Market update: Traders postpone the Santa Claus rally, French manufacturing drops, both the US and EU warn Turkey

by Mihály Tatár

Good Morning!

• The traditional, year-end Santa Claus rally avoided the markets even on Friday, with the newsflow remaining one-way and negative: The US retail sales data, while positive, proved to be underwhelming (0.2% M/M); shocking European traders, the French manufacturing PMI dropped under 50 showing contraction (altough the data may be somewhat distorted); China threatened Canada again and mainstream analysts had to go so low as talking about ’weakening growth worrying investors, however a full-blown crisis is unlikely’- which is of course similar to ’Don’t panic! Keep going as you are are!’ in the movies; the liquidity evaporated in the US high-yield bond market with not a single transaction in December – this happened last time in 2007; and finally, in the UK speculation grew that a second referendum is now the only way forward – with even May warning this ’would do irrepairable damage to the integrity of our politics and democracy’. It’s no wonder traders preferred selling assets and buy safe havens  (SPX -1.91%, which is -12% from the October high or -3% for the entire year; Nasdaq -2.26%; DAX -0.54%; MIB -0.72%, Shanghai -0.30%; WTI 51.20, Brent 60.25 USD, EURUSD 1.13, GBPUSD 1.2580, EURHUF 323.70, EURPLN 4.29, US 10Y yield 2.89%. Note that despite the dovish-talking Fed, the Dollar shortage persists globally, with the 3M Libor now above 2.80% and emerging market banks on each others’ toes for Dollar deposits).

• In a rare agreement, both the EU and President Trump tried to talk out Turkey from a large military operation in Northern Syria to destroy the mostly Kurdish Syrian Democratic Forces. (The latter are the key US allies in the anti-ISIS operations, and so critical in the regional chessgame that the US even warned anti-Assad pro-Turkish militias in Syria to better stay low. There is even speculation that Trump may extradite Erdogan’s arch-enemy, Fethullah Gulen in return for Ankara’s full cooperation in the region, including in the Saudi assassination scandal, which has interestingly faded away lately.) In the meantime, tectonic political changes are underway in the Western-Chinese relationship: After France and Japan went after Huawei as well – the flagship of four decades of Chinese modernization efforts in the eyes of Beijing – more and more dominos are falling, with the US now harshly criticizing Israel (!) for letting Chinese investors purchase the Haifa port, where US navy ships usually dock.

Have a nice week,

Mihály

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