Market update: Weak correction on Friday, oil jumps on Saudi tensions, German ruling coalition crushed

by Mihály Tatár

Good Morning!

• Analysts celebrated Friday’s stock bounce in the US session (SPX +1.42%, Nasdaq +2.29%), comparing it to the quick recovery and new records after February’s scary brief drop – but actually there aren’t many similarities, and Asia was already spiralling lower this morning after Trump threatened with more China sanctions (Nikkei -1.50%, Shanghai -0.78%, US 10Y yield 3.15%, Gold suddenly liked again, 1222 USD, and by the way, Libor 3M almost 2.44%).   Most currencies didn’t move much (EURUSD 1.1550 – this is a tough ugliness contest now, the slow Italian drama versus the forced closing of Euro carry trades -, EURHUF 324, EURPLN 4.293, EURCZK 25.80, helped by the stronger Turkish Lira – after the release of the American pastor, US Treasury Secretary Mnuchin was quick to talk about sanctions relief), with traders selling the Pound as the Brexit talks broke down on Sunday again (GBPUSD 1.31). The focus has been more on oil prices, with the profit taking interrupted by the rising tensions on the Khashoggi-affair: Washington warned with ’stern action’ and ’tough punishment’ in case Saudi agents indeed killed the journalist – causing a 8% crash in the Saudi stock market – , resulting in Saudi counter- threats and with anti-Saudi sanctions being the last thing the market wanted to hear, a jump to 72.20 in WTI and 81.60 USD in Brent respectively. It’s worth noting however, that 1. Trump very clearly stated that he won’t damage US interests such as weapon deliveries or military cooperation – personally I wonder if this incident will be even used to force the Saudis to pump more – 2. Arab nations, as usual, are silent amid the global media uproar and since the Saudi King called Turkish President Erdogan on the phone, a deal seems to be in place as Turkey suddenly toned down the scandal. (This is significant – Erdogan’s hate for the Saudi royal family is legendary.)

• The Germany polls were right and the German ruling coalition suffered a crushing defeat in the Bavaria state elections: The CSU dropped to 37% (from its normal 50%), with the Greens surging to almost 19%, AfD jumping to 11% and SPD collapsing to less than 10%, according to the exit polls. Political commentators, typically, quickly pointed out that this result is just as bad for Seehofer as is for Merkel, allowing maybe that Merkel’s position is weakened again. Indeed, most of the German society rejects AfD so the constant media scare-mongering about an AfD government is way overdone – to begin with, the current Eurozone system favors Germany the most, so German voters will hardly ever leave it voluntarily  -, but the discontent with Merkel’s immigration and globalist policy is huge and it has no channels to go: In the worst case, German politics may turn into a disfunctional lame duck period for several election cycles just when key decisions have to be made, like regarding Italy. (Anyone yet remembers the big plans last year to finally go full in with the EU reforms? EU Defense Force, Financial Minister, anyone? This impotent struggle is already underway in Sweden, where the Right – because of shunning the nationalist Sweden Democrats – , is unable to form a coalition to replace the otherwise completely defeated Left.)

Have a nice week,

Mihály

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