Market update: Threats from Beijing send investors packing, OPEC cuts production, CDU choses Merkel 2.0

10 Dec

by Mihály Tatár

 

Good Morning!

 

  • Confirming the worst fears of the market, China began to issue threats for Canada and the US in case they failed to release the arrested Huawei CFO, giving a good reason to sell stocks (SPX -2.33%, Nasdaq -3.05%, Nikkei -2.12%. Shanghai -1.07%), with the money fleeing into bonds and Gold (US 10Y yield 2.84% – it feels very brave, or rather reflexive, given the US fiscal situation, Gold 1250 USD.) To put the stock moves into perspective, for the entire 2018 we are at: SPX -2%, Nasdaq 0%, DAX -16%, Shanghai -26%, lets hope fund managers and would-be pensioners went short at the right time, just joking). In further negative news, the US job market seemed to slow down in the latest figures (only 155.000 jobs created in November, but note unemployment is a mere 3.7% and a lot off countries would kill to create only this many new jobs), and the Japanese economy contracted 2.5% Y/Y (!, it might be that robots can’t consume?), reinforcing the global slowdown narrative and weakening the Dollar (EURUSD 1.1440 – helped by lower US yields, and, as discussed, by everyone and their grandmother being short, USDPLN 3.75, USDHUF 282.60, with only GBPUSD still at 1.2740 with May still being unable to decide whether to postpone Tuesday’s fateful Brexit vote.) On Friday, OPEC and Russia surprised oil markets by a last-minute, bigger-than-expected – 1.2 mio bpd – production cuts, but while analysts talked about the cuts ’putting a solid floor under prices’, the result was more measured than a fireworks (WTI 52.50, Brent 62 USD), with traders being very worried about global and Chinese demand. (Personally I wouldn’t be surprised if hedge funds sold again a few bucks higher, if there is no US-China charm campaign.)

 

  • While in Paris, Yellow Vests crashed with an army of police officers, and Trump trolled Macron by tweeting ’The Paris agreement isn’t working out so well for Paris. People do not want to pay large sums of money, much to third world countries, in order to maybe protect the environment’, the CDU elected ’Merkel 2.0’ Annagret Kramp-Karrenbauer to be its leader, who, as commentators note, inherits quite a list of challenges from her political mentor and ally: A slowing down economy, a car industry forced towards electric cars and anxiously trying to catch up with Tesla and China, the spiraling down Deutsche Bank and Sparkassen, the post-nuclear, highest electricity prices in Europe, an aging infrastructure, a very very very slowly integrating immigrant population, and finally, a less and less friendly European populist right. (Personally I would add that most of damage is self-inflicted, and could be corrected with better decisions. If anything, Germany’s ’saving only’ attitude could be shifted towards large government investments and Eurozone debt reliefs.)

 

 

Have a nice week,

Mihály

 

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