Market update: Investors celebrate the trade truce, the Fed retreats, oil prices and Gold rise

4 Dec

by Mihály Tatár

 

Good Morning!

 

  • Almost everything rallied on the Trump- Xi agreement on Monday (SPX +1.09%, Nasdaq +1.51%, Apple +3.6%, DAX +1.85%, Volkswagen +2%, Daimler +4.7%, MIB +2.26%, Warsaw +1.67%, WTI 53.30, Brent 62.10 USD – traders, naturally, ignored Qatar’s historical exit from the Saudi-led OPEC, seeing the flowering MBS-Putin bromance  -, EURHUF 322.50, EURPLN 4.276, and the Yuan strengthened almost 2%, which is a big move for the Chinese currency). Investors, however, being uncertain how long this rally can last, already began taking profits in the Asian session (Nikkei -2.39%, Shanghai -0.26%), and in an important development, Fed Vice Chairman Clarida suddenly talked about ’risks having tilted towards too low inflation’, meaning, together with Powell’s latest lines, that the Fed is rapidly moving towards a more dovish direction. (Hey, but it has surely nothing to do with Trump wanting a less hawkish monetary policy or stock markets having crashed 10%! Central banks are strictly independent, you know.) As a result, US yields dropped (US 10Y yield 2.94%, with the 3Y yield closing above the 5Y yield for the first time  since 2007, meaning traders are re-thinking the Fed interest rate path completely), and the Dollar started to weaken (EURUSD 1.1385 – imagine where it would be without the European mess, USDHUF 283, USDPLN 3.757, with the Brexit politics hit GBP being the only exception, GBPUSD 1.2740), and Gold also jumped (1238 USD).

 

  • Veteran strategist David Goldman argues that the US-China trade negotations by now have become more of a reality show than a trade war: Trump learned from this autumn that by cutting off Chinese exports, he threatens his own re-election in 2020 (stocks and capital investments would drop, while consumer electronics prices would rise until the world economy adapts), while China concluded that its economy is indeed extremely vulnerable to the US policy and that Trump wont stop until he looks like a winner. Therefore, the US and China will probably agree on 1. More US LNG exports to China 2. China cracking down on technology theft 3. further opening up the Chinese market for trade and investment, especially financial investment 4. abandoning the ’China 2025’ project, altough the same strategic investments will continue with less fanfare and China will still become the dominant economy, maybe a few years slower than originally planned (2035?).

 

 

Have a nice day,

Mihály

 

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