Market update: German stocks underperform, Pound sinks as Johnson and Hunt clash

by Mihály Tatár

Good Morning!

• Trading remained quiet ahead of the Fed and inflation developments with nobody wanting to end up on the wrong side of monetary policy (SPX +0.12%, Nasdaq +0.54%, Nikkei -0.04%, Shanghai +0.12%, EURUSD 1.1210). The notable exception was the DAX, which fell 0.85%, pulled down by German chemical giant BASF dramatically cutting its earnings outlook by 30%, citing economic weakness and the trade war (is there anything currently going well in Merkel’s economy? But surely diesel car sales are dropping as intended), and Deutsche Bank plunging 12% since the announcement of the ’reorganization’. (As discussed here, while the CEO talked about the necessary steps taken for a bright future, the classic line from the Vietnam war comes to mind (’we had to destroy the village in order to save it’.) The Great British Peso depreciated further against the Dollar (1.2450) as Prime Minister hopefuls Boris Johnson and Jeremy Hunt clashed on television. (With Boris insisting that he would leave the EU in October whether there is a deal or not, Hunt warned again that a no-deal Brexit would be a disaster and he has a plan to avoid it – I think all the Brexiters know what that plan really is – , and lectured his rival that a Prime Minister needs to tell people what they need to hear and not what they want to hear. I think he thought this was a wise line, but in this political climate this was rather insulting, and most of the voters probably rather wish politicians hear what they need to hear and not what they want to hear.) The Hungarian CPI figures came in as lower than expected (Y/Y 3.4% for June after May’s intimidating 3.9%), but the Forint remained disliked along with regional currencies (EURHUF 325.80, EURPLN 4.2670, EURCZK 25.56, on the sentiment that a fresh ECB easing will postpone montery tightening in these countries ’into the next century’. It’s not that everyone is unhappy: over-indebted Italy, for example, became super active and prepared another round of debt selling, including a nice 50 year bond with a coupon under 3%. No comment.)

• As the European media focused on the climate catastrophe unfolding (according to the largest Hungarian online newspaper, for example, the real reason of the Syrian war is the fight for drinking water – that’s good to know, I naively thought Russia intervened because of its geopolitical interests), and China was rather busy humiliating 80-billion-USD-a-year US signal intelligence by developing quantum encryption technology instead of burning less coal, quite underreported by the media was the brutal crackdown on illegal immigration: Soldiers were raiding hotels, buses and trains to round up migrants, creating scenes of weeping mothers and teenagers thrown into police vans and overflowing detention centers – all the while the popularity of the President increased. I am talking about, of course, Mexico (what did you think?), where, contrary to the mainstream media, the majority was less than happy with the human caravans flowing in from Central America and the problems they created. (Also, Mexico took Trump’s threat, that if they don’t control their border, they will pay for the Wall –  in the form of job and economy destroying tariffs –  very seriously.)

Have a nice day,

Mihály

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