NEFS Weekly Market Wrap-Up Presented by the NEFS Research Division
25.02.19
MACRO REVIEW
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United Kingdom The US and Canada Europe Japan & South Korea Australia & New Zealand
03 04 05 06 07
EMERGING MARKETS
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Africa China Latin America Russia & Eastern Europe South Asia
08 09 10 11 12
EQUITIES, COMMODITIES & DEALS
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Financials Energy, Oil & Gas Tech & FinTech Pharmaceuticals Mergers & Acquisitions
13 14 15 16 17
CURRENCIES
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Major Currencies Minor Currencies Cryptocurrencies
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NEFS MARKET WRAP-UP
.MACRO REVIEW United Kingdom It was a mixed week for UK financial markets, with the benchmark FTSE 100 index taking a dive in the week’s earlier session before making a partial recovery on Thursday and Friday’s sessions (see chart below). The FTSE 100 finished the week down 0.8% while the mid-cap FTSE 250 index finished the week up 1.5%. Once again it was US-China trade talks and developments in the Brexit negotiations that were responsible for the underlying movements in the FTSE 100 along with the latest economic data updates in unemployment and government spending. On Tuesday, the Office for National Statistics (ONS) released the latest unemployment figures for Q4 2018. The unemployment rate in the UK came in at 4%, the lowest level since the 1970s and in line with market expectations. The number of unemployed fell by 14,000 on the quarter while employment increased by 167,000. Weekly average earnings also went up by 3.4% to £494.50 in the year to December - after adjusting for inflation, that is the highest level since March 2011. On Thursday, the ONS announced that the UK budget surplus widened to a record £15.76 billion in January 2019 from £10.17 billion in the same month a year earlier. This is compared to market expectations of £11.05 billion.
Excluding state-controlled banks, the surplus increased to £14.90 billion, also the largest since monthly records began in 1993, as income and capital gains tax receipts were up 14%. EU diplomats suggested this week that there has been some movement towards a possible deal with London but stressed that much work remained to be done and were not expecting any imminent breakthrough. Despite the U.K. racing to get additional wording on the controversial “backstop” plan, it’s unlikely now that anything will be ready in time for Feb. 27; when Prime Minister Theresa May aims to show the House of Commons that progress has been made and a deal will be in place before the 29th of March. Furthermore, Japan announced this week that it’s economic partnership agreement with the EU won’t apply to the U.K. in the case of a no-deal Brexit. Japanese Trade Minister Hiroshige Seko said in Tokyo on Friday that “Japan and the U.K. need to build a new economic partnership as soon as possible”. Seko went on to say that “Trade between Japan and the U.K. would return to basic WTO rule under no-deal conditions”. Sean O’Hagan
25.02.19
MACRO REVIEW
The US and Canada This week has seen the US/Chinese trade talks continue, with Trump's 1st March deadline looming closer and also with rising expectations of a trade deal. Furthermore, in Canada this week there has been discussions of whether the Bank of Canada should increase one of their key interest rates.
These stock rises are due to investors becoming increasingly more hopeful that a deal will be struck before the 1st March, Trump's deadline. However, Trump stated earlier this week that the deadline was not a "magical date", hinting that the deadline could possibly be moved and reassuring markets over the possible deal.
Trump met with Chinese Vice Premier Liu as the China-US trade talks wrap up; Liu has been named a "special envoy" to Chinese President Xi Jinping, meaning he has the authority to negotiate directly on trade matters with the U.S. The meeting between Liu and Trump comes as the two countries try to strike a trade deal before the start of next month. The Wall Street Journal reported that the White House is counting on China to accept key structural changes on issues such as improper subsidies to state-owned companies and unlawful technology transfers.
In Canada this week, Stephen Poloz - the Head of the Bank of Canada (BoC) - has expressed his belief that the Canadian base rate's belowinflation level of 1.75% is sufficient to stimulate the economy. However, there have been many encouragements to the Bank to raise its key interest since mid-2017 to restrict inflation from creeping too high.
In response to trade talks between the US and China, US stocks have risen. The Dow Jones Industrial Average gained 100 points as Intel outperformed and the S&P 500 climbed 0.27 percent, led by gains in the energy and tech sectors.
Despite this, the BoC has not introduced an increase since last October, as shown by the graph below. The BoC’s next interest-rate th announcement is March 6 and many market watchers expect Poloz to leave the benchmark untouched. This is motivated by the expectation of Canada having stronger economic growth if the interest rate is untouched, though there may be issues balancing the benefits of economic growth against rising inflation.
