, ’making Germany a captive’ of Moscow, and a strange way to defend against the mighty Russian threat. (I am not sure what Berlin was thinking at the time, that the US won’t notice? It’s safe to bet now that if the EU keeps provoking Trump, the State Department will go through with the North Stream-related sanctions on European energy companies, for which the EU promised to retaliate.)  The narrative of the mainstream media was quite the usual (’Trump ranted like a drunk on the bus’, ’Trump sows divisions at NATO’), which would be fine to me if they also had  the mental capacity to realize that the status quo won’t come back, the good old’ times of spending military resources on welfare is over, long-term decisions are to be made here.

 

 

Have a nice day,

Mihály

 

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