Market update: Weekend power play rattles even optimists, Iran tensions escalate, zombie Brexit walking ahead

13 May

by Mihály Tatár


Good Morning!


  • Investors finished the week in a better mood, hoping that both sides are interested in a quick resumption of the deal negotations in the US – China trade conflict  (SPX +0.37%, Nasdaq +0.08%, DAX +0.72%). That faded away quickly, however, with with the verbal power play during the weekend: China, quite unusually, made clear the three minimum requirements of a deal on its side (1. the removal of all tariffs, 2. setting concrete, and in line for real demand purchase targets for Beijing, 3.ensure the dignity of both nations, – in short, minimal changes to the status quo), which resulted in a brutal Trump retaliation (’I think that China felt they were being beaten so badly in the recent negotation that they may as well wait around for the next election (..) The only problem is that they know I am going to win (..), and the deal will become far worse for them if it has to be negotiated in my second term. Would be wise for them act now, but love collecting big tariffs!’). Needless to say, that ensured a risk-off environment immediately (Nikkei -0.70%, Shanghai -1.45%, S&P futures -1%, Copper -1% or -7% since April, US 10Y yield 2.43%). (Note that just as journalists, China has also miscalculated Trump’s leverage in the negotations. My personal opinion is that Beijing will fold – it is simply too soon for its development plans to get into a cold war with the US – but as several strategists note, we are entering a new era: In the new normal, whenever the US has a conflict with China (and make no mistake, even this trade deal will be only the beginning of many sub-, extension-, and replacement deals), it will move everything with it (stocks, commodities, world economy, border disputes from the South China Sea to Taiwan, international disputes from debt to technology).


  • Otherwise, currencies and oil prices remained glued to their key levels: EURUSD 1.1230 – traders await this week’s German growth data; GBPUSD 1.30 – in the fashion of a zombie movie, Theresa May promised to reopen Brexit talks with the EU to help her negotations with Labour, while the latest polls show that the Brexit party would collect more votes than Tories and Labour combined at the EU elections – I guess those nasty Brexiters are misleading the voters for the third time now! or so will we be told; WTI 61.60, Brent 70.80 USD – the trade war theme is offset by the sight of US military assets pouring into the  Middle East and Secretary of State Pompeo making an urgent visit to Brussels on Iran. (An Iranian commander announced that US military assets in the Gulf ’are now targets’ – as usual, the Iranians ratchet up threats hoping that at the last minute, feeling political danger, the US will walk back on actually doing something – the rumour is that what made the US very angry two weeks ago was a plot for Iranian proxies in Iraq to attack the key American Al Tanf garrisonin Eastern Syria. And this was before Saudi Arabia reporting two if its tankers damaged in sabotage attacks.) In the meantime, Pakistan secured a 6 billion USD IMF bailout (this is the 13th bailout since the 1980s – note this is actually not much money, not even combined with Saudi, UAE and Chinese ’supplements’ – 9 billion -, compared to the balance of payments crisis, but markets like it, as it is seen as a reward for Pakistan talking nice with India lately and for preparing economic reforms).



Have a nice week,



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