Market update: Fed uncertainty dominates trading, the US should celebrate energy Independence Day

by Mihály Tatár

Good Morning!

• The uncertainty of the not bad enough US economy took a toll on risk appetite – especially with Powell’s testimony and the US inflation data coming up later this week, what if they don’t point towards the already priced in rapid rate cuts either? (SPX -0.48%, Nasdaq -0.78%, DAX -0.20%, Shanghai -0.60%, EURUSD 1.1210 with regional currencies gradually weakening further, EURHUF 324.70, EURPLN 3.256, USDCZK 22.75, and commodities turning around, Copper -0.80%, WTI 57.40, Brent 63.90 USD. Note that the financing cost indicator for everything in the Dollar universe – despite all the regulatory efforts to somehow shut it down – , the 3M Libor posted the biggest daily jump this year from 2.28% to 2.34% – in plain English, this means that the market is totally at odds what to expect for Fed policy for the second half of 2019. (And if the Fed’s policy is uncertain, what will they think about the ECB’s after the leadership change? What will Paris and Berlin tell Lagarde to do, err, sorry, what will the independent monetary council decide to do?).

• In other news, while the media was busy arguing whether Trump’s Independence Day celebration was popular or not, or whether putting tanks on display was a proof of him being an autocrat – strategists remarked that for the first time in history, the US reached Energy Independence, producing 12 million barrels of crude oil per day, becoming the top energy producer, with wide-reaching geopolitical consequences. (This is not sheer luck as many try to present it – Democrats put in a lot of effort to stop this development, with President Obama famously announcing that ’we can’t just drill our way out of the problem.’, that is, the panic about lack of affordable energy and rising gasoline prices back in 2011, when WTI as 100 USD. Who is worried about ’peak oil’ anymore?) Speaking of politics, leading Democrat Joe Biden spent the weekend apologizing for his too cozy relationships with segregationists at the time (arguing that it was then, and anyhow, he has black friends, like Obama, you know – personally I don’t think he is a racist either, because the guy doesn’t seem to have firm views on anything), losing several percentage points of popularity mostly to Kamala Harris. (She was so far the most vocal on racial and progressive issues, but sounds somewhat less crazy than socialist Bernie Sanders and feels less intimidating than Elizabeth Warren). In the meantime, Trump’s approval rating hit a record high according to even the least friendly pollsters (44% at Washington Post / ABC), and while journalists happily point out how low this number remains, remember he won an election with weaker looking numbers already in 2016.

Have a nice day,

Mihály

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