Market update: Selling continues, Chinese data disappoints while EU cuts growth forecasts, US military buildup continues

8 May

by Mihály Tatár


Good Morning!


  • The selling continued relentlessly (SPX -1.65%, Nasdaq -1.95%, DAX -1.58%, Nikkei -1.76%, Hang Seng -0.70%, Apple -2.75%, farm equipment and semiconductor producers – the most sensitive industries -, -2.2%, with safe havens rising, USDJPY 109.90, Gold 1287 USD, US 10Y yield 2.45%), and adding insult to the injury, amid the trade war panic the newsflow also remained purely negative: 1. China was said to prepare retaliatory tariffs (altough note it called for dialog and said nothing hostile), 2. Chinese exports ’unexpectedly’ (not for regular readers, that is), dropped another 3% Y/Y, instead of rising as forecasted, and according to Bloomberg, bond defaults are approaching record high, 3. the EU cut its growth outlook for the Eurozone and especially for Germany (2019 prediction slashed from 1.1% to 0.5%, ups), while German factory orders plunged 6% Y/Y in March. The latter resulted in German yields dropping to negative territory again (-4 basis points, hey, aren’t we 11 years after successfully overcoming the crisis? Where would it be otherwise?). Needless to say, oil prices remained under pressure (WTI 61.80, Brent 70.30 USD), with the 200-day moving average bought by bullish hedge funds who argue that stale longs have been cleared out by now and the market underestimates the geopolitical risks. Regarding the trade war, veteran strategis David Goldman points out that despite the screaming of the media about ’crazy Trump’ who ’plays from his book, The Art of the Deal again’, neither Trump nor Xi is interested in an ’easy’ deal. Trump kept his reality show viable for an unheard-of fourteen seasons by studying his ratings in depth and making careful steps to correct any weaknesses. Furthermore he is under pressure to be more hawkish on China from the Left, by Chuck Schumer and Bernie Sanders who accuse of him being weak on Beijing. (But we are all free traders, aren’t we.)  He needs the drama. Xi, on the other hand, struggles with economic reforms and deleveraging at home as it hurts powerful interests. Pointing at the US would make them a much easier sell.


  • While Brussels was extremely busy with the political horsetrading (who will be the next EU Commission President? The EU Parliament and Council President? Above all, the ECB President? All these nice jobs are replaced by the end of this year), US Secretary of State Mike Pompeo unexpectedly cancelled his visit to Merkel and made an unscheduled trip to Baghdad, to talk about the ’increased Iranian activity’. The details are unknown yet, but the talk is that Iran was planning strikes on US targets within Iraq. (The US military buildup in the region is still ongoing with long-range bombers and special forces added to the Abraham Lincoln strike group, and note the John Stennis carrier group is also only six days away from the Gulf). Naturally, this humiliated Berlin, not only because the EU spent most of the week by supporting Teheran – which, by the way, is distancing itself from the nuclear accord – , but also because the German-US relationship is even worse than it looks, and is at its deepest point ever since the post-WWII world order. (There were even voices in Berlin calling for the expulsion (!) of US ambassador Richard Grenell, whom the vice president of the Bundestag accused as acting ’as a high commissioner of an occupying power’. Given that Berlin’s strategy for the US was simply to win time until impeachment or until 2020 when ’Trump magically disappears’, by now a lot of tensions have built up in both sides.)



Have a nice day,



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