Market update: China cancels trade and military talks, Brexit turns into Game of Thrones, OPEC ignites oil rally

24 Sep

by Mihály Tatár

 

Good Morning!

 

  • The US stock indexes reached a fresh intraday record high on Friday, but the mood later soured when China announced the cancellation of all trade and military talks as the tidal wave of Trump tariffs kicked in on 267 billion USD worth of goods (SPX -0.04%, Nasdaq -0.51%, DAX +0.85%, Warsaw +0.01%, Hang Seng -1.25%). (Chinese officials are now quite openly waiting for the results of the November mid-term elections, expecting, or rather praying for, a House-and-Senate victory for the Democrats. This is, however, always a dangerous strategy.) Tech stocks were dragged down by the US President’s executive order to investigate tech giants on antitrust practices (no surprise here for regular readers, Google -1.8%, Facebook -2%, Twitter -5% as the general goodwill towards these companies completely evaporated), while the GBP and the Euro gave of up recent gaines after the Theresa May’s public humiliation in Salzburg (EURUSD 1.1740, GBPUSD 1.3050). As it looks now, the Brexit melodrama may soon turn into a real drama, given that the Labour party – making the most predictable political U-turn of this century so far – now supports a second Brexit referendum, which May ruled out for sheer survival. (Boris Johnson and the hard-Brexiters, who found even the Chequers plan unacceptable, are now pushing for a Canada-style solution. As often I criticize the EU, now I have to admit that Brussels is masterful in torturing Westminster, one has to wonder what is the next step necessary to stabilize May again against her own party until the new referendum is a reality? On the other hand, demonstrating that nobody just leaves the EU without consequences is a lesson that will come back to haunt Brussels, just as the decision to turn the EU into an immigration country whatever voters thought on the matter. It’s no wonder that the ’you-don’t-talk-about-it’ far-right AfD just overtook the second place from the Social Democrats in Germany (!) in the latest polls.)

 

  • Just as expected, Trump warned the meeting OPEC ministers on Twitter to ’get prices down now!’, but the reaction was tepid, and even Saudi Arabia talked of a ’well-supplied’ market (WTI 71.70, Brent 79.90 USD – testing the key topside levels again). Currently everyone and their grandmothers are speculating what else Trump can do to drive down prices before November after the poorly executed US reserves intervention. Adding insult to the injury, OPEC also made some fun of the peak oil demand predictions and forecasted a rising global demand until at least 2040 (to 111.7 million barrels per day, from the current 99 million, with a somewhat less large share in the global energy mix). It will be interesting to see who is right – personally  I can easily see a huge global divergence, with some parts of the world – especially countries with rapidly growing population – remained focused on oil based cars and energy sector, with others, like the EU, doing their outmost to switch to hybrid and electric cars and renewables- dominated energy sources.

 

 

Have a nice week,

Mihály

 

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