Market update: Eurozone stocks underperform as slow growth shocks, traders prepare for US election risk

31 Oct

by Mihály Tatár

 

Good Morning!

 

  • The ’trade-peace bounce’ continued (SPX +1.57%, Nasdaq +1.58%, Nikkei +1.96%, Shanghai +1.61%, US 10Y yield 3.14%, Gold down to 1218 USD), making investors happy everywhere except in the Eurozone (DAX -0.42%, MIB -0.22%) after growth data came in as even more disappointing than excepted: Expansion slowed to a four-year low (!) to 0.2% Q/Q, with France crawling at 0.4% and Italy slowing to 0.0% (!). (Phantastically, the media blames the populist government – this is quite dishonest even by today’s standards, since growth was a mere 0.3% well before the elections – , and won’t make Rome more compromise-prone. To be fair, Eurozone growth, apart from Italy, is not that weak, the problem is, it is not strong either even under the best of circumstances – like a still ongoing ECB easing and the EURUSD under 1.15. What would happen at 1.30?) Speaking of the Euro, it sneaked closer to the key 1.13 level (EURUSD 1.1340), with regional currencies not liking neither the too strong Dollar neither the slow European data (EURCZK 25.90, EURPLN 4.334, EURHUF 325), and note that the 3M Libor is now above 2.52%, making the life of USD over-indebted companies, governments and especially banks very painful. Oil prices remained under pressure (WTI 66.50, Brent 76.40) as forecasted here during the summer, a nice move down before the US midterms to help gasoline prices. Commentators focus on this week’s Apple results and Friday’s US employment figures, but now the biggest single risk is the 6/November US election – with investors being quite nervous as the stakes are high (If there is a big Democrat victory – wich I don’t expect –  Trump’s tax cuts and the infrastructure spending project are in trouble, for example – Trump himself made this point on Twitter, ’if you want stocks to fall, vote Democrat’. In my personal opinion however, the long rally is over anyway, and even a resounding Republican victory would only be enough for a violent bear market rally. Only a U-turn from the Fed, coupled with a giant infrastructure spending plan, would make me reconsider.)

 

  • Further complicating the EU’s already crumbling efforts for a payment system with Iran – as always, the talk was tough but no EU member is willing to host it knowing well it would result in US retaliation- , Denmark is demanding EU-wide sanctions against Teheran (!), after an Iranian assassination attempt against the exiled leader of an Arab separatist group within the country.

 

  • In a dramatic, and vastly underdiscussed development, Trump announced he will end the Birthright Citizenship (citizenship for babies of non-citizens and unauthorized migrants born on US soil). While this would be nothing out of the ordinary in Europe, this is actually an unheard-of move for the US (and would be also for Canada). Whether you agree or not is a world view question – but demography politics are now dominating elections in the West. (And tactically speaking, this puts Democrats in a very vulnerable position, just as the move to send 5,000 troops to the border to stop migrant caravans: They went full-in on free immigration, so can only oppose it, knowing full well, and the voters knowing full well, that allowing a 10,000 people caravan to enter the US freely would result in a 500,000 caravan trying the same a month later).

 

Have a nice day,

Mihály

 

 

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