Market update: Investors celebrate central bank anxiety, everyone is happy about the EC/ECB nominations but for different reasons

5 Jul

by Mihály Tatár

 

Good Morning!

 

  • Investors went through the US Independence Day celebrations in a quiet, but positive mood (SPX +0.77%, Nasdaq +0.77% – both closing at historical record highs, DAX +0.11%, Nikkei +0.07%, Shanghai +0.10%, Gold easing to 1417 USD, WTI 57, Brent 63.50 USD), as what can be more reassuring than quickly deteriorating US and Chinese macro data forcing both sides to intensify trade talks and central banks anxiously trying to stabilize the sentiment with the promise of more easing? (In the case of the ECB, the communication U-turn from ’this is a temporary growth correction, nothing to see here, keep walking’ to ’we will do whatever is necessary, cut rates and buy bonds again’ went so well that the German 10Y yield is now at -0.40%, the Italian 10Y yield plunged to 1.67% – it’s pretty hard to default in this monetary environment you know – , and Austria’s 100 year bond trades at 1%. Would you lend anyone your money at this rate, for 100 years? If yes, I give you my phone number. If the distortion and the japanification of the Eurozone economy was the goal, this is great success.) Currency markets were clearly unsure how to continue – EURUSD traded at 1.1280 before today’s US employment data and with traders buffled by the ECB’s aggressivity in undercutting Trump’s efforts to weaken the Dollar and instead weaken the Euro (don’t underestimate Trump’s resolve in this issue), the British Pound moved sideways at 1.2570 even as Boris Johnson promised to ’make UK become the greatest place on Earth’) and the Hungarian Forint fluctuated near 323 against the Euro after the first – relatively – weak data for a very long time (retail sales advancing only 2.6% Y/Y in May, instead of the usual, ’minimally 6% expansion as in China’ expected).

 

  • In a somewhat funny development, everyone seems to be very happy about the nomination of Ursula von der Leyen as the new head of the European Commission and Christine Lagarde to be the leader of the ECB, but for different reasons: The European federalists naturally see von der Leyen as one of their own (her dream is a United States of Europe), a loyal progressive (she voted for same-sex marriage, despite formally being a conservative politician) and Merkel’s extended hand (with less independence even than CDU leader Annagret Kramp-Karrenbauer). But critics are happy as well, with euroskeptics announcing that ’looking at the great job she did in dismantling the German army as defense minister, she will be good at dismantling Brussels, too’, and with fierce attacks from within Germany (’her candidacy made a mockery of any attempt to democratise the EU’, making ’the worst minister in Germany an EU leader in a political trickery’ – and this doesn’t come from far-right AfD but Merkel’s coalition partner SPD, which finally sees a good oppurtinity to distance itself from Merkel). The situation is similar with Lagarde and the ECB – she is a respected figure in mainstream finance, and even critics cynically point out that her ’relative inexperience’ in banking (she has zero banking experience), coupled with her enormous web of connections and ’flexibility’ (she was found guilty of criminal charges from the time she was the French financial minister), will be very useful at tough undertakings like dealing with Italy’s debt crisis and government.

 

 

Have a nice day,

Mihály

 

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