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Foe? (Daily Close)

Last week offered mixed blessings with the s&p500 adding 1.7%, and the Nasdaq climbing to a fresh record as well while commodity prices fell sharply. Commodities dropped, in particular oil and copper, but EM markets (currencies, bonds and stocks) rallied with the exception of Turkey where the totalitarian and the nepotistic political drift continued to weaken the currency and local capital markets. 

Last week also brought a fresh dose of Trumpetism with the US President starting the week quarreling with Nato members and blasting Germany for not contributing enough to the Nato budget (perhaps ignoring the historic reason why) and for sending billions to Russia for the purchase of Russian gas (instead of US shale oil). He ended the week meddling in UK politics, doing all he could to further destabilize UK Prime Minister May, calling B. Johnson in an interview to the Sun, ‘fit for the job’ (of Prime Minister), just days after his resignation from the May government. He then had to backpedal, holding T. May’s hand as he headed into a press conference...where he said the exact opposite of what he had said in the Sun interview the day before (namely that they get along very well and that the US and UK should and will pursue a free trade agreement. The UK Prime minister said this week end that tbe US President had advised her to ... sue the European Union. D. Trump also threatened to levy 10% tarriffs on an additional USD200bn worth of Chinese imports. Over the week end, D. Trump called Europe a ‘foe’, having nicer words for Russia (of which the world cup was indeed impeccably organized) ahead of a meeting with V. Putin in Helsinki today. Early last week, D.Trump claimed victory on the Nato Summit, opining that a spending agreement of 4% of gdp had been agreed by key contributors. This was contradicted by the subsequent statements of respective heads of state. Markets remained immune to D . Trump’s style (or lack therof) and US indices ralied further as stated above, driven by techs. The COT report suggested last Friday that, with the exception of EUR where speculators remain slightly long , a broad based long USD speculative positioning (vs. GBP and CHF, JPY, AUD) has replaced an earlier short, which coupled with a likely reassessment of Fed tightening expectations will make further dollar gains more difficult over the near term. MXN positioning has become net short as well by -12.5k contracts.

The international Institute of finance (IIF) warned last week about zooming debts in the world but spreads markets finished the week in rally mode with EUR and US HY spreads falling by 24 and 28bps respectively.  

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