DAX Price Analysis – Trump’s Trade Wars Pummel Valuations
By Nick Cawley
US President Donald Trump’s aggressive trade tariffs continue to feed through into the market, hammering equity and risk-asset valuations sharply lower. On Monday the German automobile sector came under fire with President Trump threatening to place a 20% tariff on the sector if EU trade barriers are not removed. While the trade war situation has been around for some weeks, another hurdle for the DAX – and Eurozone risk in general – is the discord within German Chancellor Angela Merkel’s coalition government as rifts over migration widen. Germany’s interior minister Horst Seehofer has threatened to turn away migrants unless Merkel can come up with a European solution by the weekend, a stance at odds with the Chancellor. A split within Merkel’s coalition government would then be likely and force a new round of elections.
Europe News Moving the Dollar More Than U.S. Data—For Now
By Todd White
The dollar is ebbing and flowing more to developments across the Atlantic than to domestic forces, Bank of America Merrill Lynch strategists say.
They cite several examples this year where movements in the U.S. currency appear to have been powered overwhelmingly by weakness in the euro rather than by news from within its own borders. They view the dollar’s rally on the heels of this month’s dovish European Central Bank meeting, the boost it got from Italy risks at the end of May, while highlighting its virtual non-reaction to the hawkish Fed meeting, as illustrating their point.
The dollar is about to close its best quarter since the end of 2016 versus a basket of major currencies, while the euro touched an 11-month low last week as another round of Italian risk headlines hit the market.
Morgan Stanley Thinks the Turkish Lira Is Headed for Record Lows
By Constantine Courcoulas
The lira jumped more than 3 percent early on Monday as investors cheered an end to the political uncertainty hanging over markets. But with all headwinds that the economy faces still in place and uncertainty over plans to tackle them, the currency has reversed its gains and Morgan Stanley thinks it will be soon be hitting fresh record lows.
The cost of hedging against price swings in the lira over the short term has surged above long-term protection in the options market, which means traders can effectively position for a stronger lira by betting on that anomaly to reverse. There has been “decent interest” among hedge funds to position for a lower dollar-lira via options, Morgan Stanley said.
Turkish assets have been under pressure this year as President Recep Tayyip Erdogan resisted interest-rate increases that many investors said were necessary to cool an economy that relies heavily on external financing. While the central bank has raised interest rates by 500 basis points since April, Erdogan’s drive to underpin the economy has left a question mark over how committed policy makers are to an economic adjustment.
Bitcoin bounced back, but prices could fall again, venture capitalist says
By Kellie Ell | @KellieAutumnEll
- Bitcoin bounced back Monday, priced around $6,200 5:30 p.m. ET.
- But blockchain venture capitalist Spencer Bogart says bitcoin might fall again as the fund redemption cycle for many crypto hedge funds complete their one-year cycle.
- “That means forced selling on behalf of all of these new crypto funds that have popped up,” Bogart says. “I think that could take prices artificially lower.”
Microsoft given buy rating because of cloud computing growth
By Thomas Franck | @tomwfranck
- Azure has replaced Windows as Microsoft’s key enterprise offering and is set to top $100 billion in revenue over the next decade, according to Atlantic Equities.
- Analyst James Cordwell rates Microsoft stock as overweight, and his price target of $125 represents 24 percent upside from Friday’s close.
- “While Azure is not going to establish the monopoly position that Windows enjoyed, we believe it is addressing a much larger market,” Cordwell says.
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