Weekly market update : Deal or No deal?
10/21/2019 | 06:01am EST
|Weekly market update
||After a positive start of the week in the wake of the "advances" made on the trade front and the hopes for a Brexit agreement, the major indices have finally returned some of their gains. The reasons for this are fears about global growth, a few disappointing quarterly results and uncertainties related to Brexit.
Over the past week, in Asia, the Hang Seng gained 1.6%, the Nikkei 3.2% while the Shanghai Composite lost 1.2%.
In Europe, at the time of writing, performance is mixed. The CAC40 recorded a weekly loss of 0.7% while the Dax won 0.8%. As for the Footsie, it lost 0.1%, as the strong growth of the pound sterling weighed on prices. For the peripheral countries, Portugal lost 0.7%, Spain gained 0.6% and Italy 0.7%.
In the United States, the Dow Jones rose by 0.4%, the S&P500 and the Nasdaq100 by 0.6%.
Oil prices lost some ground in the past week, weighed down by the downward revision of demand growth forecasts by the IEA and the EIA. Operators have also learned of a 9.3 million barrel increase in oil stocks. Brent is still trading near the USD 60 mark, while WTI's barrel is trading around USD 54.
Gold and silver have stagnated this week and are trading at USD 1488 and USD 17.45 per ounce respectively. Only palladium stands out from the precious metals segment, increasing by 3.3% over the last five days.
On the base metal side, nickel begins a breathing phase, while lead continues to advance at USD 2190 per metric tonne.
Bajaj Finance is an Indian financing company. It operates in the consumer and SME sector. Listed on the Sensex, it achieved for the umpteenth time the best performance among the components of the Indian index, with a 2019 gain of 57%.
Based in Pune, near Bombay, the company has 300 branches and thousands of distribution points throughout the country. Founded in 1987, the company has long focused on financing two and three-wheel vehicles and then cars, before going public on the Bombay stock exchange in the 2000s.
Bajaj Finance has long taken advantage of and continues to take advantage of the country's strong growth over the past 20 years, to date weighing $32 billion, the equivalent of Crédit Agricole's capitalization. Stock market performance is unreal, with an explosion in prices over the last decade, recording an average stratospheric level of 80% per year.
Evolution of the Bajaj Finance share, in annual candles
A slight recovery in yields characterizes the weekly sequence, as in the case of the American 10-year period, which goes back to 1.75%, compared to a low of 1.45%.
The trend is duplicated on European references. The Bund fell to -0.45% and the French OAT approached the symbolic zero line at -0.14%.
In the midst of "express" negotiations on Brexit, the British rate shows a certain instability (just like the pound), to be on the basis of 0.70%. Italy and Spain saw their debt increase slightly to 0.88% and 0.2% respectively.
Switzerland, for its part, collects 0.70% on its 10-year loan and Japan, which keeps a negative rate on its major maturity.
Most Forex traders place themselves mainly on the pound sterling, which has been the star of the currency market for many weeks. The British currency is soaring against all its counterparts as it awaits the House of Commons vote this weekend. The scores are flattering: +900 basis points against the yen at 140 JPY, +600 points against the Swiss franc at 1.27 CHF, both against the greenback at USD 1.286 and 350 points against the euro at GBP 0.865.
The other variations remain anecdotal, such as the EUR/USD, which is gaining ground a little, with the British advances and the Fed's hopes of a rate cut. The main exchange rate is trading at USD 1,114 USD, a two-month high. The single currency is also advancing dynamically against the yen (JPY 121), as the Japanese currency is being widely sold in this "Risk On" week on the markets.
The SNB, for its part, has lived to the English rhythm. The good news for the United Kingdom is doing its business thanks to the pound that is dragging the euro into the movement. The single currency therefore rose to 1.103 against the Swiss currency, a higher rate since the end of July.
Cable chart (GBP/USD)
Taking into account the volatility that is expected to persist, the parity could reach the upper bound (red zone) in the event of a favorable vote, or the lower bound (green zone), if the House of Commons does not approve the agreement.
In parallel with Brexit, the English unemployment rate rose only slightly despite the uncertainties, reaching 3.9% at the end of August compared to 3.8% at the end of July, its lowest level in 45 years.
In the euro zone, economic dynamics are expected to lose more momentum in 2019 and 2020. The IMF adjusted the area's growth to 1.2% in 2019 and 1.4% in 2020, compared to forecasts of 1.3% and 1.6% in June. Germany is particularly affected by trade tensions and problems in the automotive sector. Still for the IMF, with a world growth forecast at 3%, there is no room for political mistakes. The institute is pushing decision-makers around the world, particularly the United States and China, to urgently reduce trade tensions.
According to the Fed's Beige Book, the US economy continued to grow at a "modest" pace in September and early October. Companies expect more moderate growth to continue over the next 6 to 12 months.
Finally, in China, producer prices declined at their highest rate in more than three years, highlighting the need for Beijing to take additional measures to support the economy in the face of weakening demand, against a backdrop of trade pressures. The producer price index fell by 1.2% at an annual rate. In terms of growth, the Middle Kingdom continues to slow down. GDP rose from 6.2% year-on-year in the second quarter to 6% in the previous quarter. This is the slowest rate of growth since publications began in 1992.
Chinese GDP on a downward trend
|Deal or No deal?
The question applies to the two "geopolitical-economic" subjects of current concern. On the side of the Sino-American conflict, nothing is really progressing despite the many meetings. In this risky atmosphere, the surge in sanctions remains very real, with damaging consequences for global growth and therefore for financial markets.
In Europe, the suspense remains. The decision could go down in the history of the United Kingdom, with the vote or rejection of the conventional text drawn up between London and Brussels, after three years of talks.
One thing is certain, equity volatility will remain intense, as investors will have to juggle the tremors that come from political issues and the results of companies that suggest some uncertainty for 2020, reflected in business adjustments.