Market update: Stocks surge, Saudi crisis drags on, Hungarian central bank buys gold

17 Oct

by Mihály Tatár

 

Good Morning!

 

  • Attributed to positive surprises from companies like Netflix, Goldman Sachs and Morgan Stanley, stock markets surged higher on Tuesday (SPX +2.15%, Nasdaq +2.89%, DAX +1.40%. Nikkei +1.14%, Warsaw +1.65%, Shanghai -0.80% – ups, S&P warned that off-balance sheet Chinese local government debt may be as large as 6 trillion USD), in what feels to be a classic buy-the-drip exercise from investors. (Contrary to expectations, the US industrial production data showed a healthy 0.3% expansion – personally I suspect that while the majority predicts a fast-approaching recession but at the same time steady markets, it may come to that stock markets drop while growth remains relatively strong for a while.) Trump pulled no punches, to be sure, and described the Fed as his ’biggest threat’, with Powell ’raising rates to fast’ given ’very low inflation’, but just as last time, issued no threats or ultimatums. Currency markets remained pretty calm (EURUSD 1.1550 – Eurogroup President Mario Centeno reassured us that Italy’s budget for next year doesn’t pose a threat to Europe’s single currency and its importance shouldn’t be exaggerated, ’the euro is too resilient and too strong to be disturbed’ – this is a typical ’Brussels truth’ – for sure, a deficit number in itself doesn’t destroy market trust, but without the ECB easing, we know what had happened to Italy, and lets see what the Italian populists will do watching the Euro rate normalization, skyrocketing their debt service and making Italy’s already weak economy even more uncompetitive), with the Forint strengthening further as expected (EURHUF 321.80 – the central bank didn’t do or say anything yesterday, but there were a lot of lazy longs and the talk is that the easing has to stop after the 3.6% inflation data. Has it?). Oil traders remained uneasy with pricing in the Saudi scandal (WTI 71.90, Brent 81.40 USD) – Trump continued to talk up the Saudis (’I think we have to find what happened’, ’here we go again, guilty until proven innocent’, with Pompeo doing a flash photo-op in Riyadh), with some Middle Eastern analysts wondering if the operation was organized to have Crown Prince MbS sacked. (It is interesting that several Republican senators seem to be energized and want a ’punish Saudi Arabia’ campaign – Lindsey Graham stated that ’this is not about rouge killers but about a rogue crown prince’, adding that ’lets sanction the hell out of Saudi Arabia’.  The dishonest shock that such things happen in the Middle East would be amusing if the stakes weren’t so high. In the meantime, Trump – reacting to the latest media excitement that he wants to get rid his Secretary of Defense – called Mattis and expressed his support – this is actually not surprising, Trump is pretty straightforward when he wants to fire people – meaning there will be no change in the US defense policy after November.)

 

  • The Hungarian Central Bank announced that it has increased its Gold reserve 10-fold (!) to 31.5 tonnes, emphasising that all the Gold is now physically in Hungary. (This has been long in the making: Many have been seething from rage – rightly – that decades ago Hungary sold away its Gold reserves based simply on the ideological view that ’Gold is barbaric relic’, at the worst possible prices.) It’s also hardly contrarian: Countries from Russia to Poland increase their Gold holdings these days, with efforts also being made to create a Gold-based crypto currency (trying to avoid the huge disadvantages of a virtual money) for investors.

 

Have a nice day,

Mihály

 

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