Market update: Newsflow helps stocks, Dollar rises, all eyes on Chinese growth, UK disappoints

12 Feb

by Mihály Tatár

 

  • The sentiment improved on Monday with positive noises coming out on the US-China and government shutdown negotations (SPX futures +0.54%, DAX +0.99%, Nikkei +2.56%, Shanghai +0.41%, supposedly there is a tentative deal on border security and the trade negotations go so well a Trump-Xi meeting is under preparation). The main development of the day, however, was another powerful Dollar rally (EURUSD 1.1270, USDHUF 283.50, USDPLN 3.83) on the theme that central banks around the globe are panicking, and turn even more dovish than the Fed, with the Dollar being the only safe high-yield curreny these days. (That said, as discussed before, the brutally strong Dollar hurts key interests, expect some kind of intervention soon.) The victim of the day was the British Pound (GBPUSD 1.2850), after a horrible string of economic data was published (GDP slowed down to a mere 0.2% Q/Q in Q4, industrial production dropped 0.9% Y/Y in December, total business investments plunged 3.7% Y/Y in Q4, to put it ironically, with the Brexit uncertainty, the UK converged to the speed of the Eurozone.)  WTI oil made a volatile roundtrip (falling 51 USD only to return to near 53 USD later, with Brent moving lazily around 61.80 USD),  the trader talk being that whatever the pseudo science on Venezuela and US peak production might be, the only real question in oil markets now is what one thinks about the Chinese slowdown: If its not dramatic – as the IEA and the OPEC thinks, having kept their 2019 demand growth outlook steady and economists clinging to the 6% magic GDP number – then the direction is up, and vice versa, a ’stealth recession’ should send oil prices back down to the lows. Speaking of China, two very large borrowers – China Minsheng Investment and Wintime Energy – failed their payment deadlines, confirming that the Chinese credit markets are in trouble and the news catched immediate market attention. (Note that less known to the public, it was not just the Fed and the ECB that flooded the market with fresh money to avoid a collapse in 2008: China also launched a 4 trillion yuan – 600 billion USD – infrastructure plan and allowed rapid credit creation, to the point that the excesses even make the IMF worry, not a small feat. The programme now comes back to haunt Beijing – both in terms of economy and when it has to negotiate with Washington.)

 

  • Shocking the mainstream media – but not regular readers – the latest Rasmussen poll showed Trump’s approval rating jumping to 52% (the best in 2 years, a huge upswing from December’s 45%). The ’temporary uptick’ is attributed to the well-received State of the Union speech – but note that what is really going on is that the Democrats’ argument that all is well with the border and immigration control is bizarre even for Hispanics, and by now even Bloomberg writes about ’Democrats moving to much to the hard Left’. (The ’semi-realistic’ Green New Deal, for example, is estimated to cost 7 trillion USD and reach none of its goals – again, according to Bloomberg.) One has to wonder if other pollsters see the same dynamic (Rasmussen is usually the most favorable towards Trump as it polls likely voters), but it seems like Democrats badly need a recession by 2020.

 

 

Have a nice day,

Mihály

 

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