Market update: Recession fears dominate, Infineon drops on China, Turkish Lira shocks even veteran traders

28 Mar

by Mihály Tatár


Good Morning!


  • Investors didn’t take well that bond markets kept pricing in a global recession with passive or easing central banks (US 10Y yield 2.34%, a two-year low, German 10Y yield  -0.08%, Japanese 10Y -0.10%, both three-year lows – hey, we are more than 10 years after the Financial Crisis, this wasn’t supposed to happen, printing money to solve your economic problems was to be only temporary), and it didn’t help that German chipmaker giant Infineon has cut its 2019 outlook citing global weakness, Chinese slowdown and especially the ’struggling Chinese car sector’.  (Infineon has 26% sales exposure to China. As discussed here last year, the perception has been that China won’t suffer too much in the trade war, the EU will get along well and the US will get hurt. The exact opposite happened. By now analysts probably became overly pessimistic – the large move in US yields is partly because bunker money is fleeing the Brexit, China growth and EU elections uncertainty,   not because global economic activity is set to collapse. That’s why the Swiss Franc is still so strong and EURCHF just dropped under 1.12 – remember it was forecasted to quickly rise and approach its pre-crisis levels – it traded at 1.60 in 2008.) Stock sellers returned (SPX -0.46%, DAX +0.00%, Infineon -5%, Nikkei -1.61%, Shanghai -0.15%), and commodities also bounced lower from the key levels (WTI 59.20, Brent 67.60 USD). (After the fact, commentators are pointing out that WTI’s discount to Brent keeps growing – as the largest Asian refiners are designed to process medium and heavy grades instead of the light American oil.) In the latest bizarre Brexit development, May promised to step down in case her party supports her Brexit deal, but got refused anyway (GBPUSD 1.3140. The world will forever remember the media’s ’New Iron Lady’ for alienating Donald Trump before the Brexit negotations, agreeing to every single EU demand, calling an election when she didn’t have to, and then campaigning with tax hikes.) In currencies, the violent squeeze of old Forint longs continued (EURHUF 320.70), the EURUSD had a hard time deciding which economy, the US or the Eurozone was worth shorting more (1.1260), but the show was stolen by the Turkish Lira, where overnight rates surged above 1000% and 2Y bond yield jumped above 20% as the central bank tried to roast speculators and essentially banned selling the Lira. (Several veteran traders noted they have never ever seen anything like this. March 31 is local election time in Turkey, so the timing is easy to understand, but the slow-motion collapse of the Turkish economy continues relentlessly.)


  • India announced that it has successfully tested its anti-satellite missiles by destroying one 300 kilometers away in space, joining the small club of the US, Russia and China. (No European country here – it’s crazy what one could achieve by spending 2.5% of GDP on defence as India instead of cheating on the NATO rules.) Commentators note that the timing was set to help Prime Minister Narendra Modi in the elections – but it was also a demonstration aimed at China (’keep supporting Pakistan, and when things get serious, we take out your entire satellite-based communication system’).



Have a nice day,




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