NEFS Weekly Market Wrap-Up Presented by the NEFS Research Division
04.03.19
MACRO REVIEW
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United Kingdom The US and Canada Europe Japan & South Korea Australia & New Zealand
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EMERGING MARKETS
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Africa China Latin America Russia & Eastern Europe South Asia
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EQUITIES, COMMODITIES & DEALS
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Financials Energy, Oil & Gas Tech & FinTech Pharmaceuticals Mergers & Acquisitions
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CURRENCIES
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Major Currencies Minor Currencies Cryptocurrencies
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NEFS MARKET WRAP-UP
.MACRO REVIEW United Kingdom This week has revealed more consequences of Brexit; while data has revealed a positive result of investors increasing their shareholdings in the UK, figures have also revealed the outcome of Brexit uncertainty on the UK manufacturing sector - with jobs being cut at an increasingly fast rate. Britain’s biggest investors have all increased their shareholdings in the UK since the Brexit referendum in a show of faith in the economy’s fundamental strengths. According to Bloomberg data, the UK’s top 10 investors, including Vanguard, Invesco and Schroders, have increased their holdings of UK-listed shares by an average of more than one-third over the past three years. Political turmoil and market volatility have not stopped the financial powerhouses from investing more money into Britain, betting on Britain's sustained success over the long-term. This investment comes despite UK shares performing poorly since the referendum, investors say these lower prices mean that UK assets are more attractive, encouraging those who are confident in Britain’s long-term future to put more money into the market. Additionally, this week has revealed that UK manufacturers are cutting jobs at the fastest pace
seen in six years and stockpiling at record rate with confidence in the manufacturing sector hit by Brexit uncertainty. Duncan Brock, Group Director at the Chartered Institute of Procurement and Supply (CIPS), has said: "The UK manufacturing sector continues to suffer the slings and arrows of outrageous fortune as the harsh realities of Brexit uncertainty, challenges in the global economy and a weak pound affected confidence, jobs and overall activity.” The business optimism indicator for the UK has decreased to -23 in the first quarter of 2019 from 16 in the previous three-month period, demonstrated by the business optimism graph below. This is the lowest reading of business confidence in the UK since the third quarter of 2016, which is due to the concern over manufacturers export prospects when leaving the EU. There is apprehension over the political and economic conditions abroad which may limit manufacturers future ability to obtain export orders. The signs of a slowing domestic market and drop in export orders are also visible in the IHS Markit/CIPS UK Manufacturing Purchasing Managers Index (PMI), the PMI is an indicator of economic health for manufacturing and service sectors, which fell to a four-month low of 52 this February. Abigail Davis
04.03.19
MACRO REVIEW
The US and Canada A busy week for the US economy saw economic growth resilient amid trade-deal ambiguity and other global economic headwinds. Thursday saw the release of GDP data showing a 2.6 per cent increase in US fourth quarter growth (see graph); an increase on forecasts which predicted 2.3 per cent growth. The growth rise is largely due to increases in non-residential investment and resilient consumer spending, which expanded 2.8 per cent despite market turmoil during the quarter and a surprise drop in December retail sales.
Despite this growth, the S&P 500 performed disappointingly this week. The index saw its longest losing streak of 2019 when it decreased in value each day on Tuesday through Thursday. However, the absence of a three-day losing streak until today points to the overall strength of the market this year. The S&P 500 was up 11 per cent in 2019 to the end of February, which ranks as its best year-to-date performance since 1991.
Elsewhere, the federal government shutdown that ended last month was reported to have caused a $3bn dent in economic activity that will never be recovered. The Congressional Budget Office estimated the shutdown would reduce the level of real gross domestic product by 0.2 per cent in the first quarter, after being lowered by 0.1 per cent in the final quarter of last year. Washington also took an aggressive stance to any potential post-Brexit trade deal with UK. The Trump administration demanded greater access to the UK market for its agricultural products and wants assurances that the UK would not manipulate its currency. For years US agricultural groups have complained that European countries have unnecessarily limited American exports of meat and grains based on fears they are unsafe for consumers. Finally, Canadian economic data for 2018’s final quarter proved to be disappointing, with GDP rising at an annualised pace of 0.4 per cent. The economy was hindered by lower oil prices, weaker investment spending and a slowing household consumption. The figure represents the weakest pace of growth in the past 3 years and a notable fall from the 2 and 2.9 per cent growth increases of the previous two quarters. Ben Shepley
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NEFS MARKET WRAP-UP
Europe This week, Italy’s mounting government debt poses a threat to the Eurozone, whilst Greece risks being penalised for falling behind in its postbailout reforms.
