Weekly market update : Stakeholders addicted to risk despite delays

Monday March 18

Weekly market update

Hopes for trade, the postponement of Brexit, accommodating monetary policies... All these factors are conducive to maintaining traders' risk appetite. European indices are taking advantage of this and setting new annual records, overshadowing the deterioration of the global economic outlook or political uncertainties.

Indexes Last week, all financial centres recovered their losses from the previous week.The CAC40 gained 3.3%, the Dax 1.9% and the Footsie 1.8%. For the peripheral countries of the euro zone, Portugal increased by 1.4%, Spain by 2% and Italy by 1.15%. In the United States, the Dow Jones recorded a weekly performance of 1.8%, the same trend for the S&P500, which rose by 3.1%, and the Nasdaq100, with +4.4%. In Asia, the Hang Seng posted the best performance, with +3%. Nikkei won 2% and Shanghai Composite only 0.7%, while remaining the undisputed leader in indices since January 1 (+21.2%).

Commodities Another week of progress for oil, which is increasing its annual gains despite a feeling of hesitation that is becoming more and more apparent. Operators remain effectively divided between OPEC+'s efforts to reduce global supply, the chaotic situation in Venezuela, global demand that may prove more fragile than expected and robust production in the United States. The next cartel meeting, which will take place this weekend, should provide some answers to these questions. The WTI price thus rose by 3.6% in weekly data, to trade around USD 58 per barrel. Precious metals are also gaining ground over the weekly sequence. Despite a risk appetite for risky assets that remains intact, gold and silver have found a bullish relay through a sharp decline in the US dollar. In this context, gold and silver are traded near USD 1303 and USD 15.35 respectively. As the global economic outlook darkens, pessimism is settling on base metals, which are evolving in a dispersed order. Copper and aluminum rose to USD 6398 and 1873 respectively, while tin and nickel lost ground to USD 21285 and 12930.

Equities markets The Big Blue IBM has been operating under its current name since 1924, almost a century of fame with this acronym (International Business Machines). The American brand has long been associated with the design and marketing of computer equipment and in particular mainframes. For more than 10 years, IBM's revenues have been focused mainly (60%) on services as a consulting entity worldwide. The company is currently run by the iconic Virginia Rometty, voted one of the ten most powerful women in the world by Forbes. It has enabled IBM to enter the world of "Cloud Computing". However, its $123 billion valuation only gives it a distant place in the list of the world's largest capitalizations. In the Dow Jones alone, it ranks 23rd out of 30. Nevertheless, the IT group is back in the spotlight among investors in terms of performance, with the three-letter share achieving the best performance in 2019, with a 21% increase. The good results at the end of January boosted buying initiatives on value by announcing a EPS of USD 4.87 per share, above consensus, with an increase in its gross margin from 0.1% to 49.5%. IBM over 25 years

Bond market Bond conditions continue to ease. The American 10-year bond is trading at 2.62% in an environment that is not very progressive in terms of monetary policy. The generalized easing is also confirmed in Europe where the Bund is back close to negative at 0.05%. The OAT followed the same path at 0.45%, as did the Spanish debt, which was at its lowest at 1.18%. The yield on the high end of the yield curve in Italy falls to 2.52%, a relaxation trend, far from 3.7% at the time of the intense conflict between Rome and Brussels, not so long ago. Still marginally, Japan (-0.04%) and Switzerland (-0.33%) keep their negative rate on the 10-year maturity.

Forex market Forex traders prefer long positions on the British pound. The political awareness of finding an agreement on Brexit boosted the British currency. The GBP/USD is trading close to USD 1.33 and the potential for a rebound therefore appears to be on parity, in the event of a positive exit (500 to 700 basis points). The dollar seems to be gaining ground against the euro, validating a configuration that shows some pressure on the single currency (see graph). Thus, the EUR/USD exchange rate is trading at USD 1,132. In Japan, the bank has darkened its economic diagnosis without relaxing its monetary policy. The yen therefore remains in a flat path. The Japanese currency is traded near JPY 112 against the dollar. evolution EUR/USD

Economic data Industrial production in the euro zone rebounded in January (+1.4%), after a decline of 0.9% in the previous month. The consumer price index (1.5%) was in line with expectations and first estimates. The trade balance, the ZEW index of German economic sentiment and the PMI indices will be released next week. The European summit on March 21 is also highly anticipated. In the United States, the statistics were mixed. Retail sales (0.2%), durable goods orders (0.4%), construction spending (1.3%) and the Michigan index (97.8) exceeded analysts' expectations. On the other hand, the production capacity utilization rate (78.2%), new housing sales (607K), industrial production (0.1%), or the New York Fed manufacturing index (3.7, the lowest since May 2017) were disappointing. Inflation remained low in February (CPI: +0.2% over one month). Over one year, it corresponds to a low since September 2016 (+1.5%, see graph). Finally, oil stocks fell by 3.9 million barrels (consensus +2.7M) and weekly jobless claims increased (from 223K to 229K). Next week we will look at industrial orders, the PhillyFed index and then, as every week, unemployment registrations and crude oil inventories. Investors will pay particular attention to the Fed's press conference on March 20. Consumer Price Index, back to 2016 levels

Stakeholders addicted to risk despite delays On Friday, day of the four witches, the indices closed in strong rise. The easing of the various threats identified at the end of 2018, such as international trade, the failure of the Chinese economy or the monetary field, has made it possible to intensify buying initiatives by market players in favor of equities. Despite the postponement of Brexit and delays to reach a Sino-American trade agreement, the market remains hopeful. The progress of the indices is proceeding without major obstacles. Some studies highlight the low point hit by the European economy by betting on an improvement in macroeconomic indicators. The question is whether investors have already integrated it or not?