Market update: US small business optimism hits record high, oil prices jump on Florence and Middle East news

12 Sep

by Mihály Tatár

 

Good Morning!

 

  • The US data refused to cooperate with the pessimists again, and the small-business optimism index hit a historical record high – no wonder after the tax cuts and deregulation efforts, Brussels should take notes. The news kept US stocks overperforming (SPX +0.37%, Nasdaq +0.61% – Apple also helped,+2.6%, DAX -0.13%, Nikkei -0.43%, Shanghai -0.57% – investors didn’t appreciate the Chinese gesture to ask the WTO to approve sanctions against the US and Chinese banks continued to drop on the Trump threats, ICBC -8% for September). The EURUSD traded lower to 1.1580 – we have the important ECB rate decision tomorrow -, with US yields extending their post-jobs data gains, the 2Y yield to 2.75% – a decade high, and the 10Y to 2.97%, Dollar bond investors and issuers better be careful. Regarding the ECB, the expectations are high that Draghi might say something new and useful – after all, the market was told to expect a rate hike only near the end of 2019 from the tough -0.40% – but mind you, Eurozone CPI is a mere 2% and core CPI is at 1%, with French growth forecasts just being cut lower, hardly a data for a hawkish  communication. (Gradually, the market is also wondering more and more who the next ECB President will be? It is hard to be more dovish and Italy-friendly than Draghi, meaning a hawkish change. But it is too early to trade this theme.) Regional currencies slightly strengthened further (EURPLN 4.305, EURHUF 324 – so far no reaction on the upcoming European Parliament vote on whether to impose Article 7 sanctions on Hungary). Oil prices extended the gains (WTI 70, Brent 79.50 USD, we are right at the key topside levels), mainly on Hurricane Florence threatening to disrupt fuel supplies, but the latest Middle East news weren’t a sell for sure either – the UK, France and the US already coordinating on possible joint airstrikes on Syria and the Pentagon warning Iran of ’swift and decisive’ retaliation if Teheran’s allies attack Americans or US facilities in Iraq. Somebody forgot to tell crypto sellers they are against the future and the alternative currencies just keep dropping (Bitcoin 6220 USD, that’s -70% from December, and ’better than Bitcoin’ Ether collapsed to 176 USD, that’s -82% from February. Quite a few twenty-somethings now have to write their first CVs, I suppose.)

 

  • Veteran oil analyst John Kemp notes that oil traders have become much more concerned recently about the impact of US sanctions on Iran than on anything else (not to mention, in my opinion, the global slowdown narrative has taken a hit and the slowdown is mostly only true for China. Saudi Arabia is raising production more slowly than expected, the sanctions have hit Iran much harder than expected (as forecasted here), and on top of that, as discussed at the time, the White House completely mismanaged the intervention to stop prices rising by selling crude before November. (Still, I expect a fresh ’Twittervention’ from Trump any time now.)

 

  • Bloomberg notes that while usually new iPhones are good news for mobile network operators (the more features, the bigger the phone bill), Apple’s plans to introduce the so-called electric sims, allowing changing between mobile network providers virtually and relatively in no time. (It would for sure accelerate price competition, forcing carriers further down the path to become utilities, and would eventually result in the strange, atomized structure of digital television.)

 

Have a nice day,

Mihaly

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