Market update: Dollar buying continues, US-China tensions jump, new anti-Russia sanctions proposed

3 Aug

by Mihály Tatár

 

Good Morning!

 

  • The Dollar strengthening dominated Thursday’s trading (EURUSD 1.1590 – the Trump verbal intervention has been erased as expected here; GBPUSD fell to 1.30 –  the Bank of England raised by 25 basis points to 0.75%, as assumed, but traders had their doubts about ’the assumption that Brexit will be smooth and the economic expansion will continue’; TRY crashed to 5.11 with the Turkish 10Y yield above 19% (!), the talk being that Trump is so angry with Erdogan that by now no-one minds destroying the relationship with Turkey in the White House – or at least that is the image they want to project – , USDHUF 277, USDPLN 3.693, and the Yuan dropping another ’provocative’ 1% to extend its slide to 10%). Stocks had a mixed day with Europe and Asia struggling with the trade war threats and the weak macro data of late  (DAX -1.50%, MIB -1.73%, Nikkei +0.09%, Shanghai -0.52%), while US markets bounced helped by the news that Apple’s valuation reached USD 1 trillion – the first US company to do so (SPX +0.49%, Nasdaq +1.24%, Apple +2.93%, Facebook +2.7% – that’s still -19% since the drop -, Google +0.8%). In my view, however, Apple’s performance has sidelined another, more important symbolic development: Japan just dethroned China as the wold’s second largest stock market by capitalization.

 

  • Regarding China, Beijing lately outdoes itself in showing how much it can spoil US efforts worldwide: It offered Pakistan a 2 billion USD loan – partly as a goodwill towards freshly elected Imran Khan and partly to weaken Washington’s pressure on Islamabad, offered military help (!) to Assad’s Syria in crushing rebels, and rejected US calls to cut imports from Iran – its Teheran’s number one customer, by the way. The US – China clash is set to get even more dramatic, it’s enought to listen to Commerce Secretary Wilbur Ross: ’The US has to create a situation where it’s more painful for them to continue their bad practices than it is to reform. So far they have retaliating, so the President now feels it’s potentially time to put more pressure on’. In the meantime, a bipartisan group of senators proposed a brutal anti-Russia legislation (’Kremlin Aggression Act’) , to ’impose crushing sanctions and other measures against Putin’s Russia’ including penalties on Russia’s sovereign debt and energy projects. (The Rubel promptly eased 1.2% and Russian bonds weakened somewhat as well.)  Whether this is right or wrong policy I let you decide, but the proposal is championed by the most vocal anti-Trump Republicans and Democrats (you know that things are pretty emotional when one item is that leaving NATO is to require a two-thirds vote in the Senate, maybe the most childish idea I have ever encountered in geopolitics), meaning that if voters turn out to support Trump’s approach to world affairs in November, we will see rapid changes in the US foreign policy establishment. (Even now, Republican candidates who are not endorsed by Trump have almost no chance of winning in their districts, and as we know the US President only endured the cooperation with his Republican opponents because he started his presidency in a very weak position.)

 

 

Have a nice day,

Mihály

 

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