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OFFON

Patrick
Rejaunier

Equity Analyst
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Weekly market update : It's up to the Fed

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07/08/2019 | 10:40am EDT
Monday
July  8
Weekly market update
intro
The poor statistics released this week in Europe, China and especially in the United States have maintained risk appetite among traders who are betting on a cut in Fed rates in July. The indices benefited unanimously, most of them setting new annual or historical records. However, the contrasting monthly US employment report published on Friday does not seem to argue in favor of immediate action by the Federal Reserve.
 
Indexes

Over the past week, the financial markets have consolidated without any real intensity.

In Asia, the Nikkei gained 0.77%, the Shanghai Composite gained 1.08% and the Hang Seng 2.2%.

In Europe, the CAC40 was awarded 0.9%, the Dax 1.2% and the Footsie 1.9%.

For the peripheral countries of the euro zone, Portugal recovered 1.3%, Spain 1.6%, Italy 3.6%, and Greece 1.4%.

In the United States, the major indices have set historical records. The Dow Jones is up 0.5% over the week, the S&P500 is up 0.9% and the Nasdaq100 is up 1.3%.

A historical resistance looms

image
Commodities

Oil prices remain under pressure despite continued global supply adjustment actions by OPEC and its allies, including Russia. The enlarged organization effectively announced, at the end of its last summit, a nine-month extension of their production reduction agreement to support prices.

Nevertheless, traders are concerned that global demand for crude oil may be affected by a weaker economic outlook. The WTI fell by 3.3% to USD 56.4.

Despite the strength of the greenback, gold stabilized above USD 1410. The money on the other hand is giving up ground at USD 15.2 per ounce.

The same is true for industrial metals, which fluctuate with the fluctuations of the dollar. The sub-fund as a whole is thus declining. Zinc thus registers annual lows near USD 2440, while the price of copper continues its stabilization trend at USD 5900.
Equities markets

JD Sports Fashion

The British sportswear distribution company, which has its headquarters near Manchester, is the best performer in the FTSE100 over 2019, with a gain of 78%. Admittedly, its valuation remains one of the lowest in the UK index, with only GBP 7.5 billion, but its intrinsic quality was identified last year by the tool developed by Surperformance, the Stock Screener.

Since this discovery, the value belongs to both the Europe portfolio and the Europa One fund, in which latent performances are significant. A real growth value that is reflected in its turnover, which rose from £2.3 billion in 2015 to an anticipated £5.7 billion in 2019.

At the same time, the financial situation is expected to be healthy, regularly supplemented by upward revisions of its profitability objectives.

JD Sports Fashion is 58% owned by the Pentland group, another British company that owns other brands such as Ellesse or Speedo.

Evolution of the JD Sports Fashion share price

image
Bond market

Lower yields continue to prevail in the interest rate market. The French government has just issued a 10-year bond on a basis of -0.13%, a new record, just like in Germany, where the Bund is trading at -0.40%.

All sovereign debt benefits from investors' enthusiasm for security. The Spanish reference falls to 0.24%, that of Portugal to 0.32%, and in Italy, whose budget could be in line with the forecasts for 2019, where the rate falls to 1.6%.

Swiss securities, on all maturities, remain highly sought-after and the ten-year period is trading at -0.68%. Across the Atlantic, the American T-Bond stabilized at 1.94%, a few points lower than the debt... Greek at 2%.


Evolution of the T-Bond

image
Forex market

In an environment of falling interest rates, currencies move without much erratic movement.
The Euro is nevertheless experiencing a slight weakness, after Mario Draghi admitted that the decline of the single currency was a monetary policy tool. The EUR/USD exchange rate is trading at USD 1.12, a three-week low.

The British pound is stabilizing at its lower levels, like the cable which is trading at USD 1.26. The Canadian dollar is benefiting from the rise in commodities, including gold, to recover in value against its counterparts. The CAD/CHF gained 200 basis points to CHF 0.76.

More volatile currencies such as those of emerging countries are progressing against the greenback, the Brazilian real is trading at USD 3.81 against USD 4.1 a month ago. The ruble is trading at 63.5 units for one dollar against 65.5 two weeks ago. Finally, the Turkish lira recovered to 5.6 to one dollar from 6.15 in April.
Economic data

Retail sales and the producer price index came out below analysts' expectations last week in the euro zone, at -0.3% (consensus +0.4%) and -0.1% (consensus +0.1%) respectively. The PMI services index did slightly better than expected (53.6 against 53.4 expected), as did the unemployment rate, which rose from 7.6% to 7.5% in May.

This week, only the Sentix Index of Investor Confidence and Industrial Production will be published in the Euro-Zone.

In the US, the statistics were generally disappointing. The ADP job creation index, expected at 140K, came out at 102K. The trade deficit widened further ($55.5 billion, up from $51.2 billion previously). Industrial orders (-0.7%) and the ISM PMI Services Index (55.1) declined. Only the ISM PMI manufacturing index surprised pleasantly by dropping less than expected (51.7, against 51.3). The employment report was mixed. The unemployment rate rose to 3.7% (3.6% previously) and the hourly wage increased by only 0.2% (consensus 0.3%). Nevertheless, job creation was much better than expected, at 224K (162K anticipated and 75K last month).

Consumer price and production indices will be released this week, with crude oil inventories and jobless claims as usual.
It's up to the Fed

All operators were focused on employment data. The job market is dynamic, in contradiction with recent statistics on activity in the United States showing a real slowdown. The Fed will have to decide whether or not to apply, at the end of July, a rate cut that has been discussed at length.

The reactions of the major central banks remain the catalysts of the financial markets in the broad sense, since last June, all assets experienced an upward trajectory based on accommodating rhetoric.

Nevertheless, the summer may be hot on equities if expectations, largely integrated into current prices, are not met. For the time being, it has to be said that the market is still on a bullish trend. Surprisingly, however, the trend also remains positive on defensive assets, such as sovereign debt and safe-haven stocks. A real market divergence!
Stocks mentioned in the article
ChangeLast1st jan.
CAC 40 0.26% 5567.02 Real-time Quote.17.37%
CHINA-SHANGHAI COMP 0.79% 2924.2 End-of-day quote.17.07%
DAX 0.24% 12289.4 Delayed Quote.16.39%
DJ INDUSTRIAL 0.07% 27171.9 Delayed Quote.16.48%
FTSE 100 INDEX 0.28% 7234.11 End-of-day quote.0.00%
HANG SENG -1.52% 28351.04 Real-time Quote.9.69%
LME COPPER CASH 1.98% 6066 End-of-day quote.3.89%
LME ZINC CASH -2.02% 2427 End-of-day quote.-1.42%
NASDAQ 100 0.90% 7905.119269 Delayed Quote.23.77%
NASDAQ COMP. 0.71% 8204.137338 Delayed Quote.22.78%
NIKKEI 225 -0.23% 21416.79 Real-time Quote.7.26%
S&P 500 0.28% 2985.03 Delayed Quote.18.74%

Patrick Rejaunier
© MarketScreener.com 2019
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