Abigail Davis
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NEFS MARKET WRAP-UP
Europe New figures have been released on the most recent profits of the ECB. It was revealed that by the end of 2018, the bank made 1.58 billion euros in profit, mainly built up from buying bonds as a part of its asset purchase programme, worth 2.6 trillion euros, and quantitative easing measures. Despite plans to wrap up quantitative easing programmes from last year onwards, this new information could give the ECB enough confidence in the returns made on QE in order to continue the unconventional monetary programme. With Europe’s main powers such as Germany and Italy stagnating and in recession, respectively, discontinuing QE could worsen the stagnation seen. In other news, the value of euro has stagnated this week, as concerns over the previously mentioned sluggishness of the eurozone grow. The exchange rate hit $1.13 on Thursday morning, falling 2% from the current 2019 peak in January of $1.16. However, later this week France and Germany will be releasing their PMI (Purchasing Managers Index), which is a good indicator of the health of the manufacturing and service sectors of an economy.
Satisfactory results may see the exchange rate rise again as confidence in the large European economies would increase. France, despite its stagnating economy and high political tensions, achieved its lowest inflation rate in the course of a year. The CPI (Consumer Price Index) fell by 0.6% in January, making the overall inflation rate over the last year 1.4%, near to the ECB target. Major factors included the slowdown of energy price hikes, as oil prices fell in December and president Macron had to renege on fuel taxes due to political uproar. Aggregate demand is also weak, as continued riots and low morale among the French have reduced consumer confidence and spending, reducing inflation from excessive demand. There were debates this week over the prospects of Italy nationalising the failed airline Alitalia. Government officials were planning to buy 50% of the company, in co-operation with other airlines like Easyjet. However, the economic implications of this are worrying. A buy-out would cost billions of euros for the Italian government. As the supply of bonds increases due to the government’s increased spending, yields are creeping up (see graph for 30year bond yields). Further spending would increase the yields on government debt further, worsening Italy’s debt crisis. Megan Jackson
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25.02.19
MACRO REVIEW
Japan & South Korea Recent data shows that Japan's trade deficit in January has grown from a year earlier due to the worst decline in exports to China in 3 years. The growth in the overall trade deficit is at contrast with an increase in Japan's trade surplus with the US of 5.1%, in part due to higher exports of cars. The export of cars is also likely to be helped in the future by some Japanese car companies choosing to produce their cars domestically instead in the UK, such as Hyundai and Nissan. The Flash Markit/Nikkei Japan Manufacturing Purchasing Index also fell to a seasonally adjusted 48.5, down from 50.3 in January as can be seen on the graph below. A reading below 50 indicates a contraction in manufacturing which is likely to have a negative effect on GDP growth in 2019. This is thought to be a result of international tensions - the recent Chinese slowdown, one of Japan's largest trading partners, as well as the general trend of decreasing global trade. IHS Markit, who publish the data, suggested that without a rebound in services activity after its decline last quarter, Japan could face a recession this year.
Businesses in Japan could also face further economic issues in the future - new orders, an indicator of future economic activity, pointed to a steeper decline compared to last month. Business investment in the next fiscal year is also likely to remain flat according to a monthly corporate survey conducted by Reuters, which is uncharacteristic for Japanese businesses. Again, this is due to trade frictions globally but also due to a proposed sales tax hike scheduled for October, from 8% to 10%. This tax is seen as necessary to deal with Japan's large public debt at 253% of GDP but appears to be hurting future economic activity and curbing investment. South Korea has faced similar problems with regards to trade as Japan, with the recent Chinese slowdown affecting its exports. However, South Korea and Indonesia have recently agreed to resume talks on a bilateral trade and investment agreement previously put on hold back in 2014. The deal, due to be signed by November, aims help to boost trade between the 2 countries with a target of increasing the two-way trade between the two countries to $30 billion within 3 years. Nathan Howell
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NEFS MARKET WRAP-UP
Australia & New Zealand According to the Australia Bureau of Statistics, Australia's seasonally adjusted employment rate was unchanged from previously in December, at 5%, maintaining the lowest reading in over seven years and matching market expectations (see graph below). The economy added 39,100 jobs in January 2019, surpassing market forecasts of 15,000, whilst the number of unemployed grew by a much smaller 6600; the unexpected job releases saw the Australian dollar jump 0.6% to $0.7205. The Reserve Bank of Australia expects unemployment to decline to around 4.75% in upcoming years but acknowledges that wage growth has been slow. Historically low interest rates and strong employment are predicted to reduce the economic slowdown caused by falling house prices in Sydney and Melbourne. Looking more closely at employment, male unemployment declined 3,100 and female unemployment increased 9,700. Those looking for full-time work rose by 2,700 to 461,600, and those searching solely for part-time work rose 3,900 to 211,900. Actual full-time employment rose 65,400 to 8,743,100, more than offsetting the 26,300 fall to 4,008,700 of those employed part-time. The employment to population ratio grew by a slight 0.1% to 62.5% while the underemployment rate edged down 0.2 points to 8.1% in January.
