Market update: Stocks, oil rally with the US and China courting each other, Forint and Rubel strengthen

21 Jan

by Mihály Tatár

 

Good Morning!

 

  • Investors just loved, loved the news reports that China offered to eliminate its trade deficit with the US in four years and that US Treasury Secretary Mnuchin was considering scaling back tariffs on imports from China: Friday’s trading turned into world peace celebration (SPX +1.32%, Nasdaq +1.03%, DAX +2.63%, WTI 53.90, Brent 62.80 USD, with the rally slowing down this morning, Nikkei +0.20%, Shanghai +0.33%, after it emerged that there are still conflicts over intellectual property /=technology theft/ and that the Chinese growth was a mere 6.4% in Q4, the slowest since 1992. Meaning, officially.) Note that as discussed before, despite the constant media reports to the contrary, it is the Chinese side that has to lose more and is under enormous pressure to do something before the population gets hit by the first recession ever since the economic reforms began. (Interestingly, after having denied there is anything to compromise about with the US for about a year, Beijing now seems to rationalize its courting of Trump – they clearly arranged the second Trump – Kim meeting for example – by stating that they have already mostly won the technology war: Even if China has to buy some soybeans, cars and kind of let in a few US banks and insurers, Huawei will, for example, dominate the 5G, unveiling its first handset at the Barcelona Mobile World Congress late February, humiliating competitors. For the same reason, I find it unlikely that the US-China conflict will be solved by a single deal – these are existential differences of interests, and our next twenty years will be full of clashes and minor deals. On the other hand, squeezing out a trade deal from China and having a peace framework with North Korea looks pretty cool at an election campaign, especially if everyone said you are crazy and an idiot, just sayin’. The negative side, by the way, is that if there is a Beijing-Washington deal, the EU will get immediately into the crosshairs, and playing for time as against Brexiters won’t work.) With the Brexit uncertainties, currency markets were much less excited (EURUSD 1.1380, GBPUSD 1.2870), the favorites being the Hungarian Forint (the lazy EURHUF longs were squeezed out to 317.80) and the Russian Rubel (66.30, that’s a 5% appreciation since the beginning of the year, helped by the rebounding oil prices and economists gradually becoming very optimistic about the economy. According to StanChart bank, Russia may even overtake Germany as the fifth largest economy next year. And even its only statistically true, do you yet remember the chorus of predictions at the 2014 Ukraine crisis that Russia will collapse under the sanctions?)

 

 

Have a nice week,

Mihály

 

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