Market update: Bad news help stocks but oil prices collapse into bear market

by Mihály Tatár

Good Morning!

• The Fed-induced stock market bounce continued on Wednesday (SPX +0.82%, Nasdaq +0.64%, DAX +0.08%, Nikkei +0.22%, Hang Seng +0.09%) helped by the ’good news’ that according to the ADP data, the US only created 27.000 jobs in May instead of the expected 185.000 (meaning, a Fed rate cut is indeed more likely, but let’s see Friday’s monthly employment report). Oil traders weren’t celebrating, however, and with petroleum stockpiles jumping by 22 million barrels (the biggest increase since 1990), oil prices plunged again (WTI 51, Brent 60 USD, this is now officially a bear market. Who could have thought China in trouble and the US producing record amount of oil will put pressure on prices?). The Dollar was hit, too – EURUSD spiked to the key 1.13 level briefly, but traders, realizing that today we have the ECB meeting where Draghi has to react to a very different market sentiment than last month, and that the EU took the first step toward disciplining Italy over its failure to cut debt and punish it with a 3.5 billion euro fine – somehow they never tried this with France -, rather took profits and fled to their favorite bars (EURUSD 1.1230, EURHUF 321.40, EURPLN 4.276, EURCZK 25.655). (Showing how the sentiment has shifted, some strategists are now talking about the ECB relaunching bond purchases next year and the market is now pricing in a 10 basis point rate cut, to the already surreal -40 basis points level. A successful crisis management indeed, and Western Europeans will be surely very happy that they have to save even more for pensions and that housing will be even more expensive. And do these strategists really think Trump will be A-OK with an even weaker Euro?).

• As the Russian media clearly struggled to cope with HBO’s Chernobyl series (it must be an internatinal conspiracy to tarnish the image of Russian nuclear energy) and Fiat-Chrysler abruptly withdrew its offer to merge with Renault and create the world’s third-largest automaker (but this has surely nothing to do with Macron’s intervention and demands, who also found the time to clash with Merkel and other second-class EU leaders over the new EU Commission President, frustrating even the most left-leaning newspapers), the first round of the US – Mexican border negotations broke down. (Note that this topic is really important for markets: According to current polite opinion, the US aggressively imposing tariffs on Mexico – for political reasons only, and after already having negotiated a new trade treaty – is a warning that the US is unreliable and that it will hit every country it dislikes with tariffs whatever the economic costs.  In my personal opinion, the worry that the times have changed is certainly valid – but what did people expect, that the US just watches passively forever that its 2,000 miles border is run by the cartels or that China dismantles the US industry and high-tech sector by sector? How else can you make an another government behave, barring military threats?  And by the way, I never heard Western journalists complain about ’economic punishment used for political purposes’ when the anti-Russian sanctions were introduced after the Crimea conflict.)

Have a nice day,

Mihály

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