Weekly market update : Investors focus on symbolic targets

Monday November 11

Weekly market update

Financial centers set new records last week as Sino-American trade tensions seem to be dissipating, taking advantage of the prospect of a "phase 1" agreement, combined with the possible cancellation of some of the customs duties put in place in recent months (which D. Trump has not yet endorsed). As a result, appetite for risky assets has increased, particularly in the financial sector, even though some stocks may have been heavily sanctioned after publishing their results.

Indexes The Nikkei gained 2.4%, returning to its highest level since October 2018. The Hang Seng (+2%) and composite Shanghai (+0.2%) are lagging behind, 2 indices far from their annual records. In Europe, weekly performance was very positive. The CAC40 rose by 2.1%, reaching its highest level since the end of 2007. Dividends reinvested, the CAC40 GR has evolved on its historical high points, posting an exceptional performance of more than 233% since March 2009 (see graph). The DAX gained 2.2% and the Footsie 0.8%. For the peripheral countries of the euro zone, Portugal is catching up, with a gain of 3.5% over the week, Italy winning 2.4% and Spain making more modest progress, with +0.7%. In the United States, it is a cascade of absolute records. The Dow Jones rose by 1.2%, the S&P500 by only 0.6% and the Nasdaq100 by 0.7%. Chart of the CAC40 GR (dividends reinvested)

Commodities Oil markets are stabilizing, divided between the renewed appetite generated by the trade negotiations and the rise in US stocks (+7.9M against a consensus at +1.9M). In addition, OPEC has once again revised its outlook for global demand growth downwards and believes that its supply will decline in the coming years to the benefit of non-OPEC producers. In this context, WTI's barrel is trading at USD 56.6 while the European benchmark is trading at USD 61.8. A wind of profit taking is blowing through the precious metals segment, whose components are eventually weakening in the face of investors' strong risk appetite. Gold breaks a major daily support at USD 1480 while silver recovers USD 17 per ounce. The atmosphere is less heavy in the base metals segment, as is the rebound in aluminum, which rose by nearly 3% to USD 1,817. Copper continued to rise to USD 5941. Only lead stands out with its sharp weekly decrease, in the region of -3.2% to USD 2105.

Equities markets Hennes & Mauritz, better known under the H&M brand, is currently worth 34 billion dollars. The company owes this to its exceptional track record on the stock market (57% in 2109), achieving the highest score of the OMX Nordic 40. This index includes the largest capitalizations of northern European countries. The Swedish group sells clothing of all styles.Founded in 1947, the company was listed on the Stockholm Stock Exchange in 1974. The Group has been able to take advantage of online sales since 1998 and set up effective communication campaigns for the continuous opening of new stores on all continents. This expansion will soon enable it to reach the symbolic level of 5000 points of sale. The share has a good Surperformance rating that highlights its growth and yield qualities. By its fundamental criteria, the stock has been integrated into the Europa One fund. Evolution of the H&M share price

Bond market The week is characterized by a global rise in rates. The 10-year Bund's return reached a four-month high of 0.27%. The French OAT replied to this movement by returning to the positive at 0.02% (see graph). One of the triggers is the growing optimism among investors about the progress of trade negotiations between China and the United States. The threat of new tariffs seems to have been avoided. The other trigger was the intervention of the Governor of the Austrian Central Bank, who does not believe that further easing measures would have a positive impact on inflation or growth, arguing that it is now time for fiscal stimulus measures to be implemented. All European rates are therefore rising, as are Italian debt (1.14%) and Spanish debt (0.35%). Switzerland's 10-year reference also recovered to -0.45%, while the Swedish equivalent rate went back into the green at 0.03%. In this "Risk On" context, the American Tbond is recovering a few additional points of return at 1.90%. Only Greece keeps its rate low at 1.52%. The Hellenic Republic is now considered by the investment community as a politically stable country that has made great efforts to maintain the euro since 2012. French 10-year rate The French 10-year rate symbolically returns to positive territory.

Forex market The euro is reversing to USD 1.1040, following the IMF and European Commission's bearish outlook for continental growth. The British pound follows the same path after the status quo of the Bank of England, which maintains its key rate at 0.75% but gives a rather bearish bias in order to be operational to support the economy. The British currency fell against the dollar to USD 1.28 (-100 basis points). The greenback also rose against the yen to JPY 109.30, representing 130 basis points of gains. Following hopes of reducing commercial risks, the yuan is recovering from CNY 7.04 to CNY 6.97 per dollar. The renminbi broke the support of CNY 7 and finished below this level for the first time since August 5. Forex traders take a stand on the Chinese currency thinking that a trade agreement with the US would lead to a real appreciation.

Economic data While the manufacturing ISM continues to indicate a recession in industry, the services ISM shows that there is still respectable growth in other sectors of the economy. The indicator improved from 52.6 in September to 54.7 in October, slightly below its half-yearly average of 54.9. The US manufacturing sector is therefore in recession due to weak global growth, trade tensions and a strong dollar. There is little reason to expect an imminent recovery, resulting in increased support from the Federal Reserve. The composite PMI index of overall activity in the euro area recovered in October to 50.6 points (against 50.2 expected). Economic indicators remain generally reassuring in Europe, averting the risk of a further deterioration in the economic situation. Productivity in the United States grew at a faster pace than expected in the third quarter (+1.4%) while analysts expected a simple 1% increase. On the Chinese side, activity in services experienced its slowest rate of growth in eight months in October. Calculated by IHS Markit, it stood at 51.1 compared to 51.3 in September.

Investors focus on symbolic targets With 3100 points on the S&P500, 28,000 points on the Dow Jones and even 6,000 points for the CAC40 media, investors like to challenge themselves in the phase of uninterrupted growth by focusing on symbolic targets. Index management is therefore sparking and records are being set all over the world. Concerning the French market, the CAC40 reinvested dividends, a more relevant indicator, has just recorded a historical level close to 16,000 points, thus accumulating more than 230% of gains over the last decade. Everything is going well for equity managers, even if stock-picking strategies have a hard time beating benchmarks. Market players are betting on a Sino-American agreement.