Market update: Rally after the G20 cease-fire, Labour threatens Theresa May, Pakistan devalues

3 Dec

by Mihály Tatár

 

Good Morning!

 

  • The markets were quite pleased that the worst was avoided at the G20 (SPX futures +1.80%; Nikkei +1.11%; Shanghai +2.80%; with oil prices gapping higher, also helped by the Russian-Saudi deal extension agreement and Alberta ordering an unprecedented output cut, WTI 53.60, Brent 62.40 USD; Copper +1.9%), in the form of a 90-days trade cease fire – halting any new tariffs, which means postponing the gigantic 25% tariff wave the US was going to introduce from January. Interestingly, analysts were quite divided on what to make of this news on Sunday – some even questioned it has any signifance at all. (This is, of course, is nonsense: It shows that while the US and China has fully opposing interests, there won’t be a total cold war and compromises in specific areas can be found – a good example came as soon as today, with Trump tweeting that China has agreed to reduce and remove tariffs on US cars, currently at 40% (!). Yes, I also agree – as discussed last week – that the trade war is far from over, and that it won’t save the stock market, but even a cease fire is a huge news on an oversold, over-positioned market, and no-one should stand in the way of a violent bear market rally.) The positive sentiment, in a lesser extent, could be also seen on currency markets (EURUSD 1.1360, EURPLN 1.288, EURHUF 323.50, even the GBP appreciated a bit to 1.2780 against the Dollar despite Labour signalling it will prepare a motion to bring down the government if the Brexit plan gets rejected). In other news, the violent ’Yellow Vest’ protests continued in Paris, with France considering to introduce State of Emergency – note that while it is incredibly hard to remove a sitting French President, Macron’s political capital just evaporated which doesn’t bode well for the Merkel-Macron vision of the EU and this will be also be a good lesson for politicians who are too eager to introduce global warming taxes – ; Pakistan’s central bank raised the benchmark interest rate again to 10% and devalued the Rupee for the fifth time this year to impress the IMF; while once-mighty Deutsche Bank crashed to a fresh record low (8 euros, from 2007’s 92 euros) on fresh speculation that the brand is now damaged so badly that it has to be retired by Berlin.

 

  • Giving an interesting glimpse into Russia’s strategic thinking, Putin’s top foreign policy adviser Sergei Karaganov gave a pretty brutal interview to the German Die Welt: According to him, the Western period of Russian history, which began in the 18th century with the orientation of the reformist Peter the Great, is coming to an end, and what is now forming is a ’Greater Asia’, led by Russia and China, stretching from Shanghai to Lisbon, absorbing ’unviable and uncompetitive’ Europe. Note that Russia is now China’s biggest provider of energy (at least 17%), the main technology source for China’s defense industry from the new stealth fighters to the S-400 air defense system, and rising China already invests 25% more than the US on a dollar basis, while graduating four times more scientists than even the US each year.

 

 

Have a nice week,

Mihály
 

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