Market update: Apple reinforces China anxiety, European manufacturing slows down, the US reorients from Middle East

3 Jan

by Mihály Tatár

 

Good Morning!

 

  • As it turned out bad news came as a rainfall on Wednesday: After the already very bad Chinese manufacturing data, Apple, for the first time in two decades, cut its revenue outlook blaming a quickly slowing Chinese economy. (And not by a small degree, to 84 billion USD from 89-93 billion for the fourt quarter). This freaked out the market – remember, Apple is seen as the flagship of the global economy these days and its shares have a place in every private and public portfolio – sending stocks lower (in futures, SPX -1.84%, Nasdaq -2.82%, DAX -0.78%, Hang Seng -0.55%), and safe havens higher (Gold 1290 USD, US 10Y yield 2.62%, with the Japanese Yen staging brutal moves, strengthening 4% against the Dollar and jumping to a 10-year high against the Australian Dollar, which is the proxy currency for traders for the Chinese economy. Apple itself dropped 8.5%, which means it now 33% lower from its October high, in what ironically could be described as catching up with the Chinese stock market). European manufacturing indexes continued their travel lower as well (the French, Italian, Swedish and Polish figures slowed down especially, with the numbers from Germany, the Czech Republic and Hungary holding up relatively well), supporting the analyst narrative that a global recession is coming. (Personally I am less pessimistic – after global record breaking growth for several years even a healthy slowdown looks like a disaster in statistics – but don’t stand in the way of a market theme. Also, strategists seem to have made a U-turn from 2018 and now expect crushing deflation instead of inflation in the US – with prices already falling from real estate to oil prices even as demand just started to weaken. If true, this would of course give the Fed the perfect reason to ’objectively’ stop tightening. Note however, that the very same strategists hyperventillated last year that Trump’s trade war will result in high inflation through tariffs and supply chain disruptions.) Finally – in the string of bad news – the ECB took the unprecedented step of taking over mid-sized Italian bank Banca Carige into emergency administration (sending EURUSD from 1.15 to 1.1350, altough safe-haven buying of German bonds and dropping German yields also played a role). This, of course, raises two questions: Is there really a deal between the ECB and Italy as suspected, and for which Italy suddenly became a fiscal good boy? And from an other angle, if Banca Carige was so urgent, what will happen with systematically large Deutsche Bank?

 

  • In a highly symbolic development, just when China made a historic landing on the dark side of the Moon, new Secretary of Defense Patric Shanahan announced that his priorities will be ’China, China and China’. Not unrelated, the Pentagon ordered a block purchase of two more Ford-class aircaft carriers at once (!) (hey, what is the European Army procuring these days?), and Trump critized ’essentially fired’ former Secretary of Defense Mattis, in what looks to be a general decision to pull out from most of the Middle East and Afghanistan. (Now this will get interesting: All those countries hating the US presence and opportunistically playing all sides will suddenly find out how hard and costly it is to actually maintain stability. On the other hand, Trump’s plans for a Saudi-led Arab NATO and the Syrian peace process would need to be accelerated. One has to wonder also if this is good news for Teheran – Washington surely doesn’t want to retreat without sending best regards first.)

 

 

Have a nice day,

Mihály
 

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