Market update: Stocks and the Dollar rise, China pushes forward in Germany, Boris is on

by Mihály Tatár

Good Morning!

• The rally continued, fueled by the news that US Trade Representative Robert Lighthizer travels to China – meaning, the talks are serious and they are intensifying (SPX +0.68%, Nasdaq +0.58%, DAX +1.64%, Nikkei +0.42%, Shanghai +1.03%, WTI 57, Brent 64 USD). (To put the latest moves into perspective, ’the US shoots itself in the foot’ SPX is now 0.3% away from its historical record high, DAX is 8% off from its 2018 record high and Chinese stocks are 43% lower than their 2015 high.) The victims of the day were the tech companies – Facebook dropped 1.5%, Amazon 1% – after the Justice Department finally opened its antitrusting investigation, but that was hardly breaking news, and investors focused on China’s Beijing Automotive Group buying a 5% stake in Daimler. (Note that German automakers are essentially becoming Chinese companies. Half of Volkswagen’s sales are already in China, and BMW recently announced a joint venture with Tencent to build driverless vehicles. This can be seen either as good news – German companies won’t have capital, market share and technology issues in the global competition – or as bad news, as German cars may follow German solar panels into the grave as China builds up its own car brands in the coming decades and the German economy becomes even more dependent on Asian growth. From a trading perspective, the news was of course positive, and Daimler jumped 4%). The Dollar appreciation was relentless, partly on the trade news and partly on very high market expectations before tomorrow’s ECB meeting (EURUSD 1.1140, USDHUF 292.40, USDPLN 3.82) – after the verbal tough talk on more easing, Draghi must do something immediately to help the troubled Eurozone economy, as the narrative goes. Boris Johnson became the new British Prime Minister (little surprise here for regular readers – as argued last year, the only person in the Conservative Party who could keep voters from leaving for Farage’s Brexit Party was Boris, there was simply no alternative after May’s horror show.) It’s worth mentioning how differently his leadership has started from May’s – unlike the widely celebrated ’highly talented’ ’new Iron Lady’, the majority of the media hates him and he is portrayed as a clown (especially the European media – remember he was the first Euroskeptic conservative, critizing the EU for decades as a columnist. Once he warned of ’EU-conform standard sized coffins’ and joked about the ’EU banana police force’). Whatever your personal preferences, however, he shouldn’t be underestimated: Unlike the happless May, Johnson has good relationship with Donald Trump, and furthermore, he is aware of the fact that during the Brexit negotations, the EU successfully separated the technical exit from the EU from the security – geopolitical angle of Brexit. This won’t fly anymore (’do you want to have us pay billions of Pounds into the budget but still use the UK military as your free sea police force?’, ’still want to receive intel on terrorist cells wanting to blow up Munich? That’s not open source information’, ’is there a Russian threat or no? because if no, kiss your sanctions a bye-bye’, ’look at how great trade deals we just made with the US and China, you won’t believe it’  are only the first examples that come to mind), and get ready for a new style of negotiations if Brussels insists on the current Withdrawal Agreement.

Have a nice day,

Mihály

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