Market update: The Fed retreats, stocks extend gains, Dollar weakens

by Mihály Tatár

Good Morning!

• It seems, after all, that there is such a thing as ’Fed Chairman career risk’, and Jerome Powell delivered what the market and President Trump wanted, talking about interest rates being ’just below’ to neutral, retreating from ’long way from neutral’ a few weeks ago. (Some analysts argue that this actually a small tweak and should not be overestimated, but in reality it is the biggest about-face the US central bank has ever done absent of a major financial crisis. It doesn’t mean a dovish Fed, but it means a much more cautious Fed, and above all, its a personal victory for Trump on influencing policy.) Needless to say, the market was happy (SPX +2.30%, Nasdaq +2.95%, Apple +3.80%, Nikkei +0.40%, with only Shanghai lower, -0.40%, not liking the latest US tariff threats), and it seems my January forecast, that ’the long rally will break this year but with a lot of yoyo movemetns’ will be spot on. (For the record, a slow Fed is not enough to turn around a bear market, in my opinion.) US yields dropped (2Y 2.78%, 10Y 3.01%), and the Dollar weakened (EURUSD jumped from 1.1260 to 1.1390 – note that the painfully strong Dollar hurts interests and everyone and their grandmother are long. This week German newspapers leaked that the White House is very angry about the ’zero speed’ of the EU-US free trade negotations and is considering the car tariffs again – this made EU carmakers to drop, Volkswagen by 3.6% – which makes one wondering what Brussels and Berlin can promise to avoid it.) Regional currencies, naturally, liked the news (EURPLN 4.286, USDPLN 3.765, EURHUF 323.80, USDHUF 284.40), as did the growth-sensitive Copper (+3%), while oil prices remained under pressure (WTI 50.40, Brent 58.70 USD), not helped by another large crude oil inventory build in the US and oil traders anxiously noting that the Saudi Energy Minister was speaking about ’stabilizing prices’, without uttering the word ’cut’. (Remember when analysts were calling for 100 USD oil prices less than two months ago? The CIA’s Director didn’t even show up for the Senate hearing on the Khashoggi murder, making show-hungry lawmakers going mad.)

• Just two days after Ukrainian President Poroshenko warned of a ’full-scale war’ with Russia, the Ukranian government already looks very disappointed on the muted response from the US and especially the EU. (I am not sure what Poroshenko expected from a Union that has not even the stomach to start building an army? And is pre-occupied with internal problems like Brexit and Italy? Putin already accused Poroshenko – whose popularity is barely measurable these days – of delibaretely staging this crisis to get more attention. While we don’t know who staged what here, but if it was indeed planned by Kiev, it backfired badly, and tellingly, the biggest threat Russia received from the US was that Trump might not meet Putin at the G20.)

Have a nice day,

Mihály

If you liked the post, follow Barrelperday on Facebook!

Or subscribe to our Twitter feed or Newsletter