Market update: Stocks fall despite robust data, Merkel gets another beating in Hessen

29 Oct

by Mihály Tatár

 

Good Morning!

 

  • Despite the cheerleading that the worst is over, the bounce in stock markets ended rather quickly (SPX – 1.73%, Nasdaq -2.06%, DAX -0.94%, Nikkei -0.24%, Shanghai -3%), and note that investors ignored completely that the US GDP was revised higher from 3.3% to 3.5% for the third quarter (Q/Q), with consumption jumping 4%.  (This can be interpreted two ways: A. the market thinks a brutal recession is now imminent B. Growth is strong but the real issue here is global central bank tightening hitting overinflated stock prices. I go for the second version.) In Europe, the Euro rallied to 1.14, helped by S&P giving Italy a negative outlook but not downgrading it (note that Euro shorts are near historical record highs and 1.13 is now looked at as the key ’Trump will be angry level’), but the Swiss Franc also strengthened (EURCHF 1.1360) with the German government coalition getting an another beating in Hessen. (CDU 27% – the worst result in 50 years, SPD 20% – the worst result since World War II, Greens 20% – doubling from 2013, they are the real Left now, AfD 13% – from 4% in 2013, just as the European Court of Human Rights ruled Friday that Prophet Muhammad can not be insulted, making a strange U-turn on the French Revolution. To say that German politics are falling apart is an understatement, and personally I don’t see any charismatic successor to Merkel at the moment who could avoid a lame-duck German government going forward.) Oil prices crawled a bit higher (WTI 67.30, Brent 77.30 USD), with shorts taking some profit, but long-WTI positioning fell to a one-year low since the Saudi Energy Minister declared that the kingdom will ’produce-as-much-as-you-can-mode’ barely two weeks ago.

 

  • The geopolitical campaign of the Trump-administration continued with full force, with US Secretary of State Pompeo accusing of China of ’buying an empire with bribes’ and that the ’US will oppose them at every turn’, and probably not without an approval from Washington, a Japan- India military alliance seems to be forming. (Indian PM Modi visited Japan for the third time (!), and the countries work on a deal that allows their militaries to access each other’s bases and logistical support (!). You can not say the recent military threats from Beijing did not work.) In the meantime, in Brazil, far-right, ’Tropical Trump’ Jair Bolsonaro won the Presidential Election – it was not even close, he won by 56% – , campaigning against rampant crime, corruption and promising to open up the economy, sell state companies, cut taxes and start structural reforms. (On the latter four, Brazil stocks rallied 9% since the first round of the election, which is not bad with the rest of the world falling like a stone.)

 

Have a nice week,

Mihály

 

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