This was the largest monthly increase since June and has amplified fears of a ‘doom loop` between the country’s sovereign bond yields and its lenders’ balance sheets.
On Wednesday, the European Commission highlighted the “excessive economic imbalances” of Italy, Greece and Spain. In particular, it warned the Italian government to slash its explosive debt (see graph) which was 132.1% of GDP last year. The report comes just two months after the Commission finally came to a budget deficit compromise with Italy’s populist government by conceding to increase the deficit limit from 1.8% to 2.04% of GDP. However, this was based on a projected 2019 growth rate of 1.2% which, following Italy slipping into a recession late 2018, was slashed to 0.2% by Brussels at the start of February.
The ‘doom loop`, a key amplifier of the 2009 Eurozone crisis, describes the effect of national banks holding large amounts of government bonds. When debt prices fall and yields rise, the banks’ assets and solvency fall, undermining the financial stability of their home country. Therefore with other national Eurozone banks holding over €425bn of Italian debt, the financial stability of the Eurozone as a whole is heavily exposed to the Italian debt crisis and this is why the European Commission are pressuring Italy to reign in its debt.
Despite the Italian sovereign bond market showing signs of recovery earlier in the week when it avoided a further credit rating downgrade by Fitch, these fresh concerns over rising debt and falling growth have reignited panic among investors. The yield on a 10-year bond surged to 2.81%, its highest since November. What’s more, European Central Bank figures released on Wednesday showed that Italian financial institutions bought a net €11bn of government bonds in January.
Elsewhere, the European Commission released their second Enhanced Surveillance Report which monitors Greece’s post-bailout progress. It criticized Greece’s failure to complete 16 reforms especially developing a fully functional legal framework to deal with nonperforming bank loans which are the economy’s biggest problem. However the Commission added that Greece could still complete the necessary changes before the Eurogroup meeting of EU finance ministers on 11th March. The outcome of this meeting will decide whether Greece still receives its biannual €750million of Eurobond profits from the Eurozone.
Hannah Cousins
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04.03.19
MACRO REVIEW
Japan & South Korea Japan’s benchmark Nikkei 225 index experienced a steady week, finishing the week up 0.19% from the opening on Monday (see chart below). Despite experiencing significant declines on Thursday, the index managed to rebound on Friday, closing up 1.02% thanks to a report suggesting that China and the U.S. could be endorsing a trade deal in weeks. This week also saw the Government of Japan release several economic data reports. On Thursday, the Ministry of Economy, Trade and Industry announced industrial output declined 3.7% in January. This was the third straight monthly decline amid sluggish export demand. A senior ministry official said that “the trade war between China and the U.S. is mainly behind the larger-than-expected drop”. Manufacturers surveyed by the ministry said that looking ahead they expect factory output to rise 5% in February and slip 1.6% in March. On Friday, the Japanese Ministry of Internal Affairs and Communications announced its unemployment figures for January 2019. Figures show that the seasonally adjusted unemployment rate went up to 2.5% in January from 2.4 % in the previous month. This was just above market expectations of 2.4%. The jobs-to-applicants ratio remained unchanged at 1.63, meaning for every 163 job openings 100 people are seeking employment.
Data released this week suggested that a series of price hikes for food and beverage products are set to hit shoppers in Japan from March. The price increases are expected to impact households and lead to a tightening of consumption ahead of the scheduled consumption tax hike in October. Meanwhile in Seoul, the Government of South Korea released a wave of economic data this week. On Tuesday, it was announced that business confidence increased to 69 index points in February from 67 points in January. On Wednesday, data showed that manufacturing production in South Korea increased to 0.2% in January year-on-year (YoY) and retail sales increased to 4% in January (YoY). On Thursday, the Bank of Korea left its base rate steady at 1.75%, as widely expected. While forecasting that consumer price inflation will fluctuate for some time below 1%, policymakers reiterated the domestic economy will sustain a rate of growth that does not diverge significantly from its potential level. On Friday, South Korea’s trade surplus widened to $3.1bn in February from $2.8bn in the same month a year earlier. Year-on-year, exports fell 11.1% while imports declined at a faster 12.6 %.
