Market update: Dollar rises, yields explode after the Fed comments, high oil prices began to worry economists

4 Oct

by Mihály Tatár

 

Good Morning!

 

  • The friendly talk out of Rome reassured no-one, the US printed a monster services data (ISM 61.16), and on top of everything, the Fed made a series of very hawkish comments (’we are a long way from neutral rate’ and ’we may go past neutral’, the economy is ’extraordinary’ and ’particularly bright’) – of course neither development is a surprise for regular readers – causing US yields to explode and a surge in the Dollar (US 2Y yield 2.89%, 10Y 3.21%, EURUSD 1.1460, GBPUSD 1.2920). (Auch, I really wouldn’t be a Dollar-indebted country or company right now. In sympathy, the Libors were creeping higher as well – the 12M is now above 2.92% – Dollar-shortage defaults will be a theme in 2019). Naturally, stocks weren’t happy and started to turn South (SPX +0.07% – erasing intraday gains -, DAX -0.42%, Hang Seng -1.70%, we will now see in practice whether a bullish stock market can live together with rising yields for long), with emerging currencies erasing gains or weakening even further (Thai Baht 32.65, Mexican Peso 19.10, Turkish Lira 6.08 – Turkish inflation jumped to a whopping 24.5% in September, this won’t end well – , Indian Rupee fresh record low, EURHUF 323.30, USDHUF 282, EURPLN 4.305, USDPLN 3.75, with the Chinese Yuan also weakening in a ’Trump-provoking’ fashion). Commodities actually had nothing to object – Copper +1.3%, Aluminium +6% – metal markets were quite oversold and traders hope further good news on US trade talks and infrastructure spending -, WTI 76.30, Brent 86.20 USD, with the market completely ignoring even a large jump in US crude inventories.) Regarding oil prices, analysts are now suddenly wondering how painful the high prices will be for non-US stocks and consumers – the pain amplified by the low EURUSD, as oil is even more expensive in non-Dollar terms – with Japan and Europe looking the most vulnerable for shocks if prices don’t turn down soon.

 

  • Geopolitical strategists note the screaming silence from Israel and the US after Iran’s symbolic victory and strategic breakthrough after Teheran launched air attacks with missiles and drones (!) against targets in Syria and Iraq  – in the latter case without asking Baghdad for permission.  (The drones are actually successful replicas of the US Sentinel drones, reengineered by the Chinese.) There are several speculative explanations for this silence: 1. Both the US and the Israeli air force are pre-occupied with Russia delivering state-of-the-art S-300 air defense systems to Syria and integrating them to the Russian network (!), making flying over Syria a risky adventure in the future, 2. Mike Pompeo is actually hoping that Iran gets too brave with these air strikes and makes a huge mistake at one point. Many also note that Trump’s undiplomatic remark this week – saying that Saudi King Salman may not last in power ’for two weeks’ without US protection, might have been a calculated message regarding oil and / or Iran’s latest muscle showing. In the meantime, not helping the Kremlin’s communication efforts, Putin lashed out at poisoned ex-Russian spy Sergei Skripal and called him a ’traitor and scumbag’.

 

 

Have a nice day,

Mihály

 

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