Market update: Sentiment in near-panic after the Mexican tariffs and the Chinese retaliation, Russia to abandon Maduro

3 Jun

by Mihály Tatár

 

 

Good Morning!

 

  • If you thought the US President and the trade war had a bad press, you have seen nothing yet until the Mexico tariff announcement, with shocked and raging journalists and strategists: ’This is likely to have a lasting damaging effects on business confidence’, ’global recession could start as soon as in nine months’, ’Trump is crazy, alienates every country on the planet and goes against even his own advisers’, ’this is now more than a trade war’, ’the US handles us as if we were a colony’. (Well, at least the last one is certainly not true – despite the world view of many these days, sovereign states can and will do what they want with their borders as they please. Furthermore,  remember all those important people making fun of the ’Mexico will pay for the Wall’ campaign promise? No-one is laughing anymore in Mexico. And remember, since Mexico is the second-biggest import source of the US after China, and the entry-point of many global producers and third party exporters to the US, it is pretty logical to put pressure on the Mexican government if you are serious about what you are doing. Just sayin’). That said, as if investors needed more bad news after this, China implemented tariff hikes and announced an ’unreliable firm’ blacklist, fueling further selling (SPX -1.32%, Nasdaq -1.52%,  DAX -1.47%, Nikkei -1.24%, Hang Seng -0.27%, US 10Y yield crashing to 2.12%, Gold jumping to 1312 USD). Even the Dollar weakened somewhat (EURUSD 1.1180) with some traders deciding that the question of the Fed rate cut was now settled, and oil prices kept dropping (WTI 52, Brent 60.60 USD), also reinforced by the comment from Secretary of State Pompeo that ’the US is ready to talk with Iran without preconditions’. No surprise here for regular readers, Washington began to play good cop about two weeks earlier.) Lastly, somewhat less covered, it was leaked that the US Department of Justice prepares an anti-trust probe against Google (-2%), which was commented even by the usually reserved Bloomberg as ’Google should be afraid. Very afraid.’).

 

  • While France, somewhat funnily, pressed for concessions from Fiat for supporting the Renault merger proposal (’France First’, I suppose) and Trump showed again his respect for diplomatic sensitivities by openly supporting Boris Johnson and Nigel Farage before his UK tour (note that according to the Harvard- Harris poll, Trump’s approval rating just hit a two-years high at 48% – and we know as a fact that this poll tends to overrepresent Democrats by 5%); leader of the German SPD and key defender of the Grand Coalition with Merkel, Andrea Nahles resigned. (The real question is, of course, what did it take so long – at the EU elections, SPD’s voter support halved to 16%. The only reason that stops the SPD from collapsing the government is the fear that an early elections would wipe them out – and this is not groundless, who needs a traditional Left party if Merkel already has one? It’s better to vote for the Greens.) In the meantime, according to the Wall Street Journal, Russian state defense contractor Rostec pulled back its staff from Venezuela – if true, this means Moscow is abandoning Maduro and there is a deal between the US and Russia.

 

 

Have a nice week,

Mihály

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