Market update: The signs that the gloves are off send stocks tanking, ten year Polish euro bond yields drop negative

6 Aug

by Mihály Tatár


Good Morning!


  • ’The gloves are off’, ’get ready for the superpower showdown’ was the general sentiment on Monday (SPX -2.98%, Nasdaq -3.47%, DAX -1.80%, Nikkei -1.02%, Shanghai -2.01%, US 10Y yield 1.67%, Gold 1475 USD, WTI 53.70, Brent 59 USD, tellingly, Nvidia, the chip exporter to Asia, plunged 7%). The end-of-the-world-as-we-know-it mood only felt justified when the US formally labelled China as a currency manipulator, something it always avoided up until now. (The Dollar-Yuan exchange rate is not a small matter – even China was careful not create the impression it is striking back via the exchange rate until yesterday – just imagine the near-recession Eurozone even hit by a weak yuan induced deflation and an appreciating euro. ’Are you listening, Federal Reserve?’, tweeted Trump, and Dollar weakened again – EURUSD 1.1250 – , with traders wondering if a series of aggressive rate cuts and / or a US currency intervention was in the pipeline). The market only stabilized after the Chinese central bank fixed the Yuan below 7 per Dollar this morning (meaning, after the bad cop’s intimidation, the good cop allowed the suspect to sit down and think again), and short sellers took some profits (SPX futures +0.50%, WTI 55.30, Brent 60.50 USD). Note that the prospect of the trade war starting in earnest instead of being resolved – giving the ECB a good reason to ease forever –  has sent euro yields even lower (German 10Y yield -0.53%), to the point of the 2029 Polish euro bonds trading at a negative yield. (Think about this for a second: Not so long ago, even before the financial crisis, Poland was considered a second tier economy and this yield was near 10%. How times change. It also shows the level of distortion created by the ECB.) Regional currencies, for their part, continued their gradual depreciation (EURPLN 4.3176, EURCZK 25.815), with the exception of the Forint (EURHUF 327), where powerful hands seem to have helped the pair to avoid going through the key 328 level and head towards the sensitive 330 rate.


  • Somewhat pushed aside by the Sino-US trade war, there were several other international developments as well: President Trump announced total economic embargo on Venezuela (apart from freezing all assets and sanctioning economic activity, it also opens the door of sanctioning foreign companies and individuals assisting it, essentially putting Venezuela next to Iran and North Korea). Mostly ignored by the European media, the trade war between South Korea and Japan escalated to the point that the South Korean President went so far to argue that only  ’the two Koreas together can overcome Japan’s economic advantage’, and ’Japan can’t block our economic development’ during a speech. (Yes, he did say that). The protests and violence continued in Hong Kong – with even airport workers going on strike and the city state’s leadership pleading with Beijing to not send in the People’s Army. (So far they seem to listen – nobody wants to destroy Beijing’s image as a responsibly acting power – but I guess the patience lasts until the first lethal attack on Chinese personnel).



Have a nice day,



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