Market update: Pound keeps rising on May’s wild U-turn, Forint higher after hawkish MNB, Venezuela tensions jump

27 Feb

by Mihály Tatár

 

Good Morning!

 

  • Stock traders were clearly at odds how to continue (SPX -0.08%, Nasdaq -0.07%, DAX +0.31%, Nikkei +0.50%, Shanghai -1.00%), even as Fed Chairman Powell delivered another ’we are patient message’, and this time, as strategists noted, explicitly mentioning financial markets as an input before the economy – a clear sign that the Fed’s top priority is to avoid another plunge in markets like the one in December, now that the old models failed miserably. (Where is the sound of old economics textbooks put to the fire and the new ones being printed? Dead wrong PhDs taken away? I mean, this should shock the entire profession.) Speaking of the US economy, the fresh data was quite mixed: Thanks to those hated and unfair Trump tax cuts, consumers are holding up (Consumer Confidence index jumped to 131.4), manufacturing  is still expanding – unlike in the Eurozone – but housing starts dropped 11% in December and the global slowdown is clearly weighing. This time, currency markets were much more active: The Pound surged further (GBPUSD 1.3250, from December’s 1.25) as traders got their suspicions confirmed when May announced that if her Brexit deal fails, there will be a vote to postpone Brexit entirely. (This is, of course, is the opposite of what she has been saying day and night for the last two years. You could interpret this two ways: A. Very rationally, she is trying to avoid an economic and business disaster that a no-deal Brexit would mean. 2. Bowing to commercial and political interests, she deliberately tries to sabotage Brexit, going against the will of the voters and destroying her party in the process.) The other popular currency was the Forint, as expected (EURHUF 316.50, also moving regional peers, EURPLN 4.327, EURCZK 25.63), with the Hungarian Central Bank (MNB) announcing that it is ’ready for gradual, cautious normalization’, expecting inflation to rise further in the coming quarters. (As discussed before, this normalization will be indeed gradual – a too strong Forint is in nobody’s interest and the market doesn’t expect an ECB rate hike anytime soon.)

 

  • As the Venezuelan elite began to send their children to China and Russia accused the US of beefing up special forces units around the country (to warn Maduro’s Cuban battallions and the drug-financed elite security forces?), veteran geopolitical strategist David Goldman notes that unfortunatelly, Venezuela is just following the ugly pattern of Latin American civil wars during the 20th century: These are, unlike to the media narrative of glorious revolutions, long and bloody wars of attrition (Columbia: 300,000 killed, Mexico: 1 million), as the regime buys the loyalty of security forces and causes them to commit atrocities against the general population, resulting in a terrible vengeance against regime supporters, which results in those supporters fighting to the death rather than giving up. None of America’s choices are good: No-one has the stomach to invade, occupy, and then rebuild Venezuela, and the attempts to threaten the government got nowhere because it has nowhere to retreat, and the prospective new non-corrupt elite has already immigrated (along with 10%+ of the population).

 

Have a nice day,

Mihály
 

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