Market update: Investors remain optimistic, leaked US-China currency deal shocks, Saudi help for Pakistan, Bernie returns

20 Feb

by Mihály Tatár

 

Good Morning!

 

  • Seeing the busy activity from US and Chinese officials, trading kept its optimistic tone (SPX +0.15%, Nasdaq +0.19%, – also helping the sentiment, ’supposedly killed by Amazon’ Walmart reported its best holiday quarter of the decade, with its e-sales in the US rising 43%, giving hope for retail chains, DAX +0.09%, Nikkei +0.49%, Hang Seng +0.83%, Copper +1%, Palladium – the metal used mainly to curb emissions in gasoline vehicles – record high, WTI 56.20, Brent 66.50 USD). In an important development, it was leaked that the US asked China ’to stabilize’ the exchange rate of the Yuan, as part of the trade deal. Needless to say, a currency pact between the two largest economies of the world would have enormous long-term consequences. It also confirmed, as discussed here before, that Washington really had enough of devaluations against its exports (Eurozone beware!), and the Dollar was reflexively sold off on Tuesday (EURUSD 1.1350, GBPUSD 1.3070 – traders also hope a breakthrough at today’s May – Juncker meeting, USDHUF 279.50, USDPLN 3.815, USDCZK 22.60). Gold rose even higher (1346 USD, remember in August it was trading at 1160), as a hedge against the trade deal and/or the Dollar going South.  (As a sidenote, the US – China exchange rate deal leak really hit the button on mainstream economists, who freaked out in a complete mental meltdown. The less hilarious experts argued that a currency deal is bad for China as the country may fall into Japan’s ’boom and bust’ after the Plaza accord – as if the two situations had anything in common apart from the Dollar still being the US currency – and the more hilarious ones stating that such a deal would violate the free markets principle and hinder China’s financial liberalization  – as if Beijing had not used the Yuan as a tool against its trading partners for 30 years. It is true, however, that if this pact goes through, the ECB and Asian central banks have to rethink what they are doing, ending a phase of economic history.)

 

  • The visit to Pakistan by Saudi Crown Prince Mohammad Bin Salman ended with a much-needed financial and diplomatic support for Islamabad: Just when India raised duties on all goods imported from Pakistan by 200% (!) hitting the already rock-bottom Pakistani finances, the prince announced 20 billion USD worth of investments into the country including a refinery near the Gwadar port and gas shipments. On the political front, Islamabad annnounced that it will not take action against Jaish-e-Mohammad, the militant group resposible for last week’s giant terror attack, and warned India that it would retaliate if India started military operations at the border. (What makes the situation especially dire, is that Pakistan is not a US ally anymore – in the past, Bush or Obama would lean on both sides heavily to stop before the border skirmishes turned into an all-out war.)

 

  • Just when the mainstream media was going full-speed in declaring that conservatives are crazy when they talk about the threat of socialism in the US, Bernie Sanders officially announced entering the 2020 race for Democratic nomination. (Note that he is one of the two most popular Democrats – Joe Biden is the other – and almost beat Hillary Clinton last time despite having minimal financial resources. This time, in a single day, his online followers raised him almost 4 million USD.) By American standards, at least, Sanders is certainly the far left: He campaigned with a 90% top marginal tax rate and a 52% top income tax bracket to fight inequality, breaking up large corporations and banks, raising the minimum wage, introducing universal free health care and start protectionist policies to preserve jobs. (Note that most of his 2016 ideas were mostly adopted by the Democrats since then. ) His two main disadvantages are that 1. he is already 77  2. he wouldn’t be a female president, which is kind of being a traitor these days at the Democratic party.

 

Have a nice day,

Mihály

 

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