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OFFON

Patrick
Rejaunier

Equity Analyst
By the same author
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Weekly market update : The rush to quality

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06/10/2019 | 10:46am EDT
Monday
June 10
Weekly market update
intro
In unison, the major indices rebounded sharply this week, thanks to the accommodating speeches of central bankers, hopes of lower rates this summer in the United States and a lull on the trade front. Recent lower-than-expected US statistics - in particular employment data - have strengthened expectations that the Fed should act soon.
Indexes

Over the past week, all financial centers have recovered, with the exception of the Shanghai Composite, which is down another 2.45% and is at a 3-month low. Asia generally under-performed significantly, with the Nikkei recording 1.4% and the Hang Seng only 0.23%.

In Europe, the CAC40 gained 3.4% despite counter-trend banks, the Dax gained 3% and the Footsie 2.5%. For the peripheral countries of the euro zone, Portugal rose by 1.2%, Spain by 2.7%, Italy by 3% and Greece by 1.7% (it had recovered 13.4% the previous week).

In the United States, the Dow Jones recorded a weekly performance of 4.9% with 5 consecutive sessions of increase. The S&P500 gained 34.7% and the Nasdaq100 4.2%.
 
Commodities

Oil markets are stabilizing after the significant releases of recent weeks, still undermined by the rise in US inventories, while US producers are breaking new records at 12.4 mbpd. It is in this context that operators are turning to OPEC+, which will decide in the coming weeks whether or not to renew their supply limitation agreement. Brent and WTI are trading at USD 62.3 and USD 53 per barrel respectively.

Gold was sought after last week, clearly helped by its status as a safe haven, but also by the prospects of central banks opting for increasingly accommodating policies. The gold ounce appreciated by 2.8% to USD 1342, while the silver rose by 3% to USD 15.

Still weighed down by commercial tensions, base metals remain under pressure and are declining. Copper and nickel are losing ground at USD 5805 and USD 11710. Only lead is in positive territory at USD 1945.


Gold returns to a resistance zone

image
Equities markets

Worldline

Since May 3rd, Worldline has been included in the CAC40, following the distribution by Atos of 23.4% of its share capital to the parent company's shareholders. The subsidiary that went public in 2014 saw its free float rise to nearly 45%, allowing it to hope to remain in the CAC40 during the next quarterly review by the Scientific Committee on Indices.

Worldline's history began in 2004, with the merger of its electronic payment activities into a division called Atos Worldline. After dynamic internal and external growth, the company appears on the radar of investors looking for growth stocks. Indeed, turnover is on an upward trend, rising from 1.1 billion euros in 2014 to 1.7 billion euros in 2018 and should even reach 2.3 billion euros this year.

These performances are reflected in the share price, which has risen by more than 250% since its first trading day and has even increased for 5 consecutive years, including 28% for the current financial year. The title is part of our European portfolio selection that can be replicated with the Premium subscription.


History of the Worldline share since its introduction in 2014

image
Bond market

Over the weekly sequence, lower yields remain the rule. The various interventions of the Fed and the ECB contributed to this fundamental shift, with the confirmation of flexible and measured monetary policies. The result happened quickly in the bond market, where the entire yield curve fell. In Europe, the Bund fell to 0.23%, a record, as did the French OAT, which had an issue at 0.12%, while at the same time, the reference to eight years went into negative territory.

The same characteristics define Spanish debt at 0.57% and Italian debt at 2.4%. The yield on transalpine debt is down by 200 basis points, despite tensions between Rome and Brussels.

In the United States, the TBond also returned to its low zone at 2.12% while Switzerland borrowed over ten years, with a negative rate of -0.53%, the same for Japan at -0.12%. The situation of sovereign debt is therefore historical.


Performance curve of the Tbond

image
Forex market


The comments made by a Fed member last week weighed on the dollar and at the same time increased the likelihood of a fall in central bank rates. This is currently 93.5% for the meeting of September 18. The American currency is trading at 1,131 against the euro. On the other hand, it was balanced against the pound sterling (USD 1,275).

