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Patrick
Rejaunier

Equity Analyst
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Weekly market update : A pause in the upward movement

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03/11/2019 | 10:31am EDT
Monday
March 11
Weekly market update
intro
For once, the financial markets have given way last week, in the absence of significant progress on the international trade front. Traders took profits on risky assets in a context of fears about the global economic slowdown, with the OECD and the ECB revising downwards their global growth forecasts for the euro area. Poor statistics from the United States and China have also led to caution.
Indexes

Over the past week, European indices have held up best. The CAC40 and the Dax lost 0.6% and 1.3% respectively, while the Footsie stabilized.

For the peripheral countries of the euro zone, Portugal lost 1%, Spain 1.65%, Italy 1.15% and Greece 2.25%.

In the United States, losses are more significant, with -2.4% for the Dow Jones, -2.7% for the S&P500 and -2.3% for the Nasdaq100. In particular, the indices were penalized by the rise of the greenback.

In Asia, the Nikkei recorded the largest weekly decline, with -2.7%, while the Hang Seng lost 2.3% and the Shanghai Composite only 0.8% (despite -4.4% this Friday).
 
Commodities

Oil prices ended the week close to balance, while operators welcomed OPEC member countries' production cuts in a context of disruptions in some producing countries such as Iran and Venezuela. Brent is trading around USD 64.3 per barrel.

Despite a rise in the US dollar, precious metals stabilized over this weekly sequence, with their performance largely due to a return in risk aversion. As such, the price of gold remains unchanged at USD 1296 per ounce, while silver gives up some ground at USD 15.3.

Industrial metals remain under pressure and are declining over the week due to fears related to global economic growth. As a result, copper and aluminum lost ground at USD 6458 and 1841 respectively.
Equities markets

Integrated into the Asia Portfolio when it was created in July 2017, the Anta Sports share has since then achieved a qualitative track record, recording an unrealised capital gain of 81% to date.

This company, which is listed on the Hong Kong stock exchange, has acquired the Finnish company Amer Sports for 4.6 billion euros. The Nordic group is the parent company of brands such as Salomon, Atomic, Wilson, then Arc'teryx and PeakPerformance mountain clothing.

Anta Sports is the leader in the Chinese sports market and owns the Fila brand. This acquisition is in line with the current trend in Asia for winter sports, especially on the Chinese side, as the 2022 Beijing Olympic Winter Games approach, of which Anta Sports is one of the official partners. On the stock market, the Quanzhou company is worth more than 16 billion dollars for a turnover of 3.6 billion over 2018 and 4.4 billion, estimated for 2019.

Anta Sports

image
Bond market

The sharp slowdown in the monetary normalization of the various central banks, all in an environment of negative revision of economic forecasts, is pushing rates down. The American Tbond fell to 2.63% (-10 basis points), the Bund to 0.06% (see graph) and the French OAT to 0.42%. This trend is confirmed in the countries of southern Europe, such as Spain (1.05%) and Italy (2.5%), far from the 3.6% during the political tensions between Italy and Brussels.

Still marginally, Swiss bonds, over the same maturity, are trading with a negative return of -0.38%, as is Japan's (-0.04%).


Evolution of the Bund

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Forex market

The ECB confirmed that there will be no rate increases before 2020. The euro therefore experienced a notable weakness in the currency market, trading below USD 1.12 temporarily, before recovering slightly against the dollar. The greenback also rose against the Swiss franc to CHF 1.01, benefiting from the interest rate differential between the two currencies.

In parallel, traders took some profits on the GBP/USD pair trading at USD 1.31 (-200 basis points), while strengthening on the USD/JPY pair, accumulating an additional 200 basis points at JPY 112.
Economic data

The Sentix index recovered from -3.7 to -2.2 from February to March, as did the PMI service indices, which rose above 50 in Italy and France, to 52.8 for the euro area as a whole. Import prices (0.4%), quarterly GDP (0.2%) and ECB interest rates (refi rate at 0.00%) came out as expected.

This week, we will examine industrial production and consumer price levels in the euro zone (second estimate).

The non-manufacturing ISM index was a pleasant surprise (59.7 versus 57.4 expected). On the other hand, ADP job creation in the private sector was disappointing (183K) and the trade deficit widened to -59.8B (see graph). Crude oil inventories amounted to 7.1 million barrels (1.2M consensus) and weekly jobless claims to 223K. Finally, the NFP report published today shows 20K job creation compared to the expected 180K, an average hourly wage up by 0.4% and an unemployment rate that remains at its lowest at 3.8%.

Retail sales, durable goods orders, consumer and producer prices will be released next week, as well as the Michigan index. Then, as every week, crude oil inventories and unemployment registrations will be published.

Evolution of the US trade deficit

image
A pause in the upward movement

After the exceptional index-linked advances that began at the end of 2018, it seems logical that a technical break should take place in a salutary way. Nevertheless, momentum remains positive, driven by what appears to be an interruption in the FED's normalization or even tightening cycle, and by monetary stimulus measures by the Chinese government. The action taken by central banks, which has become preventive rather than curative, contributes to keeping interest rates very low, thus limiting the threat of a possible recession.

The good news on the currency front therefore softens the downside risks to global growth. It is the famous dichotomy between the financial and real spheres that highlights the expansion of equity valuation multiples (rising assets), in the face of a slowdown in profit growth (falling trade).
Stocks mentioned in the article
ChangeLast1st jan.
CAC 40 -1.81% 5281.37 Real-time Quote.13.70%
CHINA-SHANGHAI COMP -1.35% 2852.52 End-of-day quote.14.20%
DAX -1.78% 11952.41 Delayed Quote.15.25%
DJ INDUSTRIAL -1.11% 25490.47 Delayed Quote.10.50%
HANG SENG -1.60% 27250.07 Real-time Quote.7.14%
NASDAQ 100 -1.52% 7307.933464 Delayed Quote.17.23%
NASDAQ COMP. -1.58% 7628.28379 Delayed Quote.16.81%
NIKKEI 225 -0.62% 21151.14 Real-time Quote.6.34%
S&P 500 -1.19% 2822.24 Delayed Quote.14.26%

Patrick Rejaunier
© MarketScreener.com 2019
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