Weekly market update : Good corporate results counter virus fears
02/10/2020 | 10:51am EST
|Weekly market update
||After a wake of concerns about the Chinese coronavirus, the financial markets were almost at their peak last Friday, following four consecutive sessions of gains. Despite an increasingly heavy balance sheet, the measures put in place by China have somewhat reassured operators, who also welcomed good statistics and company results, but also the announcement of a 50% reduction in customs duties on 75 billion US imports. A few profit-taking measures were nevertheless taken on Friday, following a mixed monthly report on US employment. Today, markets are more mixed, reflecting lingering uncertainty on the virus.
In Asia, after a catch-up effect last Monday's session (-7.7%), with the Chinese stock market having been closed for a week, the Shanghai Composite Index rebounded over the past week and thus reduced its weekly loss to 3.3%. The Hang Seng regained nearly 4% and the Nikkei 2.7%.
In Europe, the CAC40 recorded a weekly return of 3.8%, the Dax gained 4.1% and the Footsie 2.3%. For the peripheral euro-zone countries, Portugal gained only 0.4% while Spain gained 4.7%.
In the United States, the indices took advantage of strong quarterly releases to set new historical records. The Dow Jones and the S&P500 rose by 3.4% and the Nasdaq100 rose by 4.7%.
OPEC and its partners are seeking a solution to the sharp fall in prices since the beginning of the year. After a long phase of negotiations, Russia would be ready to support the proposal of the Joint OPEC Technical Committee (JTC) to lower daily production by 600,000 barrels per day in response to the spread of the coronavirus. Crude oil prices nevertheless lost ground over the past week, with Brent trading at USD 54.9 and WTI close to USD 50.7.
Traders take profits on gold (USD 1566), which tested positively for relevant support at USD 1545. Silver shows stability at USD 17.7.
Base metals rebounded on the whole week, as the markets welcomed the actions of the Chinese authorities to curb the epidemic. Copper rebounded to $5,726, as did nickel and tin at $13,010 and $16,755 respectively. Only lead is losing ground at USD 1844.
STM's stock market statistics can make you dizzy. After a very turbulent end of 2018 with fears of recession, the Franco-Italian company specializing in the manufacture of electronic chips has been on a very qualitative journey since then. The figures speak for themselves. The share is the leader of the CAC40 over a sliding year, with 116% performance over the reference period, against 60% for its semiconductor sector.
Over the last three months, the outperformance is also confirmed, with 46% against 32%.
The group was formed from the 1987 merger of Italy's SGS and Thomson Semiconductors, hence its first name SGS-Thomson, renamed STMicroelectronics in 1998 with the withdrawal of Thomson.
Its market capitalization of 24 billion euros gives it the right to rank among the twelve largest companies in its sector, with Intel remaining number one with its 285 billion dollars.
By returning massively to the stock, investors wanted to welcome the repositioning of "products", including automobiles and smartphones, as well as better management of industrial facilities, allowing it to improve its margins. The last quarter of 2019 delivered better-than-expected results. In addition, the company is very optimistic about the guidance systems for Q1 2020.
STMicroelectronics' share price rises sharply
A true bellwether, the bond market moved sideways overall. It should move higher if the epidemic does not manage to become less virulent. At the moment, it is rather stagnant, like the Bund, which is replicating the previous week's performance, with a yield of -0.38%, as is the French OAT at -0.13%.
Still in Europe, Italy, despite its political and economic fragility - which could lead to an imminent downgrade of its rating - saw the cost of its debt fall to 0.94%. The accommodating trend is being replicated for the Spanish (0.28%) and Greek (1.09%) ten-year bonds. In Switzerland, investors have to pay 0.72% negative interest when they own Swiss principal debt.
The euro remains a preferred financing currency thanks to negative interest rates. In terms of corporate issues, the recent bond issue by LVMH for 9.2 billion also demonstrates strong demand from investors.
Pressure remains on Bund yields
The Australian currency has been swinging strongly over the last few sessions, thanks to the rise in Asian financial markets. This movement is confirmed by the GBP/AUD, which loses 500 basis points in favor of the southern hemisphere currency, and by the 150 basis points gain against the yen, at JPY 73.
On the Old Continent, sterling lost ground against the dollar at USD 1.29 or against the euro (GBP 0.85). Last year's volatility may return in 2020 as discussions on the future trade relationship between the UK and the European community deepen.
Due to the outbreak in China, Singapore's central bank has signaled that it is ready to cut its base rate to support the economy. The Singapore dollar lost 350 basis points against the euro (SGD 1.525) and 400 basis points against the dollar at SGD 1.39 (see chart).
On the other hand, the single currency remained heavy against the greenback and fell back below USD 1.10. The ECB President has just stated that the current monetary policy, namely keeping interest rates low and resuming asset buybacks, acts as an effective stabilizer to support the euro zone, which is in line with the "sellers" of the European currency.
Forex traders have been shedding their safe haven positions, resulting in significant spreads such as the USD/JPY pair moving from 108.4 to 110.
Evolution of the Singapore dollar
The data released at the end of January showed that the stabilization of the economic environment in the Euro-Zone cannot be taken for granted. The December Retail Sales in Germany and the Euro-Zone's GDP growth in the fourth quarter proved to be disappointing. Figures from the leading European economy are struggling to improve. Orders placed with industry fell by 2.1% in December, after a 0.8% decline in November, a figure below expectations. The year-on-year decline totals 8.6%.
In the United States, the ISM Manufacturing Index gained 3.1 points in January compared to December, to stand at 50.9 points, signaling that activity is returning to growth. Analysts were expecting a decline to 48.1 points. The consequences of the coronavirus have therefore not yet impacted the dynamics on the other side of the Atlantic. The latter report increasingly suggests that the US industrial sector is on the right track for recovery.
The highlight of the past week remains the official US labour market report for January, as employment growth continues to be driven by service providers. The unemployment rate rose to 3.6%, but remains close to its historic low of 3.5%. On the other hand, job creation was much better than expected (225K vs. 163K expected). As for hourly wages, they rose by only 0.2% (consensus 0.3%).
|Good corporate results counter virus fears
The world's stock exchanges are positioning themselves in "over-reaction" mode. After the strong delays linked to health fears from China, the recoveries were just as dazzling. At this speed, end managers are not necessarily taking advantage of these market opportunities. It is more passive management or algorithms that deploy their powerful arsenal in order to get back on the market for a long time. It must be noted that at the slightest piece of good news, the coronavirus effect fades away. One of the sources of this dynamic recovery is also based on the good corporate results, particularly those of the index leaders.
In the United States, the tech giants remain more profitable than ever and in Europe the champions of luxury goods, such as LVMH, are breaking sales records, even if health concerns risk overshadowing the annual perfectives. Only yields on sovereign bonds, which are inevitably safe havens in the event of a surge in stress, have not recovered, proof that some investors are maintaining a very cautious bias.