Market update: Fed lets the rally continue, Russia sells away its Dollars

11 Jan

by Mihály Tatár

 

Good Morning!

 

  • Just to make sure everyone understood the message, Fed officials reiterated that the US central bank is ’in a place where we can be patient and flexible’, clearly ruling out a rate hike for the first half of 2019 and even hinting that not even a cut is impossible later on. (What a change two months can make! Note that Powell is bullish not only on the US, but in a lesser extent also on the Chinese economy. He is clearly reading too many newspapers.) This, coupled with the news that Chinese Vice-Premier Liu He will travel to Washington in late January to continue trade talks, kept the rally going (SPX +0.45%, Nasdaq +0.42%, DAX +0.26%, Nikkei +1.02%, Shanghai +0.32%, Brent 61.60, WTI 52.60 USD, Copper +0.80%, one can only hope fund managers will use the correction to get out.) To put the moves into perspective: S&P lost 20% from October and now regained 11%, DAX lost 24% from its February high and regained 6%, Shanghai is down 32% from its January high and regained 5%. Currencies remained unexcited (EURUSD 1.1530, EURHUF 321.30, EURPLN 4.295, GBPUSD 1.2760 – Pound traders clearly have no idea what’s going on with Brexit, and nobody can blame them: Telegraph’s Ambrose Evans-Pritchard even argues that with the latest pro-EU technical manouvers – like proposing to use EU ‘soft law’ and Brussels’ informal help on the Irish border and trade, the likehood of a no-deal Brexit diminished to zero. In fact, the entire Brexit-rebellion has been turned into a ‘membership light’. If true, the Pound is ‘a screaming buy’, he notes. My personal observation is rather for the long term: While the EU protected its interests very well, too well even, learning from this, the next time a country will want to leave the EU or has a conflict with the EU for whatever reason, it will avoid the lawful way and simply skip the endless and counter-productive negotiations.)

 

  • While Merkel gave another of those ’nationalists are agents of catastrophe’ and ’cooperation with each other is in any case better than nationalism, which has so often led us in Europe to catastrophe’ speeches (note that this has became a a religious mantra and an answer to everything in today’s EU: the reality is, while it feels true, practically speaking, the last catastrophe unfolded because already well-cooperating Western Europe didn’t have the stomach to attack Hitler’s Germany while it was weaker than a police station in the early 1930s. But this lesson is forgotten.); Beijing introduced tough penalties in Hong Kong for disrespecting the Chinese communist anthem and raged against Canada for ’only caring about the human rights of whites’. (In connection with the Huawei CFO arrest.) In another, ’doesn’t look so bright for the future’ development, Russia radically decreased its USD holdings in its reserves (by 100 billion USD, from 44% to a historical record low of 22% (!), shifting mostly into Euros, Yuans, and other major currencies.) It is very likely now that after a few more, very probable developments (US rating cut and serious fiscal troubles, lower global oil demand with electric cars, the Yuan allowed to be partially convertible) the Dollar’s international status will take a dramatic hit with myriad economic consequences.

 

Have a nice day,

Mihály

 

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