Market update: Dollar rallies, enormous pressure on Merkel, one billion cars to hit the roads

28 Sep

by Mihály Tatár

 

Good Morning!

 

  • With traders realizing that what just happened was anything but a ’dovish rate hike’ from the Fed, Thursday was all about buying Dollars (EURUSD 1.1640, USDJPY 113.50, GBPUSD 1.3080, USDHUF 278, USDPLN 3.665, Libor 3M 2.38%, Libor 12M 2.91% – gyrating higher again). It didn’t help the Euro and Italian assets either that the Italian government suddenly announced that it agreed on a budget deficit target of 2.4% (MIB -0.62%, Unicredit -1.5%), instead of the formerly promised 1.9% and the Brussel-advised 1.6%. (In itself, this is hardly dramatic – I suspect many are secretely relieved that its actually lower than 3% – , but confirms my view that Maio and Salvini play the pro-EU bureaucracy easily and who knows where the deficit will really end by 2019. Also, this deficit means that the gigantic Italian debt will rise further relative to GDP.) Seeing the robust US data (annualized US GDP was confirmed at 4.2% Q/Q, durable goods orders jumped by 4.5%) stock markets in general were forgiving for now (SPX +0.28%, Nasdaq +0.65%, DAX +0.40%, Nikkei +1.28%, even Shanghai +1.20%), and traders completely dismissed thse surprisingly high German inflation (2.3% Y/Y in September). The latter 1. confirms the ECB’s recent hawkish talk – even ECB chief economist, Peter Praet found it necessary to warn that ’maintaining interest rates at record low level for a prolonged period can lead to building up of risks in markets’ – thank you, 2. it will put further political pressure on Merkel and the ruling coalition, just when Merkel abandoned making uber-hawk Jens Weidmann the ECB President after Draghi, in return for choosing the head of the European Commission – a critical act of self-defense in case next year’s EU elections go South. (By now, even the most mainstream European media outlets admit her position is shockingly weak – this week’s humiliating defeat at an internal CDU voting was a case in point – forecasted here last year and back in 2016.) The key question is, of course, if she is forced out – just as in the case of Theresa May, the problem is that so far there were no alternatives – , the new chancellor will be more like Macron or someone more from the conservative right to stop AfD? (Many are tensely waiting the Bavarian elections in October – but its not clear if a super weak showing of CSU is actually damaging or helping Merkel to survive.) It’s no wonder Merkel just allowed Turkish President Erdogan to visit Berlin and ask for economic and political help – just one year afer Erdogan was accusing Germans of ’using Nazi methods’ while himself concentrating power and going on a jailing campaign.

 

  • Axios notes that amid the endless media focus on electric and driverless cars, global automakers are actually thinking hard about a single number: 1 billion – that’s how many cars it is estimated will be added (!) to the global fleet by 2030. (To put this into perspective, this is double the current number of cars on the roads. A few million electric cars here and there won’t do much difference until then, nor for the global environment, nor for global oil demand, to put it mildly. On top of that,  85% of these new cars will be bought in China and India as their middle classes rise, putting Western automakers in a dangerous position. What if, for example, a Chinese car company becomes the Huawei of carmaking? Germany might be even forced to think about tariffs in that case.)

 

Have a nice day,

Mihály

 

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