Weekly market update : A hypersensitive market

Monday September  2

Weekly market update

The apparent easing of trade tensions, with the resumption of talks between Beijing and Washington, has boosted traders' risk appetite last week and allowed the major indices to recover. Despite this strong index rally, bond yields continued to deteriorate, with recession fears remaining as a backdrop.

Indexes However, Asian markets have lost ground over the past week, with operators split between the resumption of trade talks and the entry into force of new customs duties yesterday. The Hang Seng lost 1.95% over the week, the Shanghai Composite 0.2%, while the Nikkei just managed to return to balance (-0.03%). In Europe, the major indices are making significant progress, such as the CAC40, which posted a weekly performance of 2.9%. The Dax gained 2.8% and the Footsie 0.8%, a performance limited by the increasing probability of a Brexit without agreement. For the peripheral countries of the euro zone, Portugal grew by 1.7%, Spain by 1.8% and Italy by 3.9%. In the United States, the Dow Jones has recorded 2.9% over the week, the S&P500 2.4% and the Nasdaq100 2.7%.

Commodities Oil prices gained ground after the fall in US weekly stocks by nearly 10 million barrels. Operators also remained alert to the trajectory of Hurricane Dorian, due to fears it could hit the Gulf of Mexico and impact oil activity in the region. Brent rose slightly to USD 60.4 while WTI traded at USD 56.5. The precious metals compartment was sought after last week. Beyond the brilliant trajectory of gold this year, platinum and silver have accelerated over the last five sessions, trading at USD 930 and USD 18.4 respectively. Gold metal, on the other hand, stabilized at USD 1530 per ounce. Nickel stands out among industrial metals, continuing its mad rush beyond USD 16,300 per metric ton, bringing its annual gains to more than 56%. Platinum bounces back

Equities markets Li Ning The Chinese company, which employs 2200 people, designs, manufactures and sells sportswear. The company was founded in 1990 by a multi award-winning gymnast, Li Ning, who accumulated 14 world championship titles between 1982 and 1988. An icon in its country, he was the last carrier of the Olympic flame at the Beijing Games in 2008. The company has a collection of shoes and clothing for more than a dozen sports including table tennis (a national sport in China). It also sponsors 21 top Chinese teams or athletes. Growth is on track year after year, rising from CNY 8 billion in 2016 to 13.3 billion expected in 2019, all accompanied by an increase in net margins, which rose from 5.8% to 10.3% in two years. Capitalization remains moderate (6.7 billion dollars), placing it far behind its national competitor Anta Sports (21 billion) or the world's number 1 Nike (143 billion). The stock, detected by the MarketScreener methodology, was added to the portfolio dedicated to Asian stocks in February 2019, at HKD 10.4, and is currently listed at HKD 23.1, representing an unrealised capital gain of 123%. A spectacular ascent

Bond market The pressure on rates continues unabated. Indeed, all bond benchmarks see their returns sink into negative territory or return to near zero. The German Bund is trading on a basis of -0.71%, i.e. a decline of the same order as for the OAT to -0.44%. Lagarde's recent statements on future easing are pushing European rates to historical levels. The Spanish reference falls to 0.28% while Italian debt is traded on a basis of less than 1%. The same debt was treated at more than 3% just a few months ago. The Swiss franc remains highly sought-after, bringing the Swiss 10-year average to -1.2%. In the United States, 10-year Treasury bonds posted a yield of 1.52%, the same level as the 2-year maturity.

Forex market The calm temporarily returned to the foreign exchange market after several weeks of high volatility. The greenback is back on the rise, with rumours of a resumption of trade negotiations. The USD/EUR exchange rate is USD 1.10 and it takes 1.12 pounds sterling to buy one dollar. The British currency stabilizes after a technical recovery, as did the EUR/GBP pair at 0.90. Still in Europe, the single currency is showing signs of weakness, accentuated by the accommodating speech of the future President of the ECB. The EUR/JPY parity is at a two-year low of 117.2 and also against the Swiss franc, the preferred value of traders with the Japanese currency (CHF 1.09 against the euro). In the investor's perspective, the USD/CNY exchange rate is still gaining ground at 7.15 (see graph). Further depreciation of the yuan against the dollar

Economic data In August, German business leaders' morale fell to its lowest level since November 2012, to 94.3 compared to the expected 95.1 (see graph). Not surprisingly, the consumer price index rose by 1%, as in July. The unemployment rate remained stable compared to June, at 7.5% in July. In the United States, consumer confidence deteriorated slightly in August to 135.2, but remains high and above consensus. Durable goods orders rose by 2.1%, exceeding expectations, as did the Richmond Manufacturing Index (1 vs. 2 expected) and household spending (0.6% vs. 0.5% expected). On the other hand, the Case Shiller index of property prices, promises of home sales and the PCE index were disappointing. Finally, quarterly GDP came out as expected at 2.0% and weekly jobless claims at 215K. This week, the PMI indices (final version) will be published in the euro zone, as well as the producer price index, retail sales and the latest quarterly GDP estimate. Across the Atlantic, traders will be informed of the ISM indices, ADP non-agricultural job creation, the Fed's Beige Book and, as every week, unemployment registrations and crude oil inventories. To close the weekly sequence, the NFP report will be released on Friday (average hourly wage, job creation and unemployment rate). J. Powell will also give a speech in the evening at an event in Zurich. Fall in the IFO index to its lowest level since 2012

A hypersensitive market Struggling to take a step back, the market is still shaken by the various announcements related to the trade war. The slightest sign of tension, or on the contrary, of appeasement, boosts the hyperactive attitude of investors. Recently, a "very diplomatic" intervention by the Chinese spokesman has just been used as a pretext for a brutal index bounce-back. One thing is certain: the Sino-American negotiations will be long and very strategic. On the bond market, the downward trend in yields is intensifying and the financial community is focused on the US yield curve, which has a risky configuration. Nevertheless, good news from American companies is offsetting the black scenario with their profits at an all-time high in the second quarter, showing strong resilience in a protectionist climate.