Market update: Italian stocks, bonds hammered on election news, UK growth and German exports keep falling

12 Aug

by Mihály Tatár

 

Good Morning!

 

  • The sentiment remained poor (SPX -0.66%, Nadaq -1.00%, DAX -1.28%, Hang Seng -0.12%, Copper -0.62%, post-verbal intervention WTI 54.30, Brent 58.40 USD, with the spread becoming the narrowest in a year): Only negative noises were coming from the trade conflict (with the Hong Kong protests Beijing clearly wants to avoid any sign of weakness, and the state media fantasized about leaving the trade talks entirely – good luck, it would be like Berlin banning car sales), and the economic data coming out from Europe remained terrible: The UK economy contracted for the first time since 2012 (-0.2% Q/Q, resulting the Great British Preso to collapse to 1.20 against the Dollar, testing the Brexit referendum low) and German exports crashed 8% Y/Y with the French growth expected to be a mere 0.2% Q/Q. (Hey, Trump didn’t even announce his trade decisions on the EU yet! That is due in November). That said, the news of early elections rather made Italian markets the victims of the day (MIB -2.48%, Italian 10Y yield 1.81% from 1.50%, Unicredit -5% even reaching a fresh record low,  Intesa -4%). (Note that the financial media commentary is that this development will hit ’complex negotations for next year’s budget and freeze reforms Italy desperately needs’, but in reality, with Salvini polling around 40% in total, traders price in a ’Boris mode’ , a Rome which stops caring about the previous rules and sensitivities.) On a more positive note, Fitch upgraded Russia’s rating to ’BBB’, which will probably be followed by the other agencies – this was mostly already priced in, with the Russian stock market having rallied 14% since May. (If I had received only one Dollar for every time a Western analyst forecasted the collapse of the Russian economy since the 2014 Ukranian crisis, I would be a billionare by now. The story is not unsimilar to the psychology of the Hungarian rate setting, where it took married-to-their-view agancies almost five years to catch up with the market.)

 

  • The news cycle of the weekend was truly ’new normal’: As even the most vocal opponents of conspiracy theories wondered in disbelief how conveniently Jeffrey Eppstein hanged himself before causing trouble for his powerful clients – despite being on suicide watch in prison; Democrat Presidential candidate Kamala Harris described US border agency raids as ’campaign of terror’ (clearly she never lived in a country where explosions are a daily occurence); and the British social media went mad after Indian-British viewers attacked the ’hypocrisy’ of the BBC for describing Kashmir as ’Indian-occupied’, wondering why it never calls Northern Ireland ’British-occupied’. (Auch, that probably hit a nerve. And from another angle, note that the BBC also got into consistency trouble when warning that India was sending in Hindu settlers into the Muslim majority regions – aren’t they a great way to culturally enrich and diversify Kashmir by immigration?). Anyhow, on a more serious note, the Saudi-led Yemeni coalition fractured with Southern Yemeni seperatists storming the Presidential Palace in Aden (’it’s all over’ as one official described the coup, which will soon lead to a third front in the Yemeni war), and the South Korean – Japanese security alliance almost collapsed with the two countries, mired in trade and political conflict,  stopping intelligence-sharing. (Unless the US puts order in the house soon, this will only keep going South, resulting in rising economic and geopolitical uncertainty in Asia).

 

 

Have a nice week,

Mihály

 

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