Market update: Fed minutes help the rally further, the Dollar weakens, brutal Chinese data

10 Jan

by Mihály Tatár

 

Good Morning!

 

  • The partying on markets continued on Wednesday, with the music provided by the dovish Fed minutes, which essentially said its time to give a pause to the economy (SPX +0.41%, Nasdaq +0.87%, DAX +0.83%, Hang Seng +0.18%, Shanghai +0.44%, WTI 51.80, Brent 61 USD, this whole ’overreaching Trump’ vs ’strictly by the models’ Fed exercise ended with Trump KO, with serious long-term consequences, altough probably you won’t read about it this way for a long time). Non-monetary news were less positive, with Chinese consumer and producer inflation both slowing down (1.9% Y/Y from 2.2% and 0.9% from 2.7%) and car sales dropping for the first time in 20 years (-6% in 2018, auch). (Remember that bank economists very seriously expected a mere 0.5% slowdown last year?). Both the US and the Chinese side praised this week’s negotations – without going into details -, with Beijing talking about ’broad, deep, detail’ trade talks which are to be continued soon, leaving every hedge fund analyst and their grandmothers wondering what this exactly means. (It probably means, that China is willing to buy a lot of US stuff, help with North Korea, and even let Trump make a victory tour humiliating his free trade critics, but doesn’t accept any monitoring, supervising, or any restriction on what it does in the future. The question is, is it enough for Trump with 2020 rapidly approaching?) Speaking of the US President, Trump stormed out of the government shutdown meeting with Democrats (’waste of time’ – as said, neither side can look weak here) as Democrats didn’t bend on wall funding. Naturally, the combination of the dovish Fed and the government shutdown (Fitch already warned it may cut the AAA rating of the US, now that would be a sight) weakened the Dollar (EURUSD 1.1560 – the highest level since October, GBPUSD 1.28 – even as the talented May gets humiliated day after day in the Parliament and Labour calls for new elections, USDHUF 278.20, USDPLN 3.72, USDCZK 22.18). (Also note that the Yuan also started to strengthen – 6.79 – against the Dollar, which, given the Chinese economic background, is fueling conspiracy theories that the Yuan may be part of a forming deal.)

 

  • Somewhat funnily, while the narrative is that the US pulling out of the Middle East is very bad mainly for the US, there are more and more signs that despite the endless talk about the ’imperial invading US’, nobody at the spot is happy: Iraq urged the US to keep troops in the country (!), the Afghan government is in panic, and the Russian-Turkish relationship is going South even faster that the US-Turkish one: According to rumours, Moscow flat refused to let Turkish forces enter northeastern Syria and hinted that any Turkish airplines would be shot down by Russian air defense batteries. (This shouldn’t come as a surprise, Putin wants Syrian and Russian forces to take over the areas Americans leave, with no hurry to fight Kurdish towns. Or to put it another way, when the cat is away, the mice kill each other. Furthermore, if Trump makes good on his threats to leave some parts of Africa, Angela Merkel’s bluff on building the EU army and then even using it will be called. How many Spanish and Czech soldiers would you personally send to fight Islamists and to stabilize local countries? I guessed so.)

 

 

Have a nice day,

Mihály

 

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