Market update: The Fed raises rates without committing either way, Hungary issues bond, blockchain and vegetables come together

27 Sep

by Mihály Tatár

 

Good Morning!

 

  • The Fed raised for the 8th time since December 2015 (from 0.25% to 2.25% by now), and Powell chose to give the most balanced assessment as possible, focusing on the many uncertainties of the future despite the very strong US economy, instead of announcing any change of course or calibrating expectations for 2019.  This made traders scratch their heads, with the talk being that until the end of the next year, four more rate hikes now look very likely, especially as the growth forecast for 2018 was raised to 3.1% (SPX -0.33%, DAX +0.09%, Nikkei -0.46%, Shanghai -0.44%, EURUSD 1.1710, US 10Y yield 3.05%). Personally I would also add that the majority of analysts still focuses too much on the ’obligatory’ slowdown (you know, after such a long growth phase, it must slow down, already!), instead of the potential inflation effects of the trade war and Trump’s spending bonanza (neither suggests a passive Fed). European stock futures traded in an opimistic mood after the news that China is considering the ordering of Airbuses again in the tune 18 billion USD – the development funnily coincided with Trump warning that since China is trying to interfere with US mid-term elections, he ’might not be friends anymore’ with President Xi, with investors ignoring the too-easy-to-spot pressure action of Brussels which leaked that it is ’exploring emergency measures in case of no deal Brexit’. (For good measure, Macron assured everyone that  he’d welcome the UK back should voters decide so in a second referendum, and reiterated that Leavers were lying about the complexity of leaving the EU. Hmm, might be so, let’s ask one of them – hey, the entire brexiting government is run by former Remainers! Uh.) Regional currencies were trading in a mixed fashion (EURHUF 323.50- with probably good timing, given the EU conflicts and the gradually hawkish ECB, Hungary quickly issued a 1 billion 2025 Eurobond, at a mere 75 basis points above benchmark, or at 1.37% in yield; EURCZK 25.68 – the Czech central bank raised for a third time to 1.5% but looked unsure whether to continue, EURPLN 4.273 with speculators buying the Zloty against the Forint, USDTRY 6.13 – the Lira slightly appreciated with Trump praising Turkey on its ’help on Idlib’, USDRUB 65.88 – the Rubel extended its correction and strengthened by 7% helped by the high oil prices and traders being sceptical of the Blue Wave and new anti-Russia policies in November). Oil prices performed a classic yoyo movement – after initial selling, the market happily bought again (WTI 72.40, Brent 82.10 USD) on US Energy Secretary Rick Perry ruling out tapping the US strategic reserve ’as it would have a fairly minor and short-term impact’. (I wouldn’t read too much into this, actually, Trump doesn’t value Perry’s opinion too much and even this week accused the OPEC of ’ripping off the rest of the world’.)

 

  • Veteran oil analyst John Kemp notes that the US gasoline consumption is already showing signs of slowing as high prices take their toll: Traffic volumes in July (so this was even before the latest spike in oil prices) were 0.3% lower than a year earlier and gasoline consumption rose by a mere 18,000 barrels per day in 1H2018 despite the robust economic growth, with the EIA predicting further declines.

 

  • Business strategists note that the attention of Blockchain innovators these days is turning towards agriculture and especially grocery supply chains – two business worlds where profit-margins are razor-thin and the questions of freshness, trustuble origination and potential illnesses are critical issues.  Currently, for example, IBM is using blockchain to track the journey of spinach (!)  from the farmer to the shopper’s cart, recording every event without actual middlemen. In case of, let’s say, a Coli infection, the source of infection could be tracked back immediately without the usual all-market panic. Personally I am a bit sceptical on the last one, the guys who sell ’semi-fresh’ stuff can be pretty creative. But weakening the role of the middlemen and transacting in blockchain structure could be an interesting development, especially where the aggregated volumes are large enough to make it work.

 

Have a nice day,

Mihaly

 

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