Market update: Tariff news ensure short squeeze, investors fear Eurozone banks

by Mihály Tatár

Good Morning!

• The sudden news that the US tariffs on China regarding most consumer goods from laptops to mobile phones will be delayed until Dec 15 hit oversold markets like a boomerang, with risk assets squeezing higher (SPX +1.50%, Nasdaq +1.95%, DAX +0.60%, Nikkei +0.92%, Shanghai +0.84%, Apple +4%, Intel +3%, Caterpillar +2%, Best Buy +6%, Walmart +2.2%, WTI 56.50, Brent 60.80 USD, Copper +1.7%). (Note that the financial media narrative immediately became that ’Trump bowed to pressure from US business and economic concerns’, ’Trump blinked’, ’adults in the room gained the upper hand and stopped the suicide’. Personally, unlike journalists, it seems,  I would love to know what the Chinese side promised in return for this concession – even always-optimistic-on-China Bloomberg admits that the latest economic numbers show decelerating industrial production and retail sales, with the first signs of unemployment rising, and occasional collapse of a tier 2 bank. Since tariffs barely had the time to have any effect, this is mostly US and European companies leaving China or at least decreasing investments dramatically.) The unexpected good news was badly needed for Eurozone banks (+1.5%), which lost a whopping 22% in stock market value since the ECB easing expectations (with Commerzbank cruising along its fresh record low, 5 Euros, which compares with its 230 Euro share price in 2007. Traders seem to find the big turnaround plans as trustworthy as the ones produced by Deutsche Bank in the last 10 years – the latter now trades at 6.4 euros, flirting with its record low reached in June. Even BNP Paribas, the poster child of the ’responsible bank’, plunged by 18%. What should worry the ECB even more is that it’s not just the rate cuts that make investors hostile  – Commerzbank estimates that a 10 basis point rate cut would mean a 50 million euro lending loss, for example, which is not dramatic – but the growing impression that things will keep going South for a very long time in the business and financial environment. It doesn’t help either that Christine Lagarde – who takes over the ECB in two months – has no past as a central banker, so no-one knows who will really dictate monetary policy. But many have a guess.)  As usual, the positive trade news strengthened the Dollar (EURUSD 1.1170, with safe havens retreating, Gold -2.4% at 1500 USD, EURCHF up to 1.09, also on the market talk that the Swiss are active in trying to intervene and weaken the Franc, USDJPY 106.50) – and the Forint continued its apprecation (EURHUF 323.40 – strengthening ever since the break of the key 328 level failed miserably).

• While US traders joked and invented the new verb, ’to be Epsteined’ , and the world watched the Hong Kong drama (a clearly nervous China rejected two US warships making routine port visits – understandably they wanted to avoid any symbolic sight of US warships docking); German newspapers noted that the future of the European foreign and security policy might soon be decided in the Strait of Hormuz, as any decision will create a precedent for international EU interventions and will define the fate of the EU army. (In a pathetic way, in my personal opinion, they complain that ’Europe is caught in the crossfire of the Iran-US conflict’ – note that’s entirely the EU’s own making, nobody forced them to become a quasi ally of Iran.) Finding itself in the impossible situation of not wanting to help Trump but also realizing the long term consequences of not doing anything to protect shipping routes, Berlin now tries hard to involve Spain, Italy and Poland (!) to mitigate the political risk of any solution. To the surprise of nobody, the plan already backfired and now even France criticizes Germany and pressures Merkel to participate in a mission – France has a military base in Abu Dhabu, right on the Strait and even has functioning military assets. (At the moment, for example, none of the 53 German Tiger helicopters are allowed to fly due to ’technical faults’, this after a long series of scandals of underspending on equipment.)

Have a nice day,

Mihály

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