Market update: Risk avoided as traders watch India, Pakistan, and China, GBP rises, German media freaks out

28 Feb

by Mihály Tatár

 

Good Morning!

 

  • Investors remained wary as US Trade Representative Robert Lighthizer played down expectations for an immediate US-China deal, the Chinese manufacturing data – surprise – surprised to the downside and showed continued contraction, and as everyone and their grandmother watched the India – Pakistan developments (SPX -0.05%, Nasdaq +0.07%, DAX -0.46%, Nikkei -0.73%, Shanghai -0.29%, Pakistani stocks -4% since the start of the conflict.) Regarding the latter, while the market sighed with relief after Pakistani Prime Minister Khan’s speech, which called for talks and for ’better senses to prevail’ – Gold -1% – , and according to the polite opinion, ’both sides need to look strong but neither can’t afford a war’, the situation, on a longer time horizon, is actually more dire than most people think, in my opionion: Whatever the polite opinion says, India won’t and can’t tolerate a situation in which Pakistani militants can blow up 40 people at once in terror attacks and Islamabad refuses to rein them in, furthermore, Pakistan is not a US ally anymore – in the past, it was Bush or Obama who put gigantic pressure on both sides to calm down – and the conflict can quickly turn into a US-China proxy war. (Not to mention, in Asia, having your pilot captured is a huge loss of face.) In the meantime, the GBP remained the star currency (1.3350, that’s a 4.5% rally in two weeks – the EU signalled it will insist on deferring Brexit by up to two years instead the semi-honest three-month delay indicated by May), the Forint quietly strengthened further (EURHUF 316.20, EURPLN 4.316, EURCZK 25.642), and oil prices erased their Trump Tweet Drop (WTI 56.80, Brent 66.10 USD), attributed to the monster US inventory drawdawn data (-8.65 million barrels, and as US inward oil shipments fell to the lowest in 23 years).

 

  • Suddenly catching full attention, the German media reports that while the EU handled the global race for electric batteries with its usual speed, Chinese conglomerate CATL wants to build Europe’s largest car battery plant on 87 hectares near Erfurt, Germany, shocking German carmakers and politicians. (Hey, isn’t global trade and investment a non-zero-sum game? Just wonderin’). This would create a total capacity of 14 GWh per year, meaning, power 300 000 BMW i3 model electric cars (!).The eventual target being 60 GWh. German commentators – this is not me saying it, but Spiegel – watch the development ’half in awe, half in bewilderment’, as China establishes itself the primary supplier of electric car components – battery systems make up about a third of an electric car’s net added value. (Note that the talk of urgency is not missing – the EU says ’20 gigafactories are urgently needed’, and Macron wants a ’European wake-up’ on this, but the actual efforts have been minimal so far.)

 

 

Have a nice day,

Mihály

 

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