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In New Zealand this week, the government revealed plans for a new tax specifically for online giants like Google and Facebook. Prime Minister Jacinda Ardern said “Our current tax system is not fair in the way that it treats individual taxpayers and the way that it treats multinationals." The digital services tax proposed would tax multinational online businesses at around 2 or 3% on the revenue they earn from New Zealand, thought to be matching other countries planning similar taxes. The most recent New Zealand company filings show Google paid NZ$392,000 in income taxes in 2017. The last publicly available figures from Facebook show the company paid NZ$43,000 in taxes in New Zealand in 2014. Stuart Nash, the Revenue Minister, expressed that foreign online companies have a competitive advantage over local companies as they pay significantly lower taxes. This new tax will be implemented next year, with the OECD assisting to create an international solution. New Zealand’s government estimates that online multinationals gain around 2.7 billion New Zealand dollars in business each year in the country, and that the new tax could generate up to 80 million New Zealand dollars annually.
Amy Chai
25.02.19
. EMERGING MARKETS Africa On Wednesday, South Africa's Finance Minister, Mboweni, announced the national budget for 2019. This year's budget attracted particular attention due to the fact that the country's finances are in such a bad state because of years of mismanagement by former President Jacob Zuma. Mboweni spoke of how the Government is set to pay out R5.8tn over the next three years in an attempt to improve the bad economic conditions in the country. He also explained how Gross Debt is expected to stabilise at 60.2% of GDP by 2023/24 as well as re-opening the debate over privatisation; something that has been unthinkable in the country for 20 years. One of the biggest headlines from the budget is the cash injection into the utility company Eskom of $4.9 billion following 5 consecutive days of power cuts in the country. The ratings agency Moody's is thought to be downgrading the country's credit rating in the next few weeks to junk following the budget announcements, which would mean all three credit ratings were junk rated. Following the budget announcement, the Rand fell by 0.6%.
In other news, the Angolan Minister of Fisheries and the Sea, Maria Antonieta Baptista, spoke at a conference to say that Angola will continue to commit to promoting the blue economy. The Blue Economy is sustainable use of ocean resources for economic growth, and Angola has pledged to 'promote the sustainability of fisheries and aquaculture in Africa'. In her speech on Tuesday, Baptista said, 'The Blue Belt Initiative aims to boost sustainable fisheries and strengthen coastal resilience to climate change, ensure food security for the peoples of Africa, create more jobs and generate wealth'. In addition, in Egypt this week the Central Bank decided to cut interest rates for the first time in a year as a response to falling inflation rates and an increase in capital inflows. This announcement came as a surprise for many in the country as the overnight deposit and overnight lending rate was cut overnight by one per cent to 15.75% and 16.75% respectively. The rate is expected to stay within the CBE's target zone as shown in the graph. Other factors that have led to this decision include the recent increase In GDP growth to 5.5% in Q4 of 2018 and a reduction in unemployment. Abigail Grierson
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NEFS MARKET WRAP-UP
China The Chinese economy again revolved around the ongoing US-China trade dispute this week, with optimism for a deal pushing Chinese stocks upwards. Washington held talks between Vice Premier Liu He, China’s lead negotiator, and US Trade Representative Robert Lighthizer, which finished on Friday. The talks centred around a long-running dispute between semiconductor rivals Fujian Jinhua and Micron Technology, who clashed over various charges and counter-charges between the two firms. The resolution of these charges was one of a series of confidence building measures between the two countries. Sticking with trade, Donald Trump appeared to make an effort to smooth relations with the Chinese telecoms company, Huawei. He tweeted on Thursday that he wanted “the [US] to win through competition, not blocking out currently more advanced technologies”. Commentators saw this as preparation for a deal to halt the trade war with China. In response to these developments, the CSI 300, China’s main stock index of firms listed in Shanghai and Shenzen, continued its bullish trend of 2019, gaining 4.5 per cent this week.
