Market update: Car merger news appreciated, Italian and Chinese bad news never end, fighting intensifies in Libya, Syria

28 May

by Mihály Tatár

 

 

Good Morning!

 

 

  • Investors dutifully waited for the end of the US and UK long weekend, with the sentiment supported by Trump’s Japan visit completed without a trade clash and European stock traders liking the notion of a Fiat Chrysler – Renault merger (Eurostoxx +0.40%, DAX +0.50%, Nikkei +0.45%, Shanghai +1.02%, Fiat-Chrysler +8%, Renault +12%). (Note that this would create the world’s third-biggest carmaker, giving Renault access to North America and Fiat to Russia. It also gives investors hope that the struggling car industry doesn’t just sit passively as depressed sales, the electrification pressure and the brutally subsidized Chinese automakers hit them at once – according to Bloomberg, the 38,000 layoffs announced so far are only the beginning. As a telling sidenote, with Volkswagen’s giant battery supply deal with Samsung unraveling, frustrated analysts made the rare outburst that ’it’s one thing talking up electric vehicle numbers, building the necessary value chain remains a major challenge’). Otherwise, the newsflow was less than splendid, with the European Commission to propose a disciplinary procedure for Italy with a potential fine with 4 billion USD (you can not make this thing up – fining a major EU economy which desperately tries to fight recession – imagine if they announced this before the EU elections, Salvini would be proclaimed emperor by now, EURUSD 1.1180, Italian yields starting to move higher, 10Y 2.68%), and for the first time for decades, Chinese regulators had to take over a bank (Baoshang Bank, 83 billion USD of assets, swamped by corporate debt defaults), showing the pressure on Chinese financial markets. (By the way, the official non-performing loan rate of the bank was 1.68%. No comment).

 

  • While Merkel urged quick decision on the person of the EU Commission President (’One thing is clear, we need to be able to take action in the EU’ – the drawing lessons from an election defeat phase is skipped again), and in the UK, the political fight between Tory leadership candidates to replace May heated up (Michael Gove offered 3 million EU nationals British citizenship – altough it’s rational economically, you have to wonder if these guys have any political skills at all); the fighting intensified dramatically in Libya (in the battle for Tripoli, 100,000 fled the city, WTI 59.30, Brent 70.30 USD) and in Syria, where Russian special forces (!) were caught on camera directing a major air and ground attack on rebel positions (with Turkey desperately sending fresh supplies and weapons to anti-Assad forces so that they don’t fold.)

 

 

Have a nice day,

Mihály

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