Market update: US stocks feel the warmth while Europe and Asia slides, May gets two weeks, Italy choses China

22 Mar

by Mihály Tatár

 

Good Morning!

 

  • Gradually digesting the development that the ’dual mandate of the Fed, price stability and full unemployment, is now replaced by easy liquidity and high asset prices’, as one strategist put it, US stocks overperformed on Thursday (SPX +1.09%, Nasdaq +1.42%), while DAX fell 0.46% led by dropping Commerzbank (-3.5%) and Deutsche Bank (-4.3%) with investors realizing this merger is more like a punishment. (The talk is closing as many as 500 bank branches, and ’cheap buy – Berlin will never let this bank fall’ investors of Deutsche Bank are now panicking). Asian stocks traded weakly as well (Nikkei -0.01%, Shanghai -0.23% – as a semi-surprise, Japanese data and the profit report of Tencent and China Mobile all disappointed). Currency traders took some profits from the Fed move (EURUSD 1.1380, re-testing the key 1.1360 level), and in regional currencies (EURHUF 315, EURPLN 4.286), but bought the GBP (1.3140 from 1.30, that is) on the EU giving May two extra weeks to get her deal approved.  (What can change in two weeks if the text can not change? That’s probably not even enough time to try to bribe enough lawmakers. Further complicating the issue, if May fails, she might request a long extension, but then the UK will have to hold the May 23 EU elections. This would be a bizarre exercise only possible only in today’s Europe and UK voters I am sure will be grateful. By the way, ’bad cop’ President Macron nicely announced that he thought there was a 10 percent chance of the deal passing, but after talking with May, he decided it was 5%. En marche!)

 

  • Despite the desperate and angry messages from Brussels and Washington, Italy signalled it will sign up to China’s Belt and Road Initiative on Saturday, the first G7 country to do so (and Italy’s state lender also got a green light to issue renminbi-denominated bonds). This comes as even Salvini warned Beijing ’not to colonize the country’ and President Xi openly calling for ’a global strategic partnership’ covering everything from ports to telecommunication. (One has to wonder what future historians and economists will think of this, why the ECB, printing trillions of euros for financial markets, never thought of financing Italian infrastructure projects.) In other news, the last ISIS stronghold in Syria has fallen (underreported, the war on Islamists moved to Africa, with US resources redirected there); and in a disciplining campaign, the US warned Turkey that it might halt the preparations to deliver the F-35 jets if Ankara goes through with purchasing the state-of-the-art Russian S-400 air-defense system (this was a red line for President Erdogan), and threatened Israel that it could reduce intelligence sharing if it does not limit its ties with China. (As a counter gesture, and to help Prime Minister Netanyahu to win the election, Trump offered to recognize the Golan Heights – probably driving Arab nations mad – but this is only a symbolic move.)

 

 

Have a nice day,

Mihály
 

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