Market update: Soft US manufacturing fuels more selling, everyone’s Apple plunges, trade deal hopes return

4 Jan

by Mihály Tatár

 

Good Morning!

 

  • The wave of economic bad news, culminating in the drastic Apple outlook cut, got only confirmed by a soft US manufacturing data (ISM 54.1 – this is a two-year low, altough, note that this is still an expansion, and not so long ago, in August, it reached a 14-year high), resulting in an other round of anxious investor selling (SPX -2.5%, Nasdaq -3%, DAX -1.55%, Nikkei -2.75%, Apple -10% or -39% from October). US yields dropped again (they fell so much in the last weeks that the US government bond yields up until 5 years fell under the Fed funds rate, 2.40% – this is means, in plain English, that the market thinks the Fed is about as credible as the Soviet Central Planning Committee), and the Dollar gave up earlier gains (EURUSD 1.14, GBPUSD 1.2640). (As discussed earlier, in my personal opinion, all stars are aligned for the Dollar to weaken globally in 2019 – barring panic situations when safe haven USDs are needed – with an even more painfully strong Dollar in nobody’s interest, especially now with US manufacturing and corporations slowing down. Veteran Democrat Nancy Pelosi – who returned to be the speaker of the Democrat-controlled Senate, promptly announced that ’We aren’t doing a wall, so that’s that’, and made hopeful references to Trump’s impeachment – certainly these will push the nerves of the market as well, altough note that Democrats are in reality quite fond of Trump’s infrastructure spending plan. And Trump loves to spend – we might find out that Europe loves to spend, too, after the May EU elections – , which is one of the reasons I am sceptical about bond yields staying low for long.)

 

  • Overnight, the sentiment improved after the news that a US trade delegation will travel to Beijing next week (Hang Seng +1.42%, Shanghai +1.89%, WTI 47.40, Brent 56.30 USD), with some strategists hoping that ’Trump is now forced to make a deal and China will happily give an empty victory he wants’. I am not so sure about this logic (and I am bit tired of what Trump ’must do’ after market movements, mind you, Fox TV focuses on immigration and Trump can blame the Fed with credible arguments), but this will be one of the few themes for markets to rally during 2019. Regional currencies remained glued to their ranges (EURHUF 321, EURPLN 4.29), with traders waiting for any change in central bank policy, let it be local or the ECB’s. (Some commentators rightfully point out, that unlike the Fed and ECB, the region has no ’inflation shortage’ – Hungarian CPI was 3.1% Y/Y in November – and this will suddenly become a hot topic if the ECB does start to tighten, hitting Euro-linked currencies if their central banks don’t follow quickly.)

 

 

Have a nice day,

Mihály
 

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