Market update: Stocks, oil prices edge higher, bond traders U-turn on global recession, France debates Huawei

3 Apr

by Mihály Tatár

 

Good Morning!

 

  • The sentiment remained positive ever since the topside Chinese manufacturing surprise and the upbeat comments on the trade negotations (SPX +0.00%, Nasdaq +0.25%, DAX +0.62%, Nikkei +0.91%, Shanghai +0.23%). Bond traders, who essentially priced in a full global recession this year, turned more optimistic and yields bounced higher (US 10Y 2.50% from 2.34%, Chinese 10Y yield 3.20% from 3.06%, but tellingly, investors remained wary of Germany and the Eurozone, German 10Y yield -0.05% from -0.10%). Oil prices remained well supported as well (WTI 62.80, Brent 69.80 USD – by the way, if they don’t turn lower quickly, they will push inflation higher and will give central banks a tough explaining to do. Also, an irritated Washington will have to decide whether to go after production cutting OPEC and / or renew Iran sanction waivers to countries from China to India, who just started to comply. Personally I remain sceptical all is going well in China – government stimulus can help a lot but not offset trade wars in an economy built for exports -, but the US growth is indeed constantly underestimated, and as the first rule of trading goes, never fight the trend.) The Brexit developments were also seen as positive by the market: May, instead of taking responsibility and resigning, asked opposition leader Jeremy Corbyn to rescue her (this would probably mean a softer Brexit or a customs union – driving Brexiters mad as it would mean still having to comply with the EU regulation machine and still being unable to have own trade deals with other countries. This, of course, is used to be May’s ’never-ever red line’ for the last two years), and May also announced she would seek another Brexit delay. (To which even usually reserved German politicians, somewhat understandably, completely melted down, and began personal attacks on British politicians and the entire British political system. The most polite burst was, ’There has to be a decision now – the British Parliament fails its duty’ – I guess being able to live with constant uncertainty and legal black holes is not German politicians’ strong point). Anyhow, this was seen as reduced chances of a chaotic hard Brexit, and the GBP rose (1.3150), with even the EURUSD returning above 1.12.

 

  • France seems to be trying a third way to solve the giant 5G dilemma (letting in Huawei for the enormous business advantages or keeping it out to protect national and economic security): A bill is debated that ’targets equipment instead of the maker’, namely calling for extensive cyber security vetting procedures on all network components. This sounds more subtle and sophisticated compared to what Washington is doing – , until one realizes that Berlin just underplayed these very security risks, and as we know, you can not do anything effective by introducing laws in just one EU country. (Furthermore, the Israeli intelligence, with much smaller resources than China’s, had no problems with ’massaging’ the Iranian nuclear installation softwares if anyone remembers. In reality, one shouldn’t blame Chine for doing what the NSA has always been doing – the really interesting question is why the 500-million Eurozone can not do its own super advanced G5 at a reasonable price.)

 

Have a nice day,

Mihály

 

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