Market update: Selling continues relentlessly, tech stocks under attack, Fed hints rate cuts

4 Jun

by Mihály Tatár

 

Good Morning!

 

  • The anxious selling continued relentlessly (SPX -0.28%, Nasdaq -1.61%, Nikkei -0.13%, Shanghai -0.84%), fueled by fresh bad news in the form antitrust probes against tech stocks (Amazon -5%, Facebook -7.5%, Google -6% – this was long in the making, as discussed here back in 2017, and note that while the narrative is ’Trump declares war on tech’, which has some truth to it since they behaved as political opponents, note that most of the probes are also happily supported by Democrats), a further weakening of the US data (ISM manufacturing – still expanding but only minimally so), and Mexico talking tough before border negotations (increasing the market uncertainty and making tariffs going live more probable). Needless to say, the money kept fleeing into bonds (US 10Y yield 2.10%, German 10Y yield -0.20%), Gold (1323 USD), and commodities remained under pressure (WTI 53 USD, Brent 60.90 USD), just as Fed voting member Bullard suddenly talked about rate cuts being needed ’soon’ because of the trade war. This of course reinforced rate cut expectations and the market priced in two 25 basis points rate cuts until end of this year. Naturally, the Dollar weakend further – EURUSD 1.1250 – and you can get a feel of the mood with investing guru Druckenmiller predicting a 0% Fed rate within 18 months. (My personal view is that the fears are overdone now – to begin with, we need to adjust in terms of economic thinking, because, for example, if imports indeed drop towards the US, that will by definition lift its GDP. (Yes, of course, it also hits overseas corporate profits.) Low bond yields do not cause economic collapse by themselves. The point I am making is that you can not just look at this as a two-variables function. Also, let’s see what Beijing does when the hard working and still underpayed Chinese experience their first ever capitalist recession? By the way, did you notice that Trump just broke the Fed again regarding rate cuts, without actually removing anybody?). In this environment, regional currencies had a field day (EURPLN 4.2803, EURCZK 25.795, EURHUF 323), with the ECB/Fed both seen as easing forever and Hungary printing a monster manufacturing PMI (57.9 for May – rapid expansion, further decoupling from ever slowing Germany, 44.3, and the Euro area, where factory output fell to a six-year low.) For the same reason, Eurozone banks kept moving lower (Eurostoxx banks – down by 15% since early May, with Deutsche Bank plungig to a fresh record low at 5 euro 85 cents – an Italian village bank should finally intervene and purchase it).

 

  • While the UN found the time to attack voice assistants Siri and Alexa  ’programmed to be symbols of the patriarchy and male dominance’ (this must be a great relieve for women in Syria), and the Democratic audience booed out Democratic presidential candidate John Hickenlooper for saying ’socialism is not the answer’ – Chinese leaders were more preoccupied with the ’Malacca Dilemma’: China is the world’s largest importer of oil and natural gas, with over 82% of crude shipments and much of the liquified gas passing through the Malacca Strait between Sumatra and the Malay Peninsular. Several Chinese officials warned that the US could, potentially, start a blockade here in case of war tensions or in case a Chinese rare earth embargo went too well. (According to the Chinese state media, crude reserves are barely at 40 days of consumption – the OECD recommendation is 90 days.)

 

Have a nice day,

Mihály

 

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