Market update: Investors wary before key negotations, IMF warns of global economic storm

11 Feb

by Mihály Tatár

 

Good Morning!

 

  • Stock markets remained wary before this week’s critical US-China trade talks and the final Democrats-Republicans government shutdown negotations (SPX +0.07%, Nasdaq +0.14%, DAX -1.05%, MIB -0.65%, Hang Seng +0.38%, EURUSD 1.1325, EURHUF 319, EURPLN 4.31). (Note the steady Eurozone underperformance – and it’s not just the weak growth data: Strategists warn that if there is a US-China deal, the US-EU trade imbalance will be addressed next. If you think the US-EU relationship is going down, you have seen nothing yet.) The lack of good news kept commodities under pressure (WTI 52.0, Brent 61.80, Copper -1.7%), with the sentiment not helped by the IMF’s warning of the upcoming ’global economic storm’. (The IMF is very proactive lately – remember, they read about the 2008/9 Financial Crisis in the newspapers – and identifies ’four clouds over the global economy’, debt, Brexit, trade war, and slowing China. It must be frustrating when you can not forecast GDP by pulling the Excel column to the right – but this is not a storm in my personal opinion: When you do not know which bank or company exists you trade with by next year – as in 2008 – now that’s a storm. In 2019, the worst case is that the Eurozone dips into a shallow recession and the US grows by only 2%.)

 

  • France and Germany striked a compromise on the Nord Stream II pipeline – France dropped its threat to burn Germany by changing the EU Gas directive- , rejecting the increasing pressure from the US to not to increase gas imports from Russia. In the meantime, the European Council warned that ’anti-European’ parties are poised to win more than a third of the seats at the European Parliament elections in May, ’derailing projects’ and ’obstructing foreign policy and migration policies’. (As always, parties who do not want mass migration from Africa or the Middle East are ’anti-European’, by this standard, Helmut Kohl was anti-European as well.) Note that one-third is actually the worst outcome: It’s not enough to reform the EU institutions but is large enough to paralyze the EU decision making further. (Mind you, despite the endless talk to the contrary, not a single major reform has actually been done in the last 10 years: Finance ministry, common budget, banking union, anyone? EU army? What if the dealmaking gets even tougher with Salvini and Juncker constantly blackmailing each other? It’s not only Brexit that can cause investor uncertainty.)

 

 

Have a nice week,

Mihály

 

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