Market update: Hawkish Fed ruins the party, European car sales plunge by 23%

18 Oct

by Mihály Tatár


Good Morning!


  • While Canadians celebrated their first day of legal marijuana smoking amid Chinese busily testing their new nuclear-tipped hypersonic missiles together with plans to put a small artifical moon into orbit, the Fed did it again: The meeting minutes showed a confidently hawkish central bank – as discussed before, what else could it be? – pushing yields higher and fizzling the stock market rally again  (SPX -0.03%, Nasdaq -0.04%, DAX -0.52%, MIB -1.33% – it didn’t help either that the EU is said to reject Italy’s 2019 budget plan, which almost surely means a wave of downgrades, Nikkei -0.75%, Shanghai -1.59% – Washington went after Chinese mail package deliveries, US 2Y yield 2.89%, US 10Y yield 3.21%, EURUSD 1.15). As another un-surprise, Theresa May proposed to extend the Brexit transition period by one year (adding to the 21 months), technically a rational idea but also confirming in the eyes of Brexit voters and lawmakers that she doesn’t know she works for the UK, and in an underreported development, US Commerce Secretary Wilbur Ross lashed out at European Trade Commissioner Cecilia Malmstrom to not to pull an EU in the trade negotations (’discussing tariffs in the absence of discussing standards is a useless exercise’, ’this was not meant to be a five-year project, we want tangible results’). (Whatever one’s view is on the fairness – unfairness of US-European trade, this can end badly for European exporters, Brussels is still underestimating Trump’s resolve in the topic and keeps playing for time as if the issue would magically disappear in 2020.) Oil prices dropped (WTI 69.70, Brent 80 USD), attributed to the large US crude inventories jump (6.49 mio barrels last week), but it was more about squeezing out ’anti-Saudi Arabia sanctions’ longs, and personally I still suspect Trump will now ask Riyadh a favour they can’t refuse.


  • European car sales plunged a brutal 23% Y/Y in September (Volkswagen sales dropped 48% and Nissan 44% among others). While optimistic analysts rightly point out that this comes after August deliveries jumped 30% -when carmakers rushed sales before the new emissions test rules go live – European carmaker stocks trade at their lowest level since 2012 (!), with investors not seeing the end of the tunnel for the companies as the EU’s climate campaign is getting more fierce by each passing month. (The latest development was Brussels planning to cut CO2 emissions by new trucks by 35% by 2030 – with an interim 2025 target -, and German cities almost making a prestige competition in banning older diesel cars.) The compliance pressures squeeze automakers’ margins massively, at a time when they should be spending a lot of money on electric vehicles and the US-EU trade tensions barely started.



Have a nice day,



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