Market update: Huawei arrest shocks investors, EU tries to save May again, US oil reserves hit record high

6 Dec

by Mihály Tatár


Good Morning!


  • While Trump was busy on Wednesday to reassure markets on the US-China trade agreement (’very strong signals being sent by China’, ’I believe President Xi meant every word what he said at our long and hopefully historic meeting’), the sentiment crashed immediately when the news came in that Huawei’s CFO has been arrested in Canada on US request for violating Iran sanctions. Given the  weight of Huawei as a Chinese corporate champion and Beijing’s outrage, stocks fell heavily (Nikkei -2.28%, Shanghai -2%, SPX futures -1.5%), with money fleeing into safe havens (US 10Y yield, already going down, 2.89%, Gold 1240 USD, EURCHF 1.13), with commodities getting under pressure (Copper -1%, WTI 52.30, Brent 61 USD – note that as a sign of the new normal, instead of the OPEC meeting starting today, analysts somewhat bizarrely talk about ’the arrest being negative for oil demand’).  Of course, the one million Dollar question is, who ordered the arrest and why? If it was done with the knowledge of the Trump team, there had to be a very strong case for intimidating Beijing – but given Trump’s public interest in a breaktrough it is also possible that Trump’s political opponents or a China hawk in Washington did it, to sabotage a deal. (We do know that the investigation has been a joint project with the CIA, which didn’t take well the public humiliation that most of its agent network was finished off in China. But this just guessing. Looking it from a non-pro-business angle, why did China and Huawei think they can get away with playing the Iran sanctions? National security adviser ’Bomber’ Bolton was quite clear on the issue. If I was in the White House, I would go into damage control communication very fast.)


  • In other news, ignored amid the Huawei developments, the Italian leadership was trying hard to sound even more friendly (Salvini: ’I have no interest in clashing with Europe.’ ’We will find an agreement’, a tough change from October’s ’if the EU insists on slapping us in the face, I will give more money to the Italians’ – as forecasted here, they have to win time until the EU elections – , and markets appreciated the turnabout, the Italian 10Y yield dropped from 3.72% to 3.06%, Unicredit rallied 12%, altough from a super low level); while in the Brexit drama, the EU suddenly offered to extend the Article 50 timeframe in case the Brexit deal is rejected by the UK Parliament – this fresh lifeline for Theresa May was necessary because British lawmakers forced the government to show the kept-secret legal advice on Brexit, which warns that May’s Brexit deal essentially splits off Norther Ireland from the UK, making it a third country in regulatory terms. (Uh! Not exactly something the Brexiters or May’s Irish allies wanted!)


  • Veteran oil analyst John Kemp amusingly notes that US crude oil reserves hit record levels in 2017 – proving wrong several generations of pessimistic doomsayers (as early as 1909, the US Geological Survey was predicting that reserves might be exhausted by 1935, in the seventies, the forecast was the same for the 2000s and so on. One has to wonder if global warming predictions are so precise as well – prepare for an ice age before the final meltup!). As former Saudi oil minister Yamani observed, ’The Stone Age came to an end, and not because we had a lack of stones’, – but when it is replaced by a superior energy source and technology, adds Kemp.




Have a nice day,



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