Market update: Correction continues with full speed, German industrial production shocks, US-Turkish tensions rise again

9 Jan

by Mihály Tatár

 

Good Morning!

 

  • The correction – or rather, squeeze – higher continued (SPX +0.97%, Nasdaq +1.08%, DAX +0.52%, Nikkei +1.03%, Shanghai +1.96%, US 10Y yield 2.72%, WTI 50.60, Brent 59.60 USD), with investors definitely liking the narrative that the US-China talks were so productive they had to be extended and that North Korea’s Kim visited Beijing to be part of a grand compromise. (With the latest moves, S&P retraced almost half of its losses since October.) In the general optimism, even the shocking German industrial production figures were disregarded (-4.7% Y/Y (!). Analysts seem to be unsure: Was this a calendar effect, a crazy auto regulation effect, or global trade slowdown? If the latter, Germany is headed toward a recession). Currencies were less enthusastic (EURUSD 1.1460 – one has to wonder what German exports would do at 1.25, now that the Fed chairman morphed from ’hawkish Powell’ to ’watching my career risk Powell’, or ’Powell Put’ – markets price a single Fed rate hike for the entire 2019 – ; GBP 1.2740 – the fateful Brexit deal vote day is approaching rapidly; EURHUF 321.70, EURPLN 4.296; with commodity currencies moving more on the rising oil prices (Canadian Dollar +3% and Russian Rubel +4.5% in one week), and the Turkish Lira taking a hit after President Erdogan refused to meet US National Security Adviser John Bolton. (Translation: We don’t want to give assurances on Kurds, we want to destroy them’. Note that still nothing is solved in the Turkish economy, its just that speculators gave it a pause. The key question is, can the US give Erdogan something that he wants more than moving his army deep into Syria?).

 

  • President Trump gave his National Address speech, aired on all major US television networks, describing the situation at the US-Mexico border as a crisis and demanding that Democrats support funding the wall. Democrats and mainstream media journalists were quick to attack the speech (’Trump must stop holding the American people hostage’, ’the message was underwhelming’, ’there is no crisis’). Regardless of one’s opinion on Trump and the Wall, note that Trump easily moved Democrats exactly into the position he wanted them to be, forcing his ideologically-driven opponents to spend enormous political capital into this topic and arguing that ’all is well’, something they can not win. (Do you see a pattern here? Similarities in Europe?) To begin with, if the wall is useless, why is it so important to stop it at all costs? Furthermore, US voters don’t think all is well down there, 42% see a crisis and 37% ’a serious problem’. Alexandria Ocasio-Cortez’s hilarious reaction,  ’he is fighting against every way that people can actually legally enter this country, forcing them to become undocumented and then he’s trying to attack their undocumented status’ is just oil on fire. (Think about this logic: So why have borders at all? Me and you, lets take a boat tomorrow.)

 

Have a nice day,

Mihály

 

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