Market update: Oil price fears jump to the forefront, the US – Germany conflict turns serious

by Mihály Tatár

Good Morning!

• The slide lower continued on Wednesday (SPX -0.20%, Nasdaq -0.38%, DAX -0.33%, Nikkei -0.56%, Hang Seng -0.86%), as the profit taking continued with no trade deal or Fed developments, and investors watched oil prices plunging ever lower (WTI 50.90, Brent 59.80 USD). (The latest move was attributed to US stockpiles increasing by 2.2 million barrels instead of dropping by the forecasted 0.5 million – but this was just an excuse to sell again, mind you, in the ’resilient Chinese economy’, car sales have been falling for 12 straights months – and yesterday the data came out that in May they dropped a brutal 12.5% Y/Y. The analysts predicting 90 USD+ crude oil prices are now of course in hiding, and the market seems to be very afraid of the WTI falling towards the psychological 40 USD levels, as it wouldn’t bode well for the massively overleveraged high-yield energy bond market.)

• In a development that will be probably discussed by history books later as a dramatic escalation, Trump threatened that the Nord Stream 2 pipeline will be hit by US sanctions and that he will send 2,000 additional troops to protect Poland, shifting them from Germany.  (This is quite a message – Berlin’s latest backtrack on defense spending promises weren’t unnoticed, as discussed here at the time, and note the sanctions bill is actually bipartisan in Washington. In exchange Poland announced purchasing an additional 8 billion USD of LNG on top of the 25 billion USD already agreed on. By the way, you have to be really cruel not to see the irony here – the German foreign minister goes to Iran during the weekend and tells the Iranians that Berlin will help them circumvent the sanctions, and then the European mainstream media freaks out that Trump is just so nasty with Germany. Also note that as things stand now – Poland purchasing F-35s while Germany refusing to do so – would mean Poland soon having a more superior air force than Germany. Think about this for a minute.)

Have a nice day,

Mihály

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