Market update: Hysterical stock sell-off stopped by Fed verbal intervention, oil drops, Europe prepares for Saturday

7 Dec

by Mihály Tatár

 

Good Morning!

 

  • Blaming the Huawei arrest crisis, markets were trading in a near-hysterical emotional state on Thursday with stock indexes dropping more than 3%, when in the late session, the Fed intervened: Powell talked about a very strong labor market and a well-performing economy, while his officials leaked that the Fed ’is weighing a wait-and-see approach on future rate increases’. This stopped dead the selling, and pulled stocks back up (SPX -0.15%, Nikkei +0.72%, Shanghai -0.03%, while DAX closed at -3.48% before the intervention). In essence, the Fed signalled that it is ready to stop with rate hikes if necessary (bowing to Trump and investors, and making some fun of textbook central bank independence), hammering rate hike expectations for next year (by now barely a single 25 basis point rate hike is priced in, and the 10Y yield trades at 2.88%). (Note that still, this doesn’t mean easing, the Fed keeps drying up liquidity and will increase rates this month. Also, while market commentators became extremely pessimistic, waiting for brutal recessions, these fears look pretty overdone, and reminds me when nobody dared to expect healthy growth back in 2014-2015. Just as almost no bank analyst dares to write about Chinese growth getting an unprecedented hit from the Trump campaign.) Oil traders were not relieved, however, with OPEC talks having ended without a deal on oil production cuts – the summit continues today with Russia, so its not completely over yet – , and prices fell again (WTI 50.90, Brent 59.30 USD), with several strategists predicting sub-40 USD prices without an agreement. (Quite a change from the 100 USD forecast back in October!). Currency markets were having a hard time following stocks and bonds, and remained stable (EURUSD 1.1370, EURPLN 4.280, EURHUF 323, I guess pessimists bought Gold, 1245 USD), with the focus so far still on the Brexit drama (GBP 1.2770 – the May team is now considering postponing the Brexit Parliament vote itself to avoid a landslide defeat), while barely noticed amid the excitement, crypto currencies continued their collapse (Bitcoin 3370 USD – that’s 50% in four weeks, but hey, it’s a great alternative investment!).

 

  • Political news were of the typical ’new normal’ variety: Cashless Greece began to try to publicly crowdfund the purchase of new warships (now that’s original, but hey, everything is right with NATO), while France deployed a force of 89.000 police officers to counter the Yellow Vest demonstrations on Saturday. On Saturday, the critical CDU vote on the new party leader is also taking place (’Merkel 2.0’ altough somewhat more progressive Kramp-Karrenbauer versus ’relatively moving to the relative right’ pro-business Merz, in the latter case, Merkel is toast), and by now, even the mainstream media is wondering what’s going on with Europe’s political elite: Merkel defeated, Macron giving speeches about defending the international order and praising globalism with a popularity of 20%, while May and Tories fighting anxiously to survive against hard Brexiters and the happy far-left Labour party. (Whether these are good or bad developments depend on your world view, of course, but note that it all this started with Merkel’s 2015 decision to make Europe an immigration country, without asking a single voter, and the entire EU establishment investing their political capital into this project. This establishment has currently nothing to offer to angry citizens, regardless of them being right or wrong.)

 

 

Have a nice day,

Mihály

 

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