Market update: Chinese data confirms worst investor fears, strong start in politics for 2019

2 Jan

by Mihály Tatár

 

Good Morning!

 

  • After a most uncommon, violent year-end trading – the S&P just had its worst December since 1931 and the worst year overall since 2008 – , of course not shocking regular readers as this has been the forecast here since last January, stock markets even started 2019 on a bearish footing: The last thing investors wanted to see was another sign of a massive Chinese slowdown, which just arrived this morning in the form of the Manufacturing PMI dropping to 49.7 (outright contraction!), sending stock indexes lower (Shanghai -1.54%, Hang Seng -2.76%, S&P futures -0.90%), pressuring commodities (WTI 44.80, Brent 53 USD), and sending the money towards safe havens (Gold 1287 USD, US 10Y yield 2.68%, EURCHF 1.1260, USDJPY 109). (To put the moves into perspective: From their late January 2018 level, S&P lost 13%, DAX dropped 22%, Shanghai plunged 36%. Quite fearsome numbers, especially for a world which thinks it as a natural fact that stock markets somehow must usually go up and that people and governments can save enough for their pensions payments using capital markets. On the other hand, note that this is not 2008: The world banking system is not a dangerous swamp in which any bank can explode any minute because nobody knows what is inside their derivative books – this bear market is more like a re-pricing to reality and central-bank-undistorted risk.) As expected, the Dollar weakened (EURUSD 1.15, GBPUSD 1.2770, USDHUF 279.50, USDPLN 3.73), with the Trump-Fed dispute and the partial US government shutdown fresh on traders’ mind. (Regarding the government shutdown, mind you the funny situation that Trump tries to invite Democrats to make a deal on the Wall funding, while Democrats reject this and still call Trump ’irresponsible’. As discussed before, for Trump’s political future the Wall and immigration policy are the number one issue. It’s hard to see a compromise here, without one side looking beaten very badly.)

 

  • Veteran geopolitical strategist David Goldman notes the bizarre one-way reaction of the media to Trump’s decision to pull out US forces from Syria: The days when both US Democrats and Neoconservative Republicans were excited about the Arab Spring and the civil wars it brought are long over; nobody, not even Obama, ever seriously tried to topple the Assad-regime, and the 2000 US special troops that are to be pulled out have been mostly there to help Kurds against ISIS and show some US presence in the face of the humiliating Russian and Iranian intervention, hardly a reason for perpetual presence. (You can tell the anger is empty and emotional in that nobody proposes a regime change in Syria or fighting for a new Kurdish State – those would be the only valid points in staying for another decade. Also, the US public opinion supports the pullout, which creates this interesting situation again in which the media thinks Trump is erratic and crazy while his base feels validated.) Speaking of politics, 2019 brought a strong start here as well: Angela Merkel called for a greater international role for Germany, based on ‘openness, tolerance, respect and more cooperation’ (this is actually not new, she is always for a greater international role until it doesn’t mean taking any risk like sending soldiers abroad or listening to allies about Russian energy); a Chinese rear-admiral called for sinking two US aircraft carriers to teach the US a lesson on the South China Sea (what would Merkel do?), and Democrat Elizabeth Warren formally announced to run for presidency in 2020 (it’s not that far away anymore!).

 

 

Have a nice week,

Mihály

 

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