Market update: Fed-disappointment dominates, commodities drop, renewable energy overtakes coal in the US

3 May

by Mihály Tatár

 

Good Morning!

 

  • The Fed-disappointment remained the main theme (SPX -0.21%, Nasdaq -0.21%, DAX +0.01%, MIB -0.78%, Hang Seng +0.24%, EURUSD 1.1170), but trading was light before today’s US employment data and the potential  US – China trade deal. (By the way, as many noted, after Powell’s insistence that inflation will eventually come back – hence cutting rates would be a mistake -, academic economists in the US swarmed the media and reassured everyone that the Phillips curve – the supposed relationship of rising employment and rising inflation – is ’working well, is not dead, it’s just hibernating’. Yeah. For 10 years now. Have you ever seen a pseudo science cult dying in real time? In reality, it’s not so hard to tell when US inflation will finally jump: The moment wage-pressuring immigration slows down and / or Trump’s gigantic infrastructure programme or a Democrat New Green Deal is launched.)  The losers of the day were commodities – oil dropped (WTI 61.60, Brent 70.40 USD, as expected, with the Trump-OPEC uncertainty making overstretched longs an easy target), but Copper (-4%) also plunged and the China-proxy Australian Dollar depreciated to a 4-months low, which tells volumes how serious traders take the constant cheerleading about the Chinese economy. Speaking of cheerleading, Bundesbank’s Weidmann announced that the slowdown in German growth will be temporary and the economy will pick up speed after the slump. (Good to know’. German manufacturing kept falling in April and retail sales dropped 2% Y/Y in March – I still haven’t seen an intelligent analysis of what just happened with the German economy, which should be the one million Dollar question for every economist in the Eurozone. As if the entire thinking process had been killed with the buzzword ’diesel’.)  Waiting for nobody, the Czech central bank raised rates by 25 basis points (to 2%), but this was expected and the market doesn’t expect another raise anytime soon (EURCZK 25.70, EURPLN 4.285, EURHUF 324, note that Czech inflation is a mere 3%).

 

  • CNN happily announced that renewable energy was set to surpass coal for the first month ever in the US. In itself, this is indeed good news, but as usual, the revolutionary logic doesn’t seem to allow to mention tiny details: 1. This is more about the retirement of old coal power plants, the real constraints of wind and solar energy haven’t been solved yet, so that 28% of total power generation in the US still comes from coal burning, and that’s a lot. 2. The US is not really important regarding coal’s future – it consumed 700 million tons last year, which compares with China’s 4.4 billion tonnes (60% of total energy consumption, and contrary to the pro-Paris narrative, it is increasing still) and even with India’s 420 million tonnes.

 

  • Even Democrat rivals teared into Joe Biden’s recent comments about China (’they are not competition for us’, ’China is going to eat our lunch? Come on, man! They can’t figure out how to deal with the corruption that exists within the system’, auch), but it seems we have the first pro-China candidate in the US elections. The avalanche of problems just doesn’t seem to stop hitting the Democrat party – the New York Times itself reported the explosive story that the Trump campaign was indeed spied upon by the Justice Department.  (Remember that Trump was called a liar and an idiot for claiming this two years ago? Also by the New York Times.) This has terrible optics before an election, and expect counter collusion-investigations to pop up like mushrooms.

 

 

Have a nice day,

Mihály
 

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