Market update: Blue wave meets the Red wall, Erdogan threatens the Sea Bandits

7 Nov

by Mihály Tatár

 

Good Morning!

 

  • For once the pollsters got something right: Democrats took control of the House but Republicans kept the Senate and even increased their advantage (’Blue wave meets the Red wall’), resulting in what could be summarized as a draw in terms of political capital. This being the base scenario, there were no wild movements on the markets: As a first reaction, the Dollar and US bonds weakened (EURUSD 1.1460, US 10Y yield 3.18%) as it became much more difficult for the Trump administration to launch fiscal programmes like tax cuts and infrastructure spending, but Democrats have no chance to reverse past decisions like deregulation or appointments. (If anything, they can obstruct and make even lauder noise with never-ending investigations – for which Trump may go for a tactical government shutdown.) For the same reason, stocks weren’t particularly happy (SPX futures basically unchanged, Shanghai -0.51%, Nikkei -0.61%), with every investor and their grandmothers wondering if October was just a one-time shocker or THE market trend turn. The weakest link, however, was oil, again: Prices fell before, during and after the elections (WTI 61.80, Brent 71.90 USD, attributed this time to the Iran-sanction waivers, but note we came down almost 20% in one straight line since the first days of October.)

 

  • While everyone was watching the US, Turkish President Erdogan was quite busy, shattering the market perception that the worst in geopolitical tensions was over: He told reporters that Turkey won’t abide to US sanctions on Iran, adding that ’we don’t want a world of imperialist pressure’, and woved that ’sea bandits’,  drilling gas near Cyprus,  ’will pay like terrorists in Syria did’. The  latter doesn’t sound uplifting given that the area is now full of Greek and Turkish warships, escorting exploration vessels. (On the other hand, he made several gestures to Saudi Arabia –’ he doesn’t believe King Salman ordered the assassination’, ’the two countries will enjoy friendly relations’ – meaning that there is a Saudi-US-Turkish deal which is still intact.) In the meantime French President called for a ’real European army’ to ’protect ourselves with respect to China, Russia, and even the US’ – I kid you not, some newspapers called the idea revolutionary, despite this being an EU goal since the early 2000s. While the idea is good (not just ’revolunationary’), and would even help the celebrated but not too dynamic European growth and innovation, there are a few obstacles: 1. Building a truly modern army these days would cost hundreds and hundreds of billions of Euros, and paying even eurocents for defense has not been a strong point 2. What would be the main goal of the army? Flying along the Russian border, escort Iranian oil ships or giving warning shots to illegal migrant vessels? Good luck in having a united voice in those. (Especially after Macron calling nationalism ’a leprosy’. ) And who would lead it? ’Drunker Juncker’? Member states violating fiscal or legal rules would be kicked out of the high command for a few months? The EU would need to put its act together on a different level to be able to pull this off.

 

Have a nice day,

Mihály

 

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