Market update: The Fed remains hawkish, oil enters bear market, Venezuela runs after its gold

9 Nov

by Mihály Tatár

 

Good Morning!

 

  • Just as the US economic data refused to go down, so did the Fed refuse to change a single word in its hawkish stance at yesterday’s meeting (’economic activity has been rising at a strong rate’, meaning the rate hikes will be coming at a steady pace, EURUSD 1.1340, 3M Libor 2.60%, 12M Libor 3.13%, US 10Y yield 3.23%).  This didn’t help stocks (SPX -0.25%, Nasdaq -0.53%, DAX -0.45%, Nikkei -1%, Shanghai -1.22% – as the current joke goes, China’s stock-market rescuers now need rescuers, and several local banks and debt asset managers are said to be in trouble – remember, ever since the first US tariffs mainstream economists are telling us with straight face that China will slow by a mere 0.5%), but what traders were really watching were the non-stop falling oil prices (WTI 60.30, Brent 70.50 USD – this is now technically a bear market, with analysts rushing in to update the narrative from ’fears about undersupply’ to ’fears about global slowdown and larger than expected US, OPEC output’. The global slowdown, of course, is a politeness – its all about Chinese demand and the Saudis’ willingness to take instructions from Trump. Energy shares were, naturally, heavy: Exxon -1.6%, BP -3%, ConocoPhillips -4.5% ) The slow regional currency rally continued as expected (EURHUF 321, EURPLN 4.28), with investors noting that the Hungarian inflation jumped 3.8% (!) Y/Y in October, even more than expected. (The Hungarian 10Y yield is at 3.64% and Forint deposit rates are still negative. To say that monetary policy is still in full force easing is an understatement.)

 

  • As Venezuela’s consumer price rose 834 000 percent in one year and the UN (under)estimates that 3 million people have fled the country, it was leaked that the government made a desperate attempt to get back its gold reserves stored in London (about 15 tons), only to be refused by the Bank of England. (This tells us two things: 1. The US sanctions are now biting very painfully, and Venezuela got further isolated with the victory of Brazil’s ’Tropical Trump’ Bolsonaro 2. As a long-term consequence, countries are going to refuse completely storing their gold abroad, which used to be a norm after WWII.)  In the meantime, the Rubel weakened about 2% – partly on oil prices and partly on pessimistic noises from the Kremlin – with Democrats taking over the House, they don’t see improved relationships for the next two years. (Personally I think this disappointment is overdone – it is true that Democrats will make a lot of noise, but remember, the anti-Russian wing of the Republican party from McCain to Corker does not exist any longer, and the party -most of which did not like Trump at all in 2016 – became the Trump party by now, and has full Senate control.)

 

 

Have a nice day,

Mihály

 

P.S. Dear Readers, the next Update will be published on the 20th November.

 

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