US Stocks started the day on a strong footing yesterday, supported by Chinese markets regaining some colors in Asia. As US markets opened, they had to cope with some initial pressure on the Nasdaq from Tesla losing 7% (and USD5bn market cap) on concerns the company is short circuiting security checks on its braking systems in order to save time and meet production targets. Later in the (abbreviated) trading session, a report that a court in China had banned chip sales by Micron Technology raised fears of tit-for-tat between the two countries and accelerate Nasdaq losses which shed 1.2%. The S&P500 also shed -0.5%. US banks exhibited the largest % losses yesterday, dropping 1.5% on average, falling further below their 50dMa and 200dMa with several major ones now nursing losses of more than 10% so far this year despite the rushed announcement last week of increased dividends and share buyback programs. Top losers of yesterday were the top losers of the day before with Mexico and Platinum both gaining 3% yesterday. Among the worst performers yesterday were Vietnam (-3.7%, -15.3% ytd) and Turkey (-2.3%, -32% ytd). Bonds were the first asset class to blink yesterday as 10-year US treasury yields fell to 2.83% (from 2.89%) in relative short order, similarly to 10 y Bunds which fell to 0.29% (from 0.33%). In absence of a major move in the dollar, Gold rallied 1%, supported by indication of building inflationary pressures as pan European PPI rose +0.8% mom (vs. 0.5% expected) and +3% ytd (vs. 2.7% expected and 2% last month). ECB Chief Economist Peter Praet said at a central banker gathering in Bucharest yesterday that the Governing Council’s new forward guidance on rates “underlines their pivotal role as the main tool for adjusting the monetary policy stance in the future”. This fell short of signaling unease at this latest data print or a reason to change the current ECB policy which remains guided to keep rates unchanged until the end of 2019. A few economists see the risk of a bigger threat, that the ECB becomes trapped in a zero-interest-rate world as the economic cycle turns down. “There is a real risk the ECB never starts hiking,” said Patrick Artus, chief economist at Natixis. “The consensus is that the ECB is right, but it could be behind the curve and you end up with zero rates for a long time.” In some contrast, while the Riksbank left its policy rate unchanged at minus 0.5% yesterday, policymakers lifted their inflation prediction for this year and next and two officials pushed for rates to rise sooner than planned. Sweden’s krona bounced 1.1% as a result. The dollar was mostly lower yesterday with EURUSD recovering to 1.1675 (from 1.1640). After dipping to USD73, oil climbed back towards $75 a barrel yesterday as a drop in global output following disruptions from Libya to Canada and Venezuela were seen outweighing OPEC production gains. Morgan Stanley increased its Brent crude forecast to $85 a barrel next year, allowing oil related shares to strengthen yesterday. Chinese markets were jolted by the verbal and possibly also state bank supported real intervention from the PBOC which lifted CNY away from the lows of the day, reducing a -0.8% loss on the currency to a -0.3% loss. This led to a relief rally in the EM space which translated into stronger currencies and equities. While encouraging, this EM rally will need to hold for more than one day to be able to draw some conclusion on the cheapness of the sector.
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