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Elsewhere, housing data from January pointed towards further positive economic figures coming out of China at a time when other countries in the region appear to be struggling. Prices for new housing across 70 major cities rose 10 per cent year on year in January, according to a weighted average released by Reuters (see graph). It is significant given that China’s property sector is estimated to account for 15 per cent of GDP. Finally, there was a rare public outcry from Chinese premier Li Keqiang in response to the central bank’s record credit expansion in January; brought about as a result of monetary stimulus with the aim of boosting growth. In short, Mr Li raised concerns over investors being able to obtain low-interest, shortterm loans and re-invest them into higher-yielding wealth management products, effectively allowing risk-free profits on the spread. The Chinese premier concluded that structural reform and a focus on high-quality growth should be the key focus areas in China’s long-term development plan. Ben Shepley
25.02.19
EMERGING MARKETS
Latin America This week, we unpick Brazil’s long-awaited pensions reform proposal alongside IMF funding for Ecuador and the slowdown in Costa Rica’s highend home market.
in part due to oil-backed loans from China. This comes as Ecuador fell into recession in 2016 with the decline of global oil prices and, as a fully dollarized economy at the time, it was unable to devalue to boost competitiveness.
In an attempt to overhaul the country’s public finances and set the economy back on a path to growth, Brazil’s government unveiled its proposal for pensions reform on the 20th February, but it’s received mixed reviews. In Brazil, spending on pensions absorbs more than a third of federal tax receipts and is one of the biggest causes of a budget deficit, which is equal to around 7% of GDP (shown by the graph below).
It is estimated that the country still owes China about $4bn loans-for-oil. Mr Moreno said most of the money from the loan package would be dedicated to “social investment” and was at an average 5% interest rate with maturities of up to 30 years. By contrast, $1bn of 10-year bonds issued in January carried a punishing 10.75% interest rate.
The proposal is designed to save of R$1.2tn in public spending over the next decade but the consultancy firm, Eurasia Group, states that these will be diluted by Congress to only deliver savings of between R$400bn and R$600bn over that period. Furthermore, the firm said that there would be a 30% chance to the possibility of the reform being rejected outright. Ecuador has signed a $4.2bn programme with the IMF, as part of a larger $10bn package with other multilateral lenders to support Ecuador’s struggling economy, which is burdened by external debt that grew under former president Rafael Correa,
Things are tough for Costa Rica. GDP growth is slowing, a large fiscal deficit is making the government increasingly indebted and the country’s equities market has dropped 27% since the start of 2018. In addition, the country is suffering from the bad press created by its neighbours. “We’re stuck with the stigma created crises in Nicaragua and Venezuela,” says a local agent, who’s seen price settle considerably lower than they were at their pre-financial peak. Nevertheless, homes at the very top end of the market are still selling. Kaythi Aung
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NEFS MARKET WRAP-UP
Russia & Eastern Europe The Russian Economic Ministry announced Wednesday that year-on-year GDP growth for January was 0.7%, down from 2.3% in December (see chart below). This figure, which falls far below the forecasted 1.8%, is the first sign of the contractionary impact that the recent VAT tax hike to 20% has had and is also likely a result of slowdown in manufacturing and construction industries. Reports published by Russian media group, RBC, claim that the size of Russia’s shadow economy was equal to 20% of the nation’s GDP last year. RBC estimate that as much as 20.7 trillion rubles (£242.4 billion) of import and income tax revenues were undeclared in 2018, making the size of this illicit economy larger than the total amount allocated to government expenditure for 2019, which was 18 trillion rubles (£210.6 billion). Such a large shadow economy creates numerous problems for the Russian government. Through causing tax revenue to fall below the value that it should be, the government’s ability to both maintain a sustainable national balance sheet and to provide public goods is severely harmed.
