18.12.2019 – Daily Report. Wall Street lacks the momentum, but the indices are still just reaching new highs. Asia, on the other hand, is weakening, and there is hardly any buying mood on the Frankfurt Stock Exchange either. Turnover is low – Christmas holidays have already begun for many investors. Meanwhile, a drastic warning from the Federal Reserve about a bubble in the financial market caused eyebrows to rise.
Frankfurt without impulses
The DAX was last quoted unchanged at 13,284 points. Following the positive Ifo business climate index, the stock market indicator dampened its early slight losses. According to Helaba analysts, many market participants have already closed their books for the current year or are in the process of doing so. As a result, there is hardly any movement in the free real-time prices.
All in all, the important issues have been settled: a small deal in the customs dispute between China and the USA; the election in Great Britain plus sell the news after the announcement that Prime Minister Boris Johnson considers almost a year long enough to tie up the details with the European Union. GBPEUR recently recorded a minimal plus of 1.1773.
Drastic warning of the Fed rebel
And then there was a quite clear request to speak before a crash of the financial market. Currency guardians usually speak in riddles, but the president of the Boston Fed, Eric Rosengren, did not mince his words on Tuesday in front of The Forecasters Club of New York. According to ZeroHedge, the central banker warned that lower interest rates would lead market players to increased risk exposure and over leverage, i.e. increased trades on credit. Moreover, the Fed is not only responsible for all the bubbles to date – but for the largest ever. And that’s what’s going on now. The Fed must not only focus on inflation, but also on asset prices.
And he adds: “Low interest rates would sooner or later lead to a financial crisis. And only higher interest rates could prevent an apocalyptic end. In concrete terms: “I do have concerns about that financial stability. I would prefer probably a different level of rates.” Rosengren is entitled to vote in the FOMC and voted against all three Fed rate cuts this year. We ask ourselves: How bad must the situation be behind the scenes when a regional Fed head speaks plain language in public?
Goldman saves the zombie unicorn
In keeping with Bloomberg’s report on the subject of “excessive risk”, Goldman Sachs has provided a credit line of 1.75 billion dollars for WeWork. According to a spokeswoman, no securities were deposited for the deal, the money could be called from next month. WeWork is a real estate company that mainly leases joint offices. The company saw itself valued at 47 billion dollars in January 2019. An unlisted company with a value of more than 1 billion dollars is called “Unicorn”, i.e. a mystical unicorn. The stupid thing: WeWork withdrew its plans for an IPO; according to CNBC, the value of WeWork in September was still 10 billion dollars – the company had only collected investor money to the tune of almost 13 billion dollars to date.
Losses in Asia
Back to the Exchange. The Chinese CSI-300 lost 0.2 percent to 4,033 points in the morning. The Nikkei finished trading with a minus of 0.6 percent at 23,934 points. Trade data from Nippon caused worries: Exports of the world’s third-largest economy slipped by 7.9 percent compared to the same month last year. This was the twelfth consecutive month of declining exports.
Records and little dynamism in New York
The momentum on Wall Street has slackened off a lot on Tuesday. According to Marketwatch Dow, S&P 500 and also Nasdaq Composite closed close to new record highs. The Dow Jones Industrial gained a moderate 0.1 percent to 28,267 points at the closing bell. The S&P 500 barely closed at a measurable 0.03 percent plus at 3,193 points. The Nasdaq Composite recorded a gain of 0.1 percent to 8,823 positions. Data from industry and the construction sector were quite robust. Let’s wait and see whether the stock market sees the impeachment theater as a pretext for profit taking.
This is what the day brings
Today is the political date of the year – with potentially severe consequences for the stock market and foreign exchange. The House of Representatives is expected to vote today on the impeachment of US President Donald Trump. Opposition leader Nancy Pelosi announced only yesterday evening that the vote will take place this Wednesday afternoon (local time). However, it could drag on until tomorrow due to the floor duels. Anything but a simple majority of Democrats in the vote would be a surprise. If the democrats fail, the stock exchange might begin to a small joy jump. But if too many Republicans stab their president in the back, it’s probably a good thing. Traders should keep an eye on the US dollar, Wall Street and treasuries.
Otherwise, the Wednesday calendar is only thinly filled, you can find the overview here as always: Market Mover
The oil report is due at 4:30pm.
And at 6pm the Fed President of Chicago, Charles Evans, steps up to the microphone at the Economic Club of Indiana. Evans is a voting member of the Fed’s Open Market Committee, so his statement could move dollars and treasuries.
The Bernstein Bank wishes you successful trades!
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