Market update: Rally fizzles on robust US data, all eyes on US mid-term elections, Germany is casting a new party leader

5 Nov

by Mihály Tatár

 

Good Morning!

 

  • The ’Trade Deal with China Rally’ fizzled out by the end of last week after Trump’s economic chief Larry Kudlow downplayed the chances of a quick deal (SPX -0.63%, Nasdaq -1.04%, DAX +0.44%, Nikkei -1.33%, Shanghai -1.48%), and adding injury to the insult, the US economy refused to soften as the experts expected and created a further 250.000 jobs in October with wages rising 3.1% Y/Y. (Meaning, the Fed’s hawkisness is quite rational – not helping stocks -, and immediately the US 10Y yield jumped back up to 3.20% with the 3M Libor flirting with 2.60%. Note that despite the talk that the worst is over with October, technically speaking, what happened last week was US indexes simply retesting 50% of their losses and then halting before tomorrow’s all-important US mid-term elections.) Whichever way stocks traded, oil prices trended lower (WTI 62.80, Brent 72.50 USD) during the last week, as forecasted, and by now its hard to see the entire Iran story on the charts (’ah by the way’, the US sanctions were activated this morning, hitting 700 Iranian individuals, banks, shipping companies, exporters and even vessels and aircrafts). The positive sentiment last week, coupled with the Euro bouncing from the key 1.13 level to 1.14 against the Dollar, and the Turkish Lira rallying on the US lifting sanctions and allowing Ankara to purchase Iranian oil all helped regional currencies (EURHUF 321.30, EURPLN 4.307, EURCZK 25.80, and USDTRY 5.439 – with traders still wondering if Saudi Arabia would come to the rescue after the Khashoggi-incident).

 

  • While Brussels was busy on how to synchronize its efforts to sanction Iran after the Denmark assassination plot while at the same time go on with its USD-avoiding legal project to continue business ties (a tough challenge but I am sure that a compromise will be found), and the US and Japan staged their biggest combat war game ever with 57.000 military personell to send a message to the Shanghai Expo, Germany turned completely inward to find the new CDU party leader: In competition are Friedrich Merz, currently head of BlackRock Inc. in Germany and a former foe of Merkel, Annagret Kramp-Karrenbauer, a Merkel sidekick and also endorsed by the CDU’s women caucus, and finally Jens Spahn, who was the first within the party to critize Merkel’s refugee policy (and has therefore been mostly popular outside of the party). Of course, the one trillion Dollar question for everyone remains how long Merkel can stay as Chancellor – and the answer is, until the moment the new CDU head can get rid of her or until the next EU crisis can only be solved without her person.

 

 

Have a nice week,

Mihály

 

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