The trillions of rubles of extra income would undoubtedly help the Russian government and may even remove the need for the recent tight fiscal policies which include a slashing of quarter-toquarter government expenditures and the aforementioned VAT rate increase. Estimations released this week highlight just how damaging the proposed 25% US car tariff would be for Eastern European countries. The Czech economy would be predicted to suffer a loss of 26 billion koruna (£880 million) and 25,000 jobs, representing roughly 0.5% of total employees in the nation. However, predictions are even worse for Hungary and Slovakia where car manufacturers represent some of the largest private sector employers and the direct as well as indirect value added due to car exports to the US amounts to between 0.5%-0.9% of total economic output. Recently released data shows that last year, Croatian salaries grew by 2.8%, or 3.3% in real terms, thanks notably to a 5% increase in the minimum wage in January 2018 and an increase in the non-taxable portion of bonuses. Salary growth is expected to continue throughout 2019 as downwards wage pressure remains very limited due to a combination of a lack of qualified labour in a considerable number of sectors and a persistently high unemployment rate which is 9.6% at present. Matthew Copeland
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25.02.19
EMERGING MARKETS
South Asia This week in South Asia has seen positive developments in the Thai economy, particularly in the automobile sector with strong growth reported. Additionally, the Thai government has announced plans to build the biggest digital hub in the Association of Southeast Asian Nations (ASEAN). The Thai economy boasts a large automobile sector which posted strong growth figures on Thursday. Year-on-year output in the industry grew 8.06% and car sales also grew by a significant 17.3%. While Thailand has performed strongly in manufacturing and other traditional industries for a long time now the government has plans to move the economy onto the next stage by announcing plans for the ASEAN’s biggest digital innovation hub. The hub, to be named ‘digital park Thailand’, will be part of the Thailand 4.0 initiative which is focused on moving to a more digital future. So far US$160Million has been committed to building the park, but tax incentives and other perks will also be put in place. Additionally, the Philippine government announced a large increase in their budget deficit year-on-year for 2018 which was mainly due to large levels of infrastructure spending.
Meanwhile, the central bank of Indonesia this week also announced it was maintaining interest rates at the same level for the third successive month. Significant investment in the Philippine economy has this week seen a dramatic rise in the country’s 2018 fiscal deficit. The deficit was announced at P558.56Billion, a 59% increase on the 2017 deficit. The deficit exceeded expectations, which were set at P526.8Billion. The main driver behind this large deficit is the governments “Build, Build, Build” programme which is designed to created 75 new flagship infrastructure projects in the country and boost public infrastructure to aid future growth. In Jakarta this week, the Indonesian central bank announced it is holding main interest rates for the third successive month. The reverse repo, lending facility and deposit facility rates were all maintained at 6%, 6.75% and 5.25% respectively (the repo rate can be seen below). This decision was taken in order to maintain external stability and manage current account deficits according to Governor Perry Warjiyo, however many analysts are predicting sizeable capital outflows from Indonesia over the coming months. Ashley Brumfield
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. EQUITIES, COMMODITIES & DEALS Financials This week saw mixed, yet nominal, performances from the FTSE 100 (UKX) and the Dow Jones Industrial Average (DJI). The former fell from 7,229 points to about 7,187, with the latter climbing from 25,864 points to about 25,963 by week’s end. UBS, Switzerland’s largest bank, has been ordered to pay a €3.7bn fine and €800m in damages in France after a judge found the institution guilty of helping wealthy French clients evade tax. The penalty, totalling €4.5bn, will be the largest ever handed out in French history. The bank’s share price plummeted 4.7% (see chart) after the court decision was announced. With UBS reporting an annual profit of $4.9bn in 2018, this penalty will likely serve to wipe out any profit made in 2019.
HSBC, the UK’s largest bank, released its earnings report for 2018 on Tuesday. The report listed annual profit before tax of $19.9bn – a respectable growth upon 2017’s $17.2bn. The report cites growth in all four of its businesses (Commercial Banking, Retail Banking and Wealth Management, Global Private Banking, and Global Banking and Markets) as the key to its positive performance.
It also highlighted an increase in customer numbers and market share capture, as well as growth in adjusted revenue in Asia by 11% and transaction banking by 14%. However, regardless of the overall positive annual report, HSBC’s share price fell 4.4% in response a shaky fourth quarter which resulted in the bank missing the anlayst With this is mind, it is clear to see why UBS is set to forecasted annual post-tax profit of $13.7bn and appeal the decision, which chief executive Sergio instead only reaching $12.6bn. Ermotti, declared the bank has “consistently contested any criminal wrongdoing in this matter” As a condition of its bailout in the financial crisis, and that they “will continue to do so throughout the Royal Bank of Scotland had to fully pay for a appeals process”. UBS also released an official £775m capability and innovation fund that was set response decision, describing it as “based on the up with the mission to increase competition unfounded allegations of former employees”, rather within the banking sector. The pay-out of the than “any concrete evidence”. fund was executed this week, with Metro Bank, Starling Bank and Tide receiving the largest awards, at £120m, £100m, and £60m respectively.
Sebastian Hodge
13
25.02.19
EQUITIES, COMMODITIES & DEALS
Energy, Oil & Gas This week, positive US-China talks contained concerns over record US oil production to help WTI oil record its highest close price since mid-November by increasing 3% to finish the week at $57.07 per barrel. Brent crude likewise posted a weekly rise of 1% percent to finish Friday’s session at $66.95. In light of the impending 1st March deadline when US tariffs on $200bn worth of Chinese imports will rise from 10% to 25%, US-China negotiations resumed this week with President Trump’s suggesting on Tuesday that he was open to extending the deadline. This edged Brent prices up nearly 1% and WTI by 1.5% on Wednesday. Wednesday’s price hikes were also encouraged by the much-anticipated release of the minutes from the January Federal Reserve meeting. What’s more on Wednesday, the supply side of the oil price equation was buoyed by Nigeria’s announcement that it was willing to reduce oil output as part of OPEC’s push for higher prices.