Sean O’Hagan
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NEFS MARKET WRAP-UP
Australia & New Zealand Last week the Australian economy received some good news from the Bureau of Statistics: expectations of 15,000 jobs being created in January of this year were well exceeded, with figures showing 39,100. Amid this, Chinese ports have been banning the import of Australian coal, supposedly on ‘environmental grounds’. However, this concerning economic move seems likely to have political motives linked to applying pressure to allies of the US and Canada as the Huawei Scandal continues. Prime Minister Scott Morrison tried to calm fears that such restrictions posed an issue for Australia, yet it seems likely that this an overture by China designed to target the one Western economy that is highly vulnerable to its decisions. In 2016, bilateral trade with China accounted for 174.7bn AUD, over six times the value of trade with the United Kingdom, formerly Australia’s principal trade partner.
Meanwhile, across the Tasman in Wellington, the Reserve Bank of New Zealand (RBNZ) announced it would keep rates on hold at 1.75% at its latest meeting, with Bank Governor Adrian Orr stating: “We expect to keep the OCR at this level through 2019 and 2020“. It seems the RBNZ is keen to continue stimulating strong growth in the New Zealand economy, and overall this indicates a comfortable outlook for the nation in the midterm, with OECD forecasts for 2.8% GDP growth in 2019, moving down to 2.6% for 2020. In other news PM Jacinda Arden’s Labour-led coalition government has proposed a Capital Gains Tax for New Zealand, one of the few developed economies without one. Nonetheless, this has been faced with immense backlash politically and nationally, with fears it could disproportionately harm retired property owners, affecting their economic wellbeing. However, the success of her government in next year’s election is dependent on CGT’s success.
James Counsell Moreover, Australia runs a comfortable trade surplus with China, making this relationship a strategic asset in the nation’s export-led growth potential. Ultimately, it seems evident that the Australian government will need to ensure any escalation of sanction is prevented for the sake of their mining sector.
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04.03.19
. EMERGING MARKETS Africa Botswanan President Masisi disclosed on Thursday that his country is to increase its credit line to Zimbabwe in a move aimed at both reviving struggling industries and restoring southern-African confidence. This extension of the credit facility comes just a month after Zimbabwe’s request for a $1.2 billion loan from South Africa was rejected. The new credit line will consist of an additional $500 million destined for Zimbabwe’s diamond industry and a further $100 million to help private companies whose operations have been stunted by a dollar shortage in which the $10 billion of electronic funds trapped in local bank accounts far exceed the $400 million dollars of actual cash in the economy. Rwanda is slowly becoming one of the most attractive economies on the continent, with figures released Thursday revealing that since the start of 2019, over $2 billion has been invested in this East African economy. These investments have helped to fund 173 projects, many of which target the agriculture, mining and infrastructure industries. The country’s development board estimates that the direct result of this has been a creation of 31,000 jobs
and a large boost in tax revenues, which undoubtedly will help enable Rwanda to maintain its impressive economic growth rates which have averaged 7% over the past 10 years. It was announced on Friday that Kenya’s housing program that is aimed at producing 500,000 affordable homes is set to inject 2.6 trillion shillings ($26 billion) into the economy by 2022. Through additional investments in building materials, production and transport, the multiplier effect of this investment is estimated to be x7 and experts predict that the final impact will be for the contribution to GDP of the real estate and construction industry to climb from 7% to 14%. The Bank of Ghana, the nation’s central bank, announced this week that it believes that the Ghanaian cedi’s slump to a record low against the dollar (see chart below) will be temporary as it doesn’t reflect many of Ghana’s positive economic fundamentals. Although global growth concerns and a spurt of dollar strength have plagued many developing economy currencies, the largest African producer of electricity, Eskom, has suffered both operational and financial difficulties, exacerbating the South African rand’s losses as investors considered the implications for the nation’s already-struggling economy. The yearon-year GDP growth results which will be released next week are forecasted to be 0.7%, down from 1.1% previously. Matthew Copeland
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NEFS MARKET WRAP-UP
China China today released its Purchasing Manager’s Index (an indicator of the health of manufacturing and service sectors in an economy, based on their employment, demand and production levels), which has fallen from 49.5 last month to 49.2. Any reading below 50 signals a lack of expansion in manufacturing, and the disappointing figure marks the third consecutive month of contraction in China. Beijing has played down the figures, claiming that the country is focusing on quality – not quantity – of growth in production, as it moves manufacturing towards higher quality, more expensive goods. However, a major reason for the slowdown is the trade war and tensions between the US and China, who are only just making headway on negotiations. Economic growth levels in China seem to be picking up, despite a disappointing 2018 and an even poorer forecast for this year (see graph). The government has been gradually introducing economic stimuli in the form of tax cuts and money paid out to local governments, which has caused small increases in growth.
