Market update: Italian data relief makes Europe overperform, German bank decision looms, NATO in trouble

4 Apr

by Mihály Tatár

 

Good Morning!

 

  • While in the US and Asia, the excitement gradually fizzled out and traders took a pause (SPX +0.21%, Nasdaq +0.60%, Nikkei -0.05%, Shanghai +0.60%), in a rare sight European assets overperformed (DAX +1.70%, MIB +1.08% – the latter is a rise of 20% from end of last year), after the Italian PMI data surprised to the topside (51.5, suggesting a growth as high as zero) and the British House of Commons passing a bill by 313 to 312 to block no-deal Brexit (GBPUSD 1.3170, EURUSD 1.1240, EURHUF 319.70, EURPLN 4.29, the German 10Y yield ’surged’ to +0.01%). Note that as veteran strategist David Goldman points out, the stock market behaves as the Boeing 737 Max: An inherently unstable plane with a tendency to pitch up and stall, balanced by a software which forces the nose back down again. Only in the markets, the Fed and the ECB is the software: World trade is shrinking, growth is slowing, the pool of cheap labor is exhausted and starts to hurt profits – that’s why the markets are euphoric whenever central banks turn dovish, but panic when economic data is either too good or too bad. (Now we know that Trump seriously considered firing Fed chairman Powell in December, calling him as a ’golfer who has no feel for the game’ and the person ’who poses the greatest threat to the US economy’.) In other news, Facebook came under fire (-0.40%) after security experts discovered millions of user records sitting unsecured on Amazon.com public servers (but hey, Mark promised to protect your privacy), and it was leaked that the decision whether Deutsche Bank and Commerzbank can merge may come this weekend. (Surprising no-one, if there is a deal, the merged bank will have to raise several billion euros just to look viable. Unicredit is also ready with a rival bid for Commerzbank. Not Deutsche Bank, mind you, which has been ‘successfully’ saved and reorganized for at least 10 times.)

 

  • As Democrats desperately tried to fill the black-hole-sized political void after the Mueller no-collusion-with-Russia report with ideas like taxing unrealized capital gains (ha! just imagine) and with warnings that ’Earth has 12 years left’ if the anti- climate change policies are not implemented (sell your house!), Trump’s approval rating among Hispanics rose to nearly 50% (from 28% at the 2016 election), which tells you a lot about whether the ’there is no crisis at the southern border’ narrative works or not. In the meantime, NATO – the organization which maintained peace for Europe, altough a certain customs organization claims credit for this lately – had a bad, not good, terrible week: In a brutally strong warning, US Vice President Mike Pence told Turkey that it must choose whether it wants to remain part of NATO (or go further towards Russia and install the S-400 air defense system), and said Germany’s behavior is ’unacceptable’. (Berlin, after the usual grand promises, decided to keep defense spending as low as 1.25% for the next five years – the obligatory NATO minimum is 2% – in such a tasteless U-turn that even the left-leaning Spiegel – which can not be accused for having any sympathy towards Trump – called it ’reckless’ and ’damaging’. (Note that Germany currently can’t equip three army divisions with 20,000 soldiers – at the end of the Cold War, it had 12 on active duty). A US answer is widely expected – Donald Trump Jr. tweeted, ’with friends like these, who needs enemies?’.

 

 

Have a nice day,

Mihály

 

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