Despite this time round not being exempt from OPEC cuts, Africa’s largest crude producer pumped 1.79 million barrels per day (bpd) in January rather than their OPEC quota of 1.69 million bpd which came into effect at the beginning of the year. Nigeria’s decision was as a result of a special envoy sent by Saudi Arabia who, as the `de facto` leader of OPEC, has taken a proactive approach to improve the group’s current 86% compliance with the cuts. However, bulls’ horns were dragged down on Thursday after the Energy Information Agency (EIA) reported that US domestic crude supplies rose not only for the fifth straight week but by 200,000 more barrels than predicted. Bearish sentiments were further heightened as the weekly report showed that US crude oil output hit an all-time high of 12 million bpd (see graph) and US crude exports surged to a record 3.6 million. Nevertheless on Friday, a fall in the number of US oil rigs for the first time in 3 weeks along with market optimism from US-China talks limited Thursday’s bearish sentiments and even lifted WTI by 0.74% for the day.
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NEFS MARKET WRAP-UP
Tech and FinTech The 10th generation of Samsung’s smartphone lineup was unveiled this Wednesday, alongside a foldable device named the Galaxy Fold, which overall helped drive Samsung’s stock upwards to 46,950 South Korean Won (KRW), see graph below. Meanwhile in the smart home market, Apple has been seen taking new leadership initiatives by hiring Sam Jadallah, an individual who recently ran the start-up Otto which specialised in smart locks. This move shows that the firm is boosting its efforts in penetrating a market which it has been struggling to compete in. Amazon currently holds 64.6% of the smart speaker market, with Google following at 19.6%, and Apple at 4.5%. Nonetheless, this move sent a positive message to investors in its continuous effort to rival the incumbent firms, lifting the stock by a 0.78% over the week to $172.40. Ralph Schackart, a William Blair analyst, is forecasting a healthy gain in Netflix subscribers in international markets this year, due to “original content” remaining a “driver of Netflix subscriber performance”. Forecasts were raised for 2019 by 3 million users to 117 million in total, which led to an upswing of the stock price by 4.1% to $359.97.
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In 2018, Netflix was able to debut 120 new TV series, a clear leader in the field of investing into originally produced content, however this has been with the need of debt to finance such heavy content spending. Overall, Schackart’s models are suggesting that “Netflix could be self-funded as soon as early 2025”. A joint credit card offered by Apple and Goldman Sachs, using Mastercard’s payment network, has been announced this Thursday. The Apple credit card has been planned to launch in spring with a hope to attract customers with a 2% cash back on most purchases, potentially higher for Apple’s goods and services. Furthermore, the card will offer customers greater ability to manage balances, track rewards and set spending goals. On the other hand, Goldman Sachs are able to take another step towards their target of appealing to customers.
Amar Toor
25.02.19
EQUITIES, COMMODITIES & DEALS
Pharmaceuticals CVS was in the headlines last November after closing its $69 billion-dollar deal with Aetna, the American Health Insurance provider, representing one of the largest deals ever in the American Healthcare sector. The reasoning behind this has been made clear by CVS’ CEO, Larry Merlo, who highlights the need to transform stores into more than just pharmaceutical dispensaries, but ‘healthcare hubs’. This refers to the idea of offering more personalised healthcare advice for customers, allowing CVS to serve an advisory role in a primary care function. This seems to reflect a similar trend across the sector. Vertical integration in the pharmaceuticals industry is commonplace now, whether in research and production of medicines (as seen with the Takeda-Shire merger) or in the joining of Pharmacy Benefit Managers (PMBs) and insurance providers (Cigna-Express Scripts merger). With the potential for greater efficiencies in distribution, clearer communication between insurers and dispensers, especially in prescribing, and more impactful R&D, the synergies from such inorganic growth options are clear.
