Weekly market update : The market is resilient
01/13/2020 | 10:32am EST
|Weekly market update
||The geopolitical tensions between Tehran and Washington, with the assassination of an Iranian general and then the firing of missiles on American bases, did not cause panic in the end, and the indices have registered new highs this week. This brief period of nervousness was followed by a renewed appetite for risk, with operators rejoicing that an escalation of the armed conflict is not in the cards. Oil and gold, which had risen sharply in the wake of these events, are falling back and calm is returning to the financial markets.
Over the past week, most of the major indices have picked up, such as Wall-Street, which continues its record-breaking run. At the time of writing, the Dow Jones has posted a weekly performance of 1.2%, the S&P500 is up 1.4% and the Nasdaq100 is up 2.6%.
In Europe, the CAC40 is up 0.1%, the Footsie is down 0.3%, while the Dax is up 2.3%.
For the peripheral countries of the euro zone, Portugal is stable and Spain loses 0.4%.
In Asia, the Nikkei gained 0.8%, the Hang Seng 0.6% and the Shanghai composite 0.27%.
CAC40 chart in daily data
The Paris index continues its upward trend, confirmed by the 20-day moving average.
The past week was relatively hectic in the commodity markets due to geopolitical tensions.
Oil prices recorded a negative weekly performance as profit taking completely erased the fever of the beginning of the week. Brent Crude fell back to USD 65.2, after exceeding USD 70 on Wednesday, while WTI fell back below USD 60, a loss of more than 7% (see chart).
Similarly, volatility has animated the weekly sequence on gold and silver. After peaking at USD 1611, the gold metal stabilized around USD 1550, its level of last Friday. Silver is trading around USD 18 per ounce. It should be noted that palladium prices set a new record at USD 2151.
The base metals compartment is calm. Traders seem to be adopting a wait-and-see stance a few days before the signing of a first trade agreement between the United States and China. Copper is gaining ground at USD 6156, lead and aluminum are stabilizing at USD 1902 and USD 1771 respectively, while zinc is accelerating to USD 2419.
Sharp decline in WTI
Spur-of-the-moment start for the electric car brand. The stock has already gained more than 15% in the first days of the year. The performance remains exceptional, especially since it is added to the 25% gain in 2019, representing 100% since the beginning of October. This increase gives the Californian manufacturer a historic market capitalization in the American automobile sector (86 billion dollars). Only Toyota (227 billion dollars) and Volkswagen (100 billion) weigh more in the world.
The group led by Elon Musk has just announced that it plans to produce its Model Y SUV in the giant Shanghai plant (the famous Gigafactory 3) as early as 2021. Producing vehicles in China for the local market will allow Tesla to reduce transportation costs and avoid import taxes. Production already exceeds 1000 vehicles per week. Some analysts pay tribute to the progress made by the manufacturer but believe that it is now time to deliver. These delivery prospects carry the title to its all-time highs.
A good start to 2020
Sovereign bond yields are stabilising, but sovereign bonds remain a safe investment as long as the Middle East crisis remains unpredictable. Lateral trading is taking place as neither the bulls nor the bears have managed to make a decisive mark this week.
The American ten-year is trading on the basis of 1.84%. In Europe, the Bund remains in negative territory (-0.2%), which is no longer the case for the French OAT since the last few weeks (0.04%). Italy and Spain see their rates balanced at 1.32% and 0.43% respectively.
With the exception of Germany, only the Netherlands (-0.11%), Switzerland (-0.55%) and Japan (-0.05%) still have negative yields on their 10-year bonds.
On the Old Continent, euro-denominated issues have reached a record high since the beginning of the year, with 31 billion new bonds issued. There are two main reasons for this craze: rates are expected to remain low for a long time and liquidity on the secondary market is melting like snow in the sun, prompting operators to move into the primary market.
The dollar appreciated slightly against the euro and several other currencies in a market that paid relatively little heed to the geopolitical tensions between the United States and Iran. Unlike equities and oil, the foreign exchange market did not react more strongly to the easing of the conflict. The dollar index, which measures the value of the greenback against a basket of other currencies, appreciated by 0.30%.
In Australia, the purchasing managers' index in services deteriorated sharply to below 50 points for December. This contraction, added to the negative impact of the fires on trade, pushed the AUD down to USD 0.68 (-180 basis points).
The pound sterling balances against the greenback (USD 1.31) just days before the start of negotiations with the EU, which according to European Commission President Von der Leyen may require an extension to agree all aspects of the split.
The single currency deteriorated over the week, as did the EUR/USD (1.109) and the EUR/CHF (1.08) following disappointing industrial statistics in Germany. For its part, the Swiss currency is still sought after by traders and retains its strengths, particularly against the dollar at CHF 0.97.
According to the IHS Markit survey of purchasing managers, activity in the Japanese services sector contracted in December at its fastest pace since September 2016. In seasonally adjusted terms, the index fell to 49.4 after 50.3 in November. This was the second time in three months that the index fell below the 50 threshold between contraction and expansion.
The week was marked by the publication of activity indices in services, and it is clear that this part of the economy remains the pillar of growth. In Europe, indicators came out better than expected, and in the United States, the non-manufacturing ISM climbed to 55 points, a 4-month high.
Data is still disappointing in Germany, where industrial orders fell by 1.3% in November. This figure thus confirms the difficulties of Europe's largest economy.
The US employment data was much awaited by traders. They were mixed, with 145,000 new jobs created compared to 160,000 expected, while the unemployment rate remained unchanged at 3.5%.
Evolution of the US unemployment rate over 20 years
|The market is resilient
To date, the parties involved in the Middle East crisis (the United States and Iran) seem to be avoiding an open confrontation in the Persian Gulf, a state of affairs that has therefore benefited the equity markets. Like a boxer, the market moves forward and takes the blows with little or no failure. Chart trends remain largely bullish, and no warning level has been triggered during mini stress phases. Only a few assets have seen increased volatility, with very erratic patterns, such as oil and precious metals.
In the absence of additive monetary policy stimuli, investors can only wait to see whether the conflict in the Persian Gulf continues to simmer slowly or whether it once again forces a more defensive stance. In the meantime, next week will partially redirect investors' attention back to the micro economy with the first results from U.S. banks.