Consumer and investor confidence has risen as a result, restoring liquidity to financial markets. This is important for China because one of the reasons for its economic slowdown was a crackdown on lending and credit, in order to reduce its massive debts, but it had the effect of reducing domestic demand and credit flows. Stock prices are also up, to reflect higher levels of confidence. Meanwhile, the trade war between China and the US continues, and more of America’s demands are now clear. Primarily, the US wants China to end its notoriously high government subsidies to state owned enterprises. The US claims that they give firms an unfair advantage, as low-interest loans and subsidies have allowed Chinese firms in the banking, insurance and transport sectors to expand excessively and dominate world markets. Global oversupply of Chinese-made ‘dumped’ metals and solar panels is also harming the US economy as US firms are being undercut, putting many jobs at risk. China has agreed to eliminate unfair subsidies, but whether or not it acts on this pledge is another question – it has previously avoided World Trade Organisation rules on subsidies by rebranding them as governmentbacked investment initiatives and took 15 years after joining the organisation to fill out its first declaration of local government subsidies. Megan Jackson
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04.03.19
EMERGING MARKETS
Latin America This week saw new Brazilian consumer confidence and economic growth data released, as well as an update on Mexico and Peru's economic performance. The seasonally-adjusted consumer confidence index issued by the Getulio Vargas Foundation saw a slight decline from 96.6 in January, its highest level since April 2016 to 96.1 in February. Consumers’ assessment of the current economic situation in Brazil had improved, but the decline was motivated by pessimistic assessments of the future. A reading below 100 is considered neutral and despite recent improvements, the index has remained in negative territory over the last 2 years, as shown on the graph below.
In Mexico, economic activity data was revealed for December, showing a 0.2% seasonally-adjusted expansion from the previous 3 months. According to the National Statistical Institute (INEGI) this was mainly due to losses from the industrial sector negatively impacting the growth figures, while the agricultural and services sector posted gains. Recent forecasts were also released this week, predicting lower growth for 2019 of around 1.7% annually due to uncertainty surrounding the new President’s policies, which are expected to hinder private investment, as well as recent concerns surrounding the indebtedness of the state-owned oil company Petroleos Mexicanos. Finally, economic growth in Peru improved significantly in the fourth quarter due to strong external and domestic demand. Growth reached 4.8% annualised in Q4 of 2018, double the annualised growth rate of 2.4% in Q3. This strong data puts growth in Peru at 4% for 2018, a significant increase from 2.5% in 2017.
Recent data also show that Brazil's economic growth was weak in Q4 of 2018, with growth of 0.1% from the previous quarter. This was broadly in line with expectations by economists, meaning the impact of weak growth on the stock market and the real was limited. This weak growth demonstrates the importance of the government's plans to overhaul the social security system in an attempt to cut large deficits and attract long-term investment to the economy.
This is thought to be supported by increased public investment in infrastructure such as roads as well as spending linked to the upcoming 2019 Pan American Games in Lima, the capital. This growth is expected to continue in 2019 additionally, attributed to the strength of commodity exports, domestic demand and improvements in investor sentiment likely to benefit the country's large mining sector.
Nathan Howell
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NEFS MARKET WRAP-UP
Russia & Eastern Europe In his annual state of the nation address, Vladimir Putin pledged to focus on social spending and handouts in Russia, with implementation costing as much as $3 billion per year. This comes after declining living standards which have contributed to his falling approval ratings; Putin said that he would increase child support and housing subsidies as well as creating tax breaks for families. Recent figures show slow growth in the Russian economy, with falling incomes and 19 million living under the poverty line. In other news this week in Russia, it was revealed merchandise exports totalled 41.4 billion USD at the end of 2018, signifying a 10.2% increase from the 37.5 billion USD recorded at the end of 2017. This export growth expansion was half that of November's 21% rise. As for imports the general picture was also dismal, with the December 2018 reading the worst in over two years. Imports contracted 6.8%, thought to be caused by a weak ruble and low consumer sentiment. In Eastern Europe overall the picture is mixed. In the Czech Republic, the Czech Statistical Office's economic sentiment indicator increased this month to 98.2 from the eighteen-month low prior of 98 points, edging closer to the 100 point mark and indicating optimism, attributed to mainly the industrial and services sector.