However, to fully understand why CVS is engaged in transforming its business structure in this way one must look to its greatest threat; the potential for entry into the Healthcare market from large outsider firms – Amazon in particular. CVS fears that if Amazon offered prescriptions to consumers online this would severely reduce their market share, with people naturally choosing the more convenient option. To address this, CVS wants to offer more incentive to customers to come to its stores, and in their view, the ‘healthcare hub’, which serves not only as a dispensary but provides treatment and advice for those with long-term health conditions such as Heart Disease, Diabetes, or Asthma will achieve this. For now, there seems to be some uncertainty as to the success of this new model, demonstrated by the firm’s low earnings (shown in figure 1). CVS readjusted expectations for EPS in 2019, down from average forecasts of between $6.52-$7.41 to $4.88-$5.08, following difficulties in the integration of the newly acquired ‘Omnicare’, meant to support CVS’ campaign to enter the healthcare provision market. However, the actions of CVS reflect a clear wider trend across the pharmaceuticals sector where firms are vertically integrating to improve products, recognising that in the future there is set be much more innovative and forceful competition in the healthcare market. James Counsell
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NEFS MARKET WRAP-UP
Mergers & Acquisitions Sainsburys shares have plummeted this week after the potential merger with Asda has been called into question. The planned takeover which is said to be worth £7.3 billion can only be executed if the Competition and Markets authority (CMA) can amend its analysis of Britain’s grocery market. The CMA have said that the deal should be blocked unless there is a sale of a large of a number of stores across the country, which will reduce the monopoly power the merger would create. The chair of the CMA’s independent inquiring group, Stuart McIntosh, has said they have identified considerable causes for concern in terms of grocery shopping, online shopping and petrol stations. As a result, Sainsburys shares opened at 252.00 GBX on Wednesday, down from 287.90 GBX at closing the previous day (see graph). They have struggled to recover throughout the week falling to 233.00 GBX on Thursday, with a sluggish recovery on Friday to 235.50 GBX at midday trading. The merger would see Tesco lose its top spot in terms of market share, with the Sainsburys-Asda merger possessing 31.4% compared to Tesco’s 27.4%. The deal would create a business with 2,800 stores and where £1 of every £3 spent on groceries would be spent.
Canadian Mining Company, Barrick Gold Corporation is contemplating a bid for Newmont Mining Corporation in the region of $19 billion in stock; this would be one of the largest ever mining deals recorded. The deal would see Barrick keep Newmont’s Nevada and African mines, while Melbourne based Newcrest Mining would take over Newmont’s Australian operations. This is the second acquisition for Barrick this year, as they also bought rival Randgold Resources for $6.1 billion last month. The aggressive purchasing strategy adopted by the firm indicates their commitment to becoming the world’s largest gold producer. Without the deal, Barrick could concede the title to Newmont, who are close to completing a $10 billion buyout of smaller rival Goldcorp. Newmont stock responded positively to the potential deal, rising to $36.43 dollars per share at early trading in New York compared to around $33 dollars per share earlier in the week. Barrick stock however took an opposite turn, falling 2.55% during early trading on Friday to $12.94 per share from $13.30 at opening. This is a relatively poor performance for Barrick compared to Wednesday where it breached the $14 per share mark. Oscar Miller
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25.02.19
.CURRENCIES Major Currencies Once again, the Pound faced more instability this week off the back of further political and Brexit developments. The possibility of amendments to the backstop, as well as the resignation of 12 MPs this week from both Labour and Conservative parties, with 11 of them going on to form the Independent group, have led to more fluctuations in the value of the Pound. On Friday, the Pound had been the best performing currency over the previous 5 days. The Pound traded above 1.15 against the Euro and 1.30 above the Dollar as Theresa May and Jean-Claude Juncker met to try to resolve the predicament over the backstop agreement. Additionally, forecasters at BMO Capital Markets suggested this week that the Pound could fall a further 8% against the Dollar and the Euro, potentially rising to double-digits should the UK leave without a deal, which they say is their 'base case' with 53% probability. The value of the Euro also dipped on Friday, as German business morale fell for a sixth consecutive month. Despite an initial dive around 8am to 1.1314, following the announcement, the Euro quickly recovered to 1.1340, as shown on diagram. Germany's economy has been struggling since the latter half of 2018 and has failed to show any signs of recovery due to the Eurozone’s slump in core inflation and a fall in the Sentiment Index from 98.5 to 99.3.
The greenback has fallen 0.3% this week despite the 1% gain in the week previous; uneven performance is likely due to mixed economic data. For example, the Dollar recovered on Thursday following this release of poor economic data on Wednesday, which reinforced expectations that the Federal Reserve will hold interest rates constant for the rest of this year. Yet investors boosted the Dollar's value on Thursday following some progression in US-China trade negotiations. The Dollar Index rose 0.16% on Thursday's afternoon trading session, reaching 96.61 by the end of trading. By Friday there was little change, with the dollar only slightly lower than most other major currencies. Investors appeared inclined to take on riskier assets despite the shortage of data releases on this day. Sharan Osborne, chief FX strategist at Scotiabank in Toronto, expressed, "We continue to believe that longer run headwinds for the U.S. dollar are rising�, suggesting that investors remain hopeful despite fluctuating performance.
