Market update: Rome tries to soften the tone, Amazon pioneering wage raises

3 Oct

by Mihály Tatár

 

Good Morning!

 

  • During an eventful trading day, the market kept focusing on Rome: Investors continued panic selling Italian and European assets (Italian 10Y yield 3.45% – if anyone remembers, in 2016 it was trading at 1%, correctly identified here as economically bizarre and as the historical low-, Italian stocks -2.4%, EURUSD at one point 1.1505, even Gold jumping above 1210 USD). Somewhat funnily, however, the Italian government, sensing the gravity of the situation, started a verbal intervention, shifting the message from ’we won’t retreat a millimeter’ and ’the gentlemen of the spread wil understand’ to ’there is no plan to leave the euro’, ’we are not mad like Maduro’s Venezuela’, even leaking that ’the deficit will be cut to 2% by 2021’. This, of course, started a short squeeze (with a close of DAX -0.42%, MIB -0.23%, EURUSD 1.1580 – as discussed before, the 1.1530 zone is a key level for the Euro, a lot of bullish traders were buying here). Personally, I don’t think anything significant has happened: Under the current EU fiscal policy, the Italian populist parties have no future, this is just a verbal retreat. Why not promise to have zero deficit even?  In the US, the market didn’t like Amazon’s decision to raise its minimum wage to 15 USD per hour  (SPX -0.04%, Nasdaq -0.47%, Amazon -2.3%), confirming that the pressure on the overheated US job market is now beginning to push wages higher and is not merely a nowhere-to-be-seen Fed theory. (This single decision hits 350.000 workers –  forcing retailers to follow.) Seeing no intervention from Trump or Saudi Arabia, oil prices cruised along their post-breakout four-year highs (WTI 75.40, Brent 85 USD), with analysts noting that bullish positions now outnumber bearish ones by a ratio of 12:1, mostly concentrated in Brent. (Meaning, the uptrend is pretty vulnerable – but something drastic would need to happen to change the very bullish market setup, like a US-Saudi joint intervention or Iran suddenly wanting to negotiate.)

 

  • In maybe the most shocking development of the year so far, Axios News and CNN began to publish articles that Trump’s trade tactics might be working (this after re-designing the world’s largest free trading zone, NAFTA, into USMCA). One has to wonder that if CNN is so frustrated, what will voters do 35 days from now at the US midterm elections – note that while in the media the ’Blue wave’ is a given, Trump’s speech draw 92,000 people in Tennessee yesterday. (This doesn’t sound a lot for European ears, but it is a very large crowd for the US, Obama was celebrated to draw 25,000 with his hope-and-change speeches.) Also, in Canada, of all places, pro-immigration Liberals just suffered a crushing defeat in Quebec. (Apart from the less than competent handling of the economy, it is probably also not a coincidence that Canada’s population just surpassed 37 million after a record two-year surge, with new migrants accounting for 85% of the increase.)

 

 

Have a nice day,

Mihaly

 

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