Market update: Stock washout continues with no lack of bad news, US – China tech war becomes public

by Mihály Tatár

Good Morning!

• Another day brought another washout for stock markets and growth assets in general (SPX -2.08%, Nasdaq -2.27%, DAX -0.86%, Warsaw -1%, Nikkei -1.72%,  Shanghai -1.43%, WTI 49.10, Brent 58.60 USD, US 10Y yield 2.85%, of course no surprise here for regular readers). To be sure, the newsflow remained negative: Democrats hardened their position on Wall funding – ’no Wall in any form’ – pushing Trump towards a US government shutdown; Trump attacked the Fed again, saying its ’incredible’ that the Fed plans to raise rates tomorrow given a super strong Dollar and low inflation (prompting many investors to wish he fires Powell and leads the Fed himself – but really, when do theoretical economists admit their simplistic models are pure science fiction?); Chinese President Xi gave a major speech but didn’t mention any specific reforms or stimulus, disappointing markets; and Britain’s Theresa May announced the final Brexit vote to be held on the 14^th of January, rewarded by Labour’s Corbyn by a fresh no-confidence vote. (One has to wonder what can happen until mid-January? Its surely not the EU’s position that will change. Even bribing enough lawmakers to avoid a heavy defeat looks tough in such a short time. By now, a hard Brexit is so much the default expectation in Brussels that the main topics these days are like how to legally organize airplane refueling for flights between the EU and the UK, and similar mundane issues.) Only currency markets remained the island of stability (EURUSD 1.1340, GBPUSD 1.2620, EURHUF 323.50, EURPLN 4.283), with all eyes on the Fed meeting, and traders disregarded even the comments of the Head of International Trade Committee of the EU Parliament (‘I remained unconvinced that the EU should enter into formal negotiations under such troubling conditions with the US’, given that the US ‘disregards our values’ and ‘must lift illegal tariffs immediately’). (Who voted for this smartie? Does he know what he is doing?).

• Michael Morell, twice acting general of CIA, notes that what we are witnessing now is less of a trade war between the US and China, and more a technology war: China began to surpass the US in several key fields (most notably, and critically, the 5G network technology) to the point that Washington and Anglo-Saxon intelligence services had to intervene immediately. (That’s why, if you ever wondered, nobody at home criticizes Trump on one thing, and that is the mobile networks issue.) According to Morell, the question who controls the enormous flows of 5G data is a dramatic national security and cybersecurity problem, furthermore, it also has vast geopolitical consequences: Which country is using which 5G standard- the more widely used technology will give an edge in further business innovations and also in signal intelligence. (He pessimistically adds that given the price sensitivity and the dependence on Chinese investments, most of Eurasia may choose the Chinese 5G).

Have a nice day,

Mihály

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