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OFFON

Patrick
Rejaunier

Equity Analyst
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Weekly market update : Dovish = Bullish

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07/15/2019 | 10:26am EDT
Monday
July 15
Weekly market update
intro
The route taken by the various indices is relatively flat. The only "first category passes" crossed are for the three Wall Street references who took advantage of an accommodating comment from the FED boss to break new historical records. In Europe, the weekly spreads are intended to be limited to the CAC40, which has systematically closed close to zero. The start of the earnings season should generate some arbitrage on the part of investors, thus creating an increase in volatility.
 
Indexes

Over the past week, the main European indices have lost ground, except for the Italian MIB which gained 1%. Stoxx Europe 600 fell by 0.8%, FTSE 100 by 0.7%, Greece by 0.5% and Spain by 0.4%. The DAX lost more than 1.8% and the CAC 40 fell by 0.4% to 5570 points.

In Asia, the trend was also negative last week. The Nikkei, on the eve of a long weekend, fell by 0.3%, the Shanghai Composite by 2.7% and the Hang Seng by 1.1%.

On the other hand, in the United States, the indices have broken new records. The Nasdaq 100 rose by 0.9% over the week, the Dow Jones by 1.1% and the S&P500 by 0.4%.


The Dow Jones is breaking through

image
Commodities

Oil prices gained ground this week, supported by many temporary factors, including the arrival of a tropical storm in the Gulf of Mexico and production disruptions in Russia. The recent increase in tension in the sensitive Hormuz Strait region also contributes to this improvement, thereby masking the more negative OPEC and IEA forecasts on the market's supply/demand balance. Brent is trading around USD 67 while WTI is trading at USD 60 per barrel.

Gold and silver rose moderately over the week, despite new records set on Wall Street. Precious metals, like base metals, are taking advantage of the decline in the dollar to appreciate. The gold metal thus evolves to USD 1410 per ounce, the silver stabilizes above USD 15 and the copper gains 1.1% to USD 5925.

On the agricultural commodities side, wheat jumped to 536 cents per bushel, boosted by the latest USDA report, which significantly lowered its Black Sea production estimates.
Equities markets

Halma: a demonstration of regularity

The company, located in Amersham, 40 km from London, has enjoyed extraordinary stock market success. Indeed, its career over the past ten years has been exceptional with 930% gains over this period. The company specializes in the design, manufacturing and marketing of safety sensors, health equipment, environmental analysis and industrial safety equipment. Sales take place all over the world and generate regular growth (organic and external) from year to year. The positive trend in activity should generate GBP 1310 million for the 2020 financial year with a net result of GBP 184 million.

Admittedly, the valuation remains tense (PER of 40x) but it is justified given the operating performance. The group benefits from increasingly strict regulations on safety, cleanliness and care, which are the basis for its development.

The graphic thrust is intended to be perfect over 10 years. The stock has seen 16 years of gains over the last 19 years, including eight consecutive years for a total valuation of GBP 7.5 billion.

Halma share's flawless journey

image
Bond market

The market rate environment has tightened slightly despite the Dovish tone of the various central bank speeches. The German Bund consolidated at -0.22%, as did the French OAT, which symbolically returned above zero yield. Spain (0.48%) experienced the same upward trend for its 10-year debt, as did the United Kingdom (0.83%).

For its part, the American Tbond stabilized at 2.1% after Powell's numerous interventions, while the Swiss debt (-0.55%) remains highly sought after by investors eager for security.
Forex market

Following Powell's accommodating speech, the EUR/USD pair has increased its rise to a peak of USD 1.128. But the bullish behavior of the single currency is being blocked because the ECB explains that the rate cut is one of the "tools envisaged to give a boost to the euro zone". Faced with numerous interventions by monetary authorities on the content of their policies to be followed, the currency market is relatively calm. Forex traders are reluctant to take directional positions. This indecision is confirmed on a majority of pairs such as the EUR/CHF at CHF 1.11 or the one including the Yen.

Still affected by Brexit, the pound sterling remains in its low zone against all its counterparts (1.24 against the Swiss franc or 136 against the yen). In London, with one euro, you can buy 0.9 pounds against GBP 0.85 a few months ago.

On the other side of the Atlantic, the Canadian currency is taking advantage of a recovery in commodity prices to gain ground, the Loonie is trading at CAD 0.76 against the greenback (-300 basis points over the last month).


Correlation between the CAD and the World Commodity Index (CRY)

image
Economic data

Investor sentiment deteriorated further in the euro zone, as evidenced by the Sentix index, which stood at -5.8 in July (compared to -3.3 previously and +0.5 expected). On the other hand, against all expectations, industrial production recovered in May to +0.9%, after a decline of 0.4% in the previous month.

This week, the ZEW index of German economic sentiment, the final consumer price index and the trade balance will be published.

In the United States, the "core" consumer and producer price indices were both higher than expected at 0.3% (consensus 0.2%). Oil inventories fell by 9.5 million barrels (-1.9M forecast) and unemployment registrations were pleasantly surprising (209K against 220K forecast).

This week will be released: retail sales, building permits, the PhillyFed index, as well as the Michigan confidence index. As every week, crude oil inventories and jobless claims will also be published. Finally, traders will be informed of Powell's speech on Tuesday and the Fed's Beige Book on Wednesday.
Dovish = Bullish

For more than ten years, the "financial planet" has been living with very accommodating monetary policies. After the 2008 crisis, which was a liquidity crisis blocking the global economy, central banks gained absolute power. Indeed, the latter have since regulated cash flow. They have acted as a safety net and are now taking preventive action to provide the doping necessary for the economy, and especially for the financial markets.

Equities benefited greatly from this cash inflow over the decade as the S&P500 appreciated by 450%, reducing volatility episodes to a strict minimum. By seeing such an addiction, it becomes logical to see investors monitoring and analyzing interventions from monetary leaders because any reductions or more pronounced normalization measures would undermine confidence and, consequently, the dynamics of risk-taking.
Stocks mentioned in the article
ChangeLast1st jan.
CAC 40 0.02% 5372.59 Real-time Quote.12.05%
CHINA-SHANGHAI COMP 2.10% 2883.1 End-of-day quote.15.42%
DAX -0.07% 11705.7 Delayed Quote.10.95%
DJ INDUSTRIAL 0.96% 26135.79 Delayed Quote.12.04%
FTSE 100 INDEX 0.28% 7234.11 End-of-day quote.0.00%
GOLD 0.51% 1503.205 Delayed Quote.17.73%
HANG SENG -0.09% 26257.38 Real-time Quote.1.69%
NASDAQ 100 1.52% 7719.323313 Delayed Quote.20.13%
NASDAQ COMP. 1.35% 8002.812313 Delayed Quote.19.00%
NIKKEI 225 0.55% 20677.22 Real-time Quote.2.02%
S&P 500 1.21% 2923.65 Delayed Quote.15.23%
SILVER 0.66% 16.983 Delayed Quote.10.59%
WHEAT FUTURES (W) - CBR (FLOOR)/C1 -1.12% 465.5 End-of-day quote.-6.46%

Patrick Rejaunier
© MarketScreener.com 2019
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