30Y zero coupon German bonds were under-subscribed, EUR rallies,Jackson Hole summit, G7 summit
Issued by Labis Michalopoulos, CFA
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On Friday, I was noting via the ZuluTrade blog “The European manufacturing PMI continues being below the 50 threshold, revealing a contraction of the manufacturing activity, but the number is getting higher. Germany, EU’s driving force, that invented and supports the zero government deficit policy, seems to be ready to revert to significant fiscal stimulus. (responding, in a way, to our last week’s tittle) At the European Commission level, Europe seems to be ready to create a $100bn fund for the European Technology sector, has already issued significant antitrust fines to US tech giants and is already blocking Chinese giants from bidding to EU tenders. In the meantime, current migration flows increase the European labor force. One may argue that Europe will never get rid of its ongoing political uncertainty (UK is set to leave, Spain has not managed to elect a new government, Italy is set to have new elections) that results to an ongoing downward pressure on EUR. Yet, judging from the EU government bond yields, markets are downplaying these political uncertainties, and this could potentially lead to a EUR rally.” The EUR rally has actually started.
On Friday, two hours before the expected Jerome Powell speech at the Jackson Hole summit, China announced new tariffs on $75bn worth of American goods, Trump has responded by announcing to increase the current tariff rate from 25% to 30% (starting from the 1st of October) and increase the upcoming tariff rate to 15%, instead of a 10% rate. Risk-off mode prevailed for the rest of the American session.
I am favoring long EUR trades for the next week. In my book, EUR is the most trustworthy currency, out of the special drawing rights basket, that is able to support the needed global fiscal expansion, as it has enough spare capacity to offer a return to the extra liquidity that will be generated.
Major events of last week:
- USA-China: New round of tariffs has been announced.
- G7 summit ends on Monday. Emmanuel Macron, the French President that hosts the summit has already announced that there will be no effort to come up with a formal communique signed by the participants.
- Jackson Hole summit. The worth noting parts of Jerome Powell speech is that no monetary policy can address the uncertainty produced by trade policies.
- China and Russia requested a UN council meeting to be held on the recent US Missile testing. Australia joined the US led forces in the Persian Gulf.
- EU politics. Another week has been wasted as we are approaching to the 31st of October deadline for Brexit. Polls suggest that Brexit will be voted again if a second referendum takes place.
- Protests: Protests in Hong Kong continue for the 12th week. Today protests got violent again. Meanwhile, Alibaba postponed its secondary listing in the Hong Kong Stock Exchange
Major events of next week:
- 1 year long, US sanctions on Russia are ending on Tuesday. New decisions are expected.
Issued by Labis Michalopoulos, CFA
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