Market update: Mnuchin in damage control, car war talks due this week

23 Jul

by Mihály Tatár


Good Morning!


  • In case anyone missed the point, Trump repeated his stance on Friday: ’China, the EU and others have been manipulating their currencies and interest rates lower, while the US is raising rates while the Dollar gets stronger and stronger’ , adding that regarding the China tariffs, ’we are playing with the bank’s money’ and that he is ready ’to go to 500’ (billion USD worth of Chinese imports under tariffs). Naturally, the Dollar weakened further (EURUSD 1.1730, GBPUSD 1.3145, USDJPY 111), with stocks trader scratching their heads what this all means (SPX -0.09%, DAX -0.98%, Nikkei -1.38% – the latter two being the exporters, Hang Seng +0.17%), with only yields crawling decidedly higher (US 10Y 2.89%, thinking, this President is not  an inflation fighter, is he – and the massive infrastucture spending plans haven’t been even announced yet). After this, Treasury Secretary Mnuchin spent the entire G20 summit ruling out a currency war, assuring everyone that there will be no intervention in the USD market, and defending the US position against the raging trade partners. Interestingly, while the French are still in the do-the-scandal mode – Finance Minister Bruno Le Maire warned against the ’law of the jungle’, and told Trump to ’return to reason’ – , Germany seems to be giving up on this strategy and tries to reach a compromise to save its car industry. (US import tariff on EU cars is 2.5%. The EU’s is 10%. And while journalists love to point out that the US has a 25% duty on imported vans, or that German cars are good products, both true, the reality is that without the Euro, Deutsche-Mark priced German cars would be about 40% more expensive. The times when these disparities were tolerated are over, and automakers wait nervously for ’not-thirsty’ Junckers’ visit to Washington this week, Volkswagen -2.6%, Daimler -2.4%, Renault -1.3%, Citroen -2.55%).


  • Iranian President Rouhani warned the US that it risks ’the mother of all wars’ with threatening Iranian oil exports, to which Trump promptly replied (’never, ever threaten the United States again or you will suffer consequences the likes of which few throughout history have ever suffered before’). Oil prices, however, remained motionless (WTI 68.10, Brent 73 USD), which tells you something about how wary traders become since the ’Saudi replacement pumping’ and the ’US oil reserve selling’ talk. In the meantime, the Pakistani Rupee collapsed lower (now almost 130 per Dollar) with the upcoming elections on Wednesday – by now everyone takes it for granted that the new government will immediately seek and gain IMF bailout – a dangerously lazy thinking, given that Pakistan’s financials are mathematically unsolvable and the IMF won’t miss the fact that an Argentina-style, 50 billion USD bailout has no chance of being payed back. Also, Washington is not exactly on friendly terms with Islamabad right now.)


  • Strategists warn that DNA tests are to 2018 what the Iphone was to 2007: A game-changing technology poised to reshape our lifestyle but getting relatively little media coverage. DNA testing products can by now reveal genetical ancestry, inform and warn on health status – for a few hundred Dollars. The practical consequences are so many that it’s hard even to summarize: Family and divorce law is up for some pressure with tests identifying parental connections within 5 minutes, ugly political attacks will get further ammunition with racial DNA testing, checking out talent, like whether you are a good runner, will soon include gene tests, and medical early warning procedures will change completely. (Bloomberg notes that on Black Friday, alone sold 1.5 million genetic testing kits. The EU better quickly updates its favorite privacy and data-protection regulations.)



Have a nice week,


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