Market update: Celebration turns into anxiety with Trump threatening China, Saudi Arabia cuts US prices

6 May

by Mihály Tatár

 

Good Morning!

 

  • Markets finished the week in a warm celebratory mood after the US employment data (263.000 jobs created in April, unemployment falling to 3.6% which is a 50-years low – this was clearly not what Democrats and growth pessimists were hoping for, SPX +0.96%, Nasdaq +1.58%, DAX +0.55%), only to be hit hard later with Trump threatening China with a 25% tariff on 200 billion USD worth of Chinese goods from Friday (Shanghai -6%, SPX futures -2.2%, Nikkei futures -2%, DAX futures -1.80%, Yuan -1.3%, WTI 60.60, Brent 69.40 USD, Copper -2%, US 10Y yield 2.52%).  (In the case of oil, the move started earlier when Saudi Arabia cut June pricing for all crude grades to the US and raised most pricing to other regions. But hey, Saudi officials surely didn’t know about this last week when asked by journalists about the Trump tweet. No shock here for regular readers.) Naturally, analysts were raging that Trump is overplaying his hand with China and risks a full-out trade war for some minor concessions (’Beijing won’t make concessions with a gun pointed at its head’), while the Trump-team argued that ’this is a warning’ because China was playing for time and tried to renegotiate. (Personally I would like to point out that the Chinese are masters of inflating away the value of a deal at the last minute. Furthermore, November 2020 is quite far away still, stocks are at record high, the US economy is doing well, so that despite the endless talk to the opposite, Trump does have the luxury of time. And note nobody said anything that would make the other lose so much face that negotations can’t continue. Anyhow, the cozy certainty that this issue is solved is over.)

 

  • Somewhat pushed aside by the US-China developments, the US-Russia reconciliation quietly continued with Trump and Putin having a 1.5 hours call on world affairs. (Some strategists argue that Washington and Moscow may make a deal on Venezuela when Lavrov and Pompeo meet in Helsinki, altough note that since the government used Chinese-made ’Rhinoceros’ armored personal carriers to ram into protesters, the window of a peaceful solution is closing quickly.) The US campaign against Iran also continued, with the US sending the USS Abraham Lincoln Carrier Strike Group to the region to warn Iran after ’troubling indications’, and also a new round of sanctions against Teheran is in the making, crippling remaining exports from petrochemicals to consumer goods. (One has to wonder how long Teheran can resist this pressure, without making a big mistake Washington is waiting for.)

 

 

Have a nice week,

Mihaly

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