Market update: Washington proposes tariffs on EU products, Saudis walk back on threats amid gigantic bond sale

9 Apr

by Mihály Tatár

 

Good Morning!

 

  • Trading started in a muted fashion on Monday (SPX +0.10%, Nasdaq +0.19%, DAX -0.39%, Nikkei +0.09%, Shanghai +0.60%), with investors waiting for ’Super Wednesday’ (ECB meeting, US inflation data, Fed meeting minutes on the same day), and watching the gigantic Saudi Aramco bond sale. (10-15 billion USD worth of 3-30 year papers on offer, with an orderbook already past 75 billion USD – hey, supposedly the country is ’isolated’ after the Kashoggi killing, according to the media. Note that the other media pet story – that Saudi Arabia threatened to sell oil in currencies other than the Dollar if the US enacts its anti-OPEC legislation – was denied by Riyadh. (The speed of the denial is probably not unrelated from the bond issuance, of course. But note that even if the Saudis ever made this threat privately, the kingdom is totally depending on the US for its security and its regional wars. Just recently, Riyadh has spent 15 billion USD to purchase the US THAAD missile defense system against an Iranian strike. If, however, a future, more Obama-like president manages to alienate Saudi Arabia, invoicing in euros and yuan instead of Dollars would weaken the USD and the Dollar-system drastically.) Currency traders focused on May heading to Berlin and Paris (GBPUSD 1.3090, as one British lawmaker put it, ’crawling on her hands and knees for another delay’, while the German noises that the entire, aggressive EU Brexit strategy was a disaster, became lauder as well, with Günther Verheugen warning that by dictating fundamentally unacceptable terms to London, the EU risks forever losing a member state and ally with the economical weight of 20 member states. Others pointed out that the UK is the second largest market for German car exports, for example – the aggregated trade balance figures between the EU and the UK are quite misleading). In a rare sight, the Euro strengthened somewhat against the Dollar (EURUSD 1.1270, probably on Trump’s pressuring the Fed), but the move stopped overnight when Washington proposed tariffs on EU products ranging from helicopters to wine and motorcycles in the tune of 15 billion USD. (This is not even part of the infamous auto-conflict: The US has been complaining for 15 years about Airbus’s EU subsidies, and, according to US trade tzar Robert Lighthizer, ’the US has now lost its patience’, with the EU negotation tactic.) Regional currencies slightly strengthened (EURHUF 321.10, EURPLN 4.287, EURCZK 25.62), with traders wondering how dovish the ECB will sound and as the macro data so far shows no signs of the ’German crash’ (Hungarian retail sales rose 8.4% Y/Y, industrial production 5.9% in February, Polish retail sales advanced 6.5% and industrial sales 6.9%, and even the Czech industrial output rose 1.5% Y/Y while retail sales jumped 5%. Interesting way to slide into recession. It’s either that the time lag of the German slowdown on the CEE region is much longer than many presumed, or the general presumptions on how the German economy and its regional supply chain works are all dead wrong.)

 

 

Have a nice day,

Mihály

 

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