Market update: Trading kept minimal before the critical Fed meeting, Trump plays down the tanker attacks, casting reality show in the UK continues

18 Jun

by Mihály Tatár

 

Good Morning!

 

  • Traders had no stomach to take risks before the all-important Fed meeting on Wednesday, altough the sentiment was supported by the New York Fed manufacturing index showing the weakest business conditions since October 2016 – ’helping’ the Fed towards the ’right decision’ (SPX +0.09%, Nasdaq +0.62%, DAX -0.09%, MIB +0.07%, Shanghai +0.28%, EURUSD 1.1230). (The Fed is really in a dilemma here: To weaken the Dollar and to stabilize market confidence it would need to cut immediately or at least promise several cuts. It doesn’t want to look weak, however, after Trump’s attacks and in light of the fact that the S&P is a mere 2% away from its record high. Unemployment is hardly alarming – 3.6%, and the economy is still pushing forward – what if it cuts prematurely a couple of times this year and in 2020 the trade war effects really show up? Personally I would give a little and then sit out.) Oil prices were under pressure again (WTI 51.80, Brent 60.90 USD), as Trump described the two recent tanker attacks as ’very minor’, and has only ordered a 1,000 troops increase to the Middle East. (Naturally Democrats freaked out – Nancy Pelosi called the buildup ’deeply concerning’ – but 1,000 troops is even minimal for a symbolic gesture. Wake me up when the B-2 stealth bombers are relocated and two more carriers groups are on the move. Clearly Trump wants to avoid an actual showdown – but it remains to be seen if he can do that, as Iran feels emboldened and now everyone from the Saudis to China are watching. Teheran warned the EU that it would breach the 2015 nuclear agreement in a few days – this of course puts the EU foreign policy establishment between the rock and the hard place, they will have to decide how low they are ready to go to support Iran. This is also true for Russia, which is fed up with it’s destabilizing ally – in an unprecedented event, US Nationa Security Advisor John Bolton will meet Israeli and Russian officials in Jerusalem June 24, you can guess which country the topic will be. Also note that the tanker attacks don’t actually endanger oil shipments to the US, as the oil sold is mainly headed to Asia and partly to Europe, so this is just a giant power play in the eyes of Washington, but looks physically dangerous for everyone else.) In the meantime, the Great British Peso kept moving lower (GBPUSD 1.2530), with the second ballott on the leadership contest scheduled – clearly conservatives and their media allies started a final and anxious effort to stop Boris Johnson becoming Prime Minister, suddenly pushing forward Rory Stewart, the international development secretary as an alternative. (You see, it’s not only he was only smoking opium and didn’t do cocaine as Boris and Grove, but he is loyally supporting May’s phantastic Brexit deal unlike potentially no-deal Boris Johnson. Boris, for his part, smartly humiliated his rivals by promising ’Fast Internet for every home by 2025’ instead of going to a television debate – note the frustrated criticism of him not being ’brave’ or lacking ’a plan’. Anyone having a public plan is already dead on arrival in Brussels.) Talking of Brussels, it threatened Turkey with freezing customs union talks over its drilling activities in the Eastern Mediterranean, which will probably result in a swift retaliation from Ankara. (But you know things are not critical yet, as neither side threatens the lucrative cooperation deal on migrants.)

 

 

Have a nice day,

Mihály

 

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