Market update: France and German automakers warn on Car Wars, Fed minutes confirms what the market already knew

21 Feb

by Mihály Tatár


Good Morning!


  • The much-awaited Fed meeting minutes featured nothing unexpected or special (SPX +0.18% -approaching the key 2800 zone as discussed earlier -,  Nasdaq +0.03%, DAX +0.82%, Nikkei +0.15%, Shanghai -0.27%, WTI 57.30, Brent 67.10 USD). (As some strategists note, nothing special, that is,  if you ignore the fact that the when the Fed tried to very gradually roll back the historically unprecedented 4 trillion USD Financial Crisis easing in late 2018, markets panicked, making the Fed panic and stop immediately. Furthermore, the Fed’s economic models – stating, among others, that higher employment will lead to higher wages, which will lead to higher inflation – aka textbook economics – failed miserably, and there is nothing in their place. Personally I can do models just as bad for half of the money!) The Dollar appreciated somewhat with traders reminding themselves that looking at the world, the US is still the leper with the most fingers (GBPUSD 1.3030 – three Tory lawmakers, all Remainers, defected May at the worst possible time, and Fitch warned that it will cut the UK’s AA rating in case of a no-deal Brexit, altough the Spanish Foreign Minister played the good cop and talked about a potential agreement; EURUSD 1.1330 – all eyes are on today’s Eurozone PMI data, which were beyond terrible last month, and on what Draghi has to say about the ECB policy tomorrow). Regional currencies, as expected, slowly strengthened before the latter (EURHUF 317, EURCZK 25.65, with the exception of the Zloty, EURPLN 4.339, where the central bank made unexpected dovish noises. Note that the Polish inflation is a mere 1.1% Y/Y while at the same time average gross wages rise 7.5% Y/Y. You don’t see that every day, the majority of countries would kill for combinations like that.)


  • While Berlin and Brussels were in complete harmony in preparing a trade fight with the US (Brussels has drawn up plans for a first retaliation against 20 billion euros of US goods, the European Parliament’s trade committee has called for a suspension of talks with the US arguing that Trump is abusing the WTO system, and the chairman of the Bundestag’s foreign affairs committee went so far to announce ’war is war, and a trade war is a trade war’ – auch), not-exporting-too-many-cars-to-the-US France and even the German automakers themselves warned that the EU should not be overplaying his hand here. (That is, while the media narrative is that Trump is stabbing Europe in the back with the 25% tariff threat, the dispute has been coming for a long time: Europe is paying the price for building up a structural trade surplus with the US worth 170 billion USD helped by its own tariffs and by keeping the Euro undervalued. Yes, yes, Angela, German cars are good, too. In what everyone agrees on, is that the conflict came at the worst possible time (Brexit, diesel scandal and Europe struggling to keep up with China and the US on electric and self-driving cars. Personally, here I would also add the question: Why is not a single European high-tech company in the top fifteen, and only four in the top 50?) As Volkswagen’s chief made clear: The German car industry risks being toppled from its dominant position and is going the way of Coventry and Detroit if it is not careful, adding that  ’Nothing is guaranteed for eternity’.



Have a nice day,



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