Market update: Stocks retreat after Trump bombardment, emerging assets crash

31 Aug

by Mihály Tatár

 

Good Morning!

 

  • With the non-stop, altough not really original, negative newsflow on Thursday, stock markets retreated globally and investors steered the money into safe assets (SPX -0.44%, Nasdaq -0.26%, DAX -0.54%, MIB -1.28%, Warsaw -0.87%, Nikkei -0.11%, Shanghai -0.18%, EURUSD 1.1640, EURCHF 1.13, US 10Y bond 2.85%). To start with the US President, he was outdoing even himself in the amount of statements for a single day: He announced a further 200 billion USD of tariffs on Chinese imports ’in the coming weeks’ (here goes the trade optimism, we are currently at 50 billion of imposed tariffs and as forecasted here Washington did not miss the point that China told North Korea to freeze the de-nuclearization process). He also targeted the EU (’almost as bad as China, just smaller’, ’we are competing against the euro, and it keeps dropping, dropping, dropping’ – polite opinion tends to angrily refute this but note that the Euro overnight interest rate is still -0.40% despite the Euro area unemplyment being at a 10 year low), rejected the European offer to simply eliminate transatlantic car tariffs (’the EU doesn’t let in agriculturual products, it’s not even a tariff, they have a wall’), threatened to pull out of WTO (’was the single worst trade deal ever made’), warned that Facebook, Google and Amazon are an ’antitrust situation’, and just for good measure forecasted that the Iranian regime might collapse (’when I came here, it was a question of when they would take over the Middle East, now it’s a question of will they survive’. While not really traded, this last item certainly didn’t shake longs in their beliefs and oil prices kept testing the highs, WTI 70.30, Brent 77.70 USD). However, compared to the beating emerging markets received, Trump was rather a blip on the screens: The Argentine Peso extended its two-day collapse to 30% (despite the benchmark rate being frantically increased to 60%, another country healed by the IMF), the Turkish Lira falling rapidly on reports of the deputy central bank governor resigning (great timing, USDTRY 6.64, EURHUF 327, EURPLN 4.30) with even the Brazil Real approaching its historical record low (the Worker’s Party is campaigning for the elections with all the benefits of applied socialism). It’s worth noting that while analysts tend to talk about an ’emerging markets contagion’, these are rather local episodes, painful for investors but with little systematic effect – the real elephant in the room is Italy, with its 2.3 trillion USD debt market (to put this into perspective, the entire Turkish FX debt is 300 billion).

 

  • Russia made the maximum effort to warn Western powers not to interfere into the coming Syrian-Iranian-Russian showdown against the rebel forces in Idlib. (A fleet of 15 Russian warships was assembled in the Mediterranean Sea, the Russian ambassador in Washington warned the US against ’unjustified and illegal aggression in Syria’ while Foreign Minister Sergei Lavrov accused the US of planning a false flag chemical attack to be able intervene again.) It’s worth mentioning that it’s not just the US worrying about its rebels, or Europe fearing another humanitarian tragedy and religious revenge on the scale of Aleppo, Turkey and Israel are also very concerned by the drastic shift of regional power balance if Idlib is retaken. Iran also talked tough, threatening to block all Middle East exports if it is not allowed to ship oil  – with Secretary of Defense Mattis quickly responding that ’mischief won’t be tolerated’.

 

  • In an interesting symbolic development, and causing a two-way media storm, French President Emmanuel Macron basically denied the existence of the French and Danish people: Asked on the topic by a Danish student, he said that national identities are constantly changing, and ’a true Dane does not exist – he is a European’. (This, of course, is the current worldview of European leaders from Berlin to Paris. Whether you agree or not is a worldview question, you decide – I would only humbly mention that by this logic, the Chinese did not build the Great Wall, the local people there only arrogantly assumed they are Chinese at the time. They could have been Huns just as well, really. Fearing of change and foreigners, these locals went on to build that human rights violating security infrastructure, instead of changing their identity for the good. Try to tell that a Chinese, and add that they are simply Asians, please.) With such deeply conflicting agendas, expect rapidly rising  political tensions in the EU, the ’doing around summit years’ will be soon over.

 

Have a nice day,

Mihály

 

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