Joseph Houghton
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NEFS MARKET WRAP-UP
Minor Currencies Last week, the New Zealand Dollar plunged after the central bank (RBNZ) Deputy Governor, Geoff Bascand, said proposals to increase bank capital requirements may lead to tighter credit conditions. Increasing bank capital requirements would in turn lead to higher borrowing costs, pushing down inflation and forcing the central bank to cut the benchmark lending rate to meet its statutory objectives. The NZD/USD pair fell to 0.67748 after the deputy governor spoke, as shown by the graph. Positive news over New Zealand’s level of credit card spending earlier in the week failed to boost the currency ahead of the weekend. Credit card spending leapt 6.9% in January over the last year failed to shore up the risk sensitive New Zealand Dollar, which has suffered due to renewed Brexit tensions and worries regarding a slowing Chinese economy. Because of these global risks, investors are expecting the NZD to maintain its bearish momentum. As it stands, priced-in market expectations for RBNZ policy implied in interest rate futures suggest traders do not expect the central bank to act this year. If a change does happen, it now appears investors expect it to be a rate cut.
Meanwhile in Canada, the Canadian Dollar (CAD) weakened against the US Dollar (USD), as low oil prices offset stronger-than-expected domestic data and Bank of Canada Governor, Stephen Poloz, continued to signal a more gradual pace of future interest rate hikes. The CAD traded 0.3% lower, at 1.3222 to the dollar, following the latest dip (at time of writing) on Thursday. The price of crude oil - a major export of the country - sank below recent 2019 highs, as US government data showed a sharp build in crude stocks and record production, while concerns about a slowing global economy weighed on the market. Market sentiment, particularly for the CAD/USD pair, is bullish as oil prices recover and US-Sino tensions relax. In Japan, the Yen weakened last week as the Bank of Japan Governor Haruhiko Kuroda spoke at the Japanese parliament, saying that the central bank was ready to ramp up stimulus if sharp yen rises hurt the economy, and derail its path towards achieving its 2 per cent inflation target. The USD rose to 110.615 yen from a low of 110.45 hit earlier in the session. Rudai Wang
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25.02.19
Currencies
Cryptocurrencies Trade volumes peaked at $35bn on Tuesday after the crypto markets saw a huge rally; these are the highest levels seen in ten months. Trade volumes have since decreased slightly, down to $23bn on Friday. However, this volume still remains well above the bear-market average.
Ethereum (ETH) made gains of 21.8% this week, the second highest in the top 15 cryptocurrencies ranked by market capitalisation. It is still bullish in the short-term and made a 2.3% 24-hour gain on Friday, trading at $148.33. This means that the short-term uptrend for Ethereum is still intact with the next resistance level at $160.
This week’s rally has resulted in Bitcoin (BTC) making weekly gains of 10% with a peak of $4174, trading around the $4000 area on Friday. The next major resistance area for the bulls will be the $4200 mark and if they succeed in surpassing this, there will be nothing stopping the coin returning to $5000. If it reaches $6000- the breakeven rate for miners- it will negate the long-term downtrend.
Binance Coin (BNB) continues to outperform most of its peers with daily gains of 3% on Friday, weekly gains of 15.9%, and an 80% gain since the start of February. The trading price ($10.68) is increasingly close to October highs, which previously led to the start of a steep bearish market in which the coin lost over 50% of its price.
Out of all the major altcoins, EOS made the biggest gains this week. It is currently approaching its ICOlevel (initial coin offering) capitalisation following a 38% weekly increase in price. It is currently trading at $3.88, which is the highest level seen since November, making EOS the strongest major altcoin from a short-term technical perspective. Even though it is overbought according to indicators, buying pressure is still present.
Only two of the top 50 cryptocurrencies failed to generate positive returns this week. Among the top 20 coins, 11 of them reported weekly gains of at least 10%. This has resulted in the crypto market capitalisation gaining £14.4bn since last Friday, currently at £134.8bn, peaking at $136.2bn on Wednesday (see graph).
Rhys Dil
Litecoin (LTC) entered a correction yesterday after it reached the $51 resistance level. The pullback has been contained and is at $49.38 on Friday, with a support level at $44 if needed.
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