Market update: Fed dovish but not dovish enough, US threatens Venezuela with military intervention

2 May

by Mihály Tatár


Good Morning!


  • While on Tuesday, analysts and the media were busy celebrating the ’Surprise rebound of the Eurozone economy’ (it expanded by 0.4% in the first quarter q/q, with Italy growing 0.1% and France 0.3% – just for comparison, the trade-war-and-crazy-Trump-hit, not -0.40% but 2.45% central bank rate US GDP advanced 3.2% – but nothing is wrong, keep walking), Wednesday was all about the Fed: Powell talked about a healthy economy with ’no strong case for moving either direction’ in rates, meaning, he was dovish but not dovish enough for the market which already priced in rate cuts to avoid stagnation – and offended traders ran for the exits (SPX -0.75%, Nasdaq -0.57%, EURUSD 1.12 from 1.1260, US 10Y yield 2.45% from 2.55% – one has to wonder what they were thinking with a growth like this, since when is the Fed fighting slowdown expectations?). The Greater British Peso had an unusally strong two days (GBP 1.3050) with the leaks that May and Corbyn are now very close to reaching a Brexit deal – which, naturally, includes the permanent customs union, which, if you remember, was a no-go, never, red line of May’s. (Note that according to the latest polls, less than one-third of Conservative voters see the party as pro-Brexit, and are moving towards Nigel Farage’s new Brexit party. I haven’t seen such a clear case of political suicide since Clinton’s ’Trump voters are deplorables’ speech and Merkel’s 2015 ’Europe welcomes refugees’ decision, regardless what you think of Brexit otherwise.)  Regional currencies somewhat strengthened (EURPLN 4.284, EURCZK 25.62), with the exception of the Forint, which dropped to 324.50 against the Euro as the MNB meeting (’dichotomy in inflation trends’) destroyed even the last batch of traders waiting for a hawkish cycle. (As discussed here, moving before the ECB would cause the Forint to appreciate dramatically, which is a no-go. This theme will come up again soon enough, but now we know not even EURHUF at 312 was tolerated. Average wages, in the meantime, advanced another 12% Y/Y. How long businesses tolerate this without major price increases is anybody’s guess.)


  • US Secretary of State Pompeo threatened Venezuela’s government that a military action ’was possible’. This was probably meant to intimidate the military leaders still loyal to Maduro and also Moscow, which the US now anxiously tries to convince to stop protecting the socialist utopia. (Uh, that wouldn’t come cheap. Russia and China has a lot of financial and political capital invested. And nobody really thinks the US has the stomach to actually intervene – officially, that is, CIA assets are surely busy right now. So far the latest developments look like 1 to 1: In the clashes government forces beat back the too early coup attempt, but the head of the Secret Police defected to the opposition, which is probably very painful for loyalists.) Oil traders remain focused on the Trump – OPEC relationship (Saudi oil minister Khalid Al-Falih didn’t seem to know that they agreed to increasing production, but we have seen this before), and oil traded sideways (WTI 63.40, Brent 71.90 USD).



Have a nice day,




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