Moved by the trade conflict, the renminbi is still under pressure against the greenback at CNY 6.91. Also in Asia, traders have curbed their purchases on the yen, the Japanese currency is trading at 108.30 against the dollar, allowing the latter to rebound slightly against the Japanese currency.

For its part, the Australian central bank cut its rates by a quarter of a point to 1.2%. This expected decision therefore had little impact on the AUD, which remained broadly stable, except against the greenback (USD 0.70), representing a 100-point increase.
Economic data

According to the latest estimate, the euro zone manufacturing PMI index stands at 47.7. On the other hand, the PMI Services Index was a pleasant surprise at 52.9. Inflation fell in May, with a consumer price index at 1.2% (on an annual basis), against an expected 1.4%. According to revised figures, GDP grew by 0.4% in the first quarter. The unemployment rate fell slightly from 7.7% in March to 7.6% in April. Retail sales fell by 0.4% (consensus -0.5%). Finally, the ECB left its key rates unchanged (refi rate at 0.00%, marginal lending facility at 0.25%, deposit facility at -0.40%).

This week we will look at the Sentix index of investor confidence and industrial production.

In the United States, the ISM manufacturing index was disappointing (at 52.1) but not the services index (at 56.9). ADP job creation amounted to 27K, compared to 185K expected. The trade deficit decreased slightly from $51.9 billion to $50.8 billion. Oil inventories reached 6.8 million barrels, while a decline of 1.7 million was expected. Weekly claims for unemployment benefits remained unchanged (218K). Finally, the NFP Employment Report reported 75K job creations (177K consensus), an hourly wage increase of 0.2% and an unemployment rate of 3.6%, as in the previous month.

Inflation (CPI and PPI), retail sales and the Michigan Index will be released this week, as well as industrial production, capacity utilization rates, and as usual, unemployment registrations and crude oil inventories.
The rush to quality

The bond market benefits from investor arbitrage in favor of more secure assets. This rush towards quality therefore generates a universe of low rates. While the latter undoubtedly preserves the stability of the financial system, it is essential for central banks, which must manage monetary policies with agility in a difficult economic environment.

Indeed, the low global growth, coupled with an inflation that has completely disappeared (digitization has happened!), coupled with an increasing government debt, forces central bankers to direct rates into negative territory.

To date, nearly 30% of the sovereign debts of rich countries have yields below the symbolic zero.
While the course of sovereign securities confirms recessionary expectations among investors in the more or less long term, there is no doubt that the reduction in financial charges for all economic players will help to boost short-term risk assets.
Stocks mentioned in the article
ChangeLast1st jan.
CAC 40 0.56% 5690.78 Real-time Quote.19.62%
CHINA-SHANGHAI COMP 0.24% 3006.45 End-of-day quote.20.36%
DAX 0.08% 12468.01 Delayed Quote.18.08%
DJ INDUSTRIAL -0.59% 26935.07 Delayed Quote.16.15%
HANG SENG -0.21% 26432.86 Real-time Quote.2.27%
LME COPPER CASH 0.23% 5758.5 End-of-day quote.-1.38%
LME NICKEL CASH 0.23% 17270 End-of-day quote.65.42%
NASDAQ 100 -0.99% 7823.553294 Delayed Quote.24.83%
NASDAQ COMP. -0.80% 8117.674437 Delayed Quote.23.32%
NIKKEI 225 0.16% 22079.09 Real-time Quote.10.14%
S&P 500 -0.49% 2992.07 Delayed Quote.19.36%
SILVER 0.90% 17.96 Delayed Quote.15.17%
US DOLLAR / CHINESE YUAN RENMINBI (USD/CNY) -0.06% 7.0908 Delayed Quote.3.21%
US DOLLAR / JAPANESE YEN (USD/JPY) -0.47% 107.515 Delayed Quote.-1.43%

Patrick Rejaunier
© MarketScreener.com 2019
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