Market update: Stocks bounce but yields rise globally, Poland proposes Fort Trump, Forint jumps

19 Sep

by Mihály Tatár


Good Morning!


  • Making almost all analysts around the globe speechless, stock markets actually rose on Tuesday despite the trade war escalation (SPX +0.54%, Nasdaq +0.76%, DAX +0.51%, Nikkei +1.31%, Shanghai +1.14%), forcing media talking heads into bizarre arguments such as ’a 10% tariff is not that even high’. (The main reason, of course, was simply positioning – the market was too short – , and the squeeze was made easier by the underwhelming Chinese response, merely imposing tariffs on 60 billion USD worth of US goods, hardly shocking for the White House. As one strategist put it, ’I read everywhere China will stay defiant and replace the US market. Replacing with what market? Zimbabwe? And unlike Obama, Trump doesn’t care at all about the wellbeing of US companies in China.’ Furthermore, in my personal opinion, if US industrial production continues in this pace, the religious beliefs that all trade barriers are bad, bad, bad will have to be eventually replaced and the current star economists will have to quietly add new chapters to their macro textbooks. That said, based on global central bank hawkishness and priced-to-perfection stocks, I stay at my January forecast that ’the record long bull market will break this year, but with a lot of yoyo movements’.)  The more important development was that yields continued higher as expected here (US 2Y yield 2.80%, US 10Y 3.05%, dragging along bond markets, German 10Y 0.48%, Australia 10Y 2.70%), with the entire investment profession hoping that this is just a false breakout again as in May. (Just imagine what happened to bond portfolios worldwide, if lets say, yields actually accelerated and the US 10Y spiked to 4%. The hit to market values would be enormous and quite some money would go from riskier assets into now very attractive bonds.) Regional currencies outperformed after the Hungarian Central Bank switched to a more hawkish tone (’we are ready to tighten monetary policy but tightening isn’t needed yet’, the two main unconventional easing measures – the interest rate swap auctions and the morgage note purchases will be terminated by the end of 2018), EURHUF 323, EURPLN 4.286, EURCZK 25.42). (One could say that from a massively ’overeasing’ central bank – compared to its regional peers – , now we got a ’somewhat overeasing’ central bank, meaning, after the emerging currency correction is over, the Forint will probably keep trading relatively weak, but the ’no brakes’ losing rounds are less likely.) In the general bounce, oil prices bounced too (WTI 70, Brent 79 USD) with traders loving the newsline that Saudi Arabia ’would be content’ with prices above 80 USD and that Iranian oil exports dropped by 35% – I guess on the former, Trump will give some advice before the OPEC session starts this weekend.)


  • Poland made a short work of the EU’s defense narrative when Polish President Duda urged the US to deploy more troops and military equipment to Poland, even suggesting the US establish a permanent military base and name it ’Fort Trump’ (!), and offering USD 2 billion to help its construction (!). (Hey, where is the European Defense Force, why don’t they build that base? One side got the situation very wrong. ) In the meantime, in Germany, Chancellor Merkel forced out the head of the German domestic intelligence who questioned her interpretation of the violent anti-immigration demonstrations – causing public uproar – , and many wonder about the upcoming Bavarian elections, where the traditionally unshakeable CSU is losing rapidly against Alternative für Deutschland in the polls, showing the general discontent.



Have a nice day,



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