Market update: Risk assets rally after China communication, Munich Conference brings up tensions, S&P raises Hungary

18 Feb

by Mihály Tatár

 

Good Morning!

 

  • Investor optimism exploded when Chinese TV channels began to talk about  ’having reached a consensus with the US on main topics in principle’ and Trump called the last round of talks  ’very productive’ (SPX +1.09%, DAX +1.89%, Nikkei +1.83%, Shanghai +2.74%, WTI 56, Brent 66.50 USD, Copper +2%, even EURUSD 1.1320. (The one million Dollar question, of course, is when ’the buy the rumuor selll the news’ phase is turning. S&P is approaching the key 2800 level. It’s also interesting that despite the positive sentiment, heavy hedging activity is also underway, Gold is trading at 1325 USD.) S&P finally raised Hungary’s rating to BBB from BBB- (don’t rush it guys – you know someone is not liking somebody when you realize that 5% growth, trade-surplus, low-deficit Hungary took this long to reach the rating level of, wait, Italy.) The immediate reaction was limited (EURHUF 318.15), but it will be interesting to see if regional currencies can strengthen somewhat further after the tough GDP data and increasing pressure on the ECB to do something, anything, to help Eurozone growth (EURPLN 4.33, EURCZK 25.67, EURRON 4.74).

 

  • The traditional Munich Security Conference this weekend saw the most awkard moments of its history: While Angela Merkel was met with a standing ovation, US Vice President Mike Pence’s demand that European nations withdraw from the Iran deal was followed by tense silence. (Merkel used the opportunity to attack and mock the indeed nasty US investigation whether German cars are a national security threat, but she got her humiliation, too, when China bluntly rejected her plea to do any treaty on nuclear missiles – translation: lambs don’t call the shots for lions -, and when a well-timed analysis on Germany’s army called it a ’volunteer fire department’ in terms of equipment and morale. Furthermore, the UK kicked into the US by rejecting US calls to ban Chinese high tech – in fact, it teamed up with Germany in defending Huawei. This is probably not unrelated from Huawei having promised multibillion USD investments to Brexit-hit May last year – and from the fact, as Bloomberg notes, that Europe is badly behind the curve in 5G compared to China, South Korea, Japan and the US. (Also, from an immediate business perspective, for European telecom companies, the nightmare scenario is that they have to remove existing Huawei gear worth billions and billions of euros, and are lobbying hard against following Washington’s instructions.)

 

 

Have a nice week,

Mihály
 

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