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In Poland, business confidence showed signs of recovery, especially in the manufacturing sector, depicted by the Central Statistical Office's February indicators. They also found the business climate indicator grew from 6.4 last month to 7.3, matching the long-run average, and keeping above the crucial zero mark that separates pessimism from optimism. Hungary's economic sentiment GKI indicator fell in February (see graph below), as it did similarly the month before, dropping from 7.1 to 6.7 points, believed to be caused by declining business confidence - particularly in the industrial sector which outweighed improvements in consumer confidence. The index for which had edged upwards from minus 12.1 points in January to minus 11.1 points in February. This was related to savings and a higher willingness to buy high value goods. In Croatia, inflation declined to an over two year low in January, with consumer prices falling 0.9% from December, the third consecutive monthly drop. The Croatian Bureau of Statistics believed this to be due mainly to lower clothing and footwear prices driven by seasonal discounts. Consequently, annual average inflation slightly reduced to 1.4% from 1.5% previously. Amy Chai
04.03.19
EMERGING MARKETS
South Asia This week, we look at developments in Singapore’s manufacturing and service sector alongside Thailand’s investment outlook and the impact of Filipino mariners. For the first time this year, data from the Singapore Economic Development Board (EDB) suggests that factory output has shrunk to 3.1%, shown by the graph below. This, however, is exactly in line with expectations. On a seasonally adjusted month-on-month basis, manufacturing output increased by 0.9% in January but, excluding the volatile biomedical manufacturing sector, output fell by 0.4%. Biomedical manufacturing continued to put up a credible performance, going up by 10%. This comes on the back of pharmaceuticals, which expanded 13.5% with higher production of active pharmaceutical ingredients and biological products. This comes off the back of an announcement by the Department of Statistics (SingStat) on the 27th February stating that that Singapore’s services industries saw more takings in the last quarter of 2018, but growth remained slower than before. Overall services' business receipts were 4.1% higher than the same period the year before, but eased from the third-quarter revenue growth, which was revised downwards to 7.2%.
For 2019, the Thai Economic Board report for 2019 projects the country’s growth to range from 3.5 to 4.5% on the basis of a growth in private consumption of 4.2% and total private investment of 5.1%. However, tensions between China (Thailand’s largest export destination) and the US and the prediction of political instability due to upcoming elections could all pose a risk to Thailand’s economic expansion. New data from the Economist suggests that, of the 10m Filipinos working overseas (a tenth of the country’s population), seafarers are a fifth of the total, remitting over $6bn a year. Today, on around 100,000 merchant vessels, more than nine-tenths of global trade (by weight) is carried by sea, drawing on a pool of 1.2m mariners. Of these, figures suggest that 378,000, are Filipinos — by far the biggest number by country of origin and, on any day, around 250,000 Filipino mariners are at sea. The Economist writes, “if they stayed at home, the world economy would convulse”. Kaythi Aung
Northwards, Thailand’s economic expansion continues to be a gateway to one of the world’s most dynamic markets. Although the country’s growth rate is among the lowest in ASEAN (Association of Southeast Asian Nations), Thailand’s economy, driven by strong domestic demand, has shown great resilience amid the slowing down of the global economy.
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. EQUITIES, COMMODITIES & DEALS Financials The S&P 500 Index has fully recovered from its loss last Thursday (21st February). The index has now seen 9 consecutive weeks of positive gains and has had a 19% gain from its December 24th 2018 low. The FTSE 100 has also recouped some of the week's losses with the UK Index up 49 points (0.7%), with shares in WPP, the world's largest advertising company, rising by 6.5%. An important event that has also caused waves through financial markets this week is the news that President Donald Trump and the North Korean Leader, Kim Jong Un, failed to reach an agreement. Across the globe, stock markets were affected by the news that talks ended abruptly without an agreement between President Trump and Kim Jong Un. In South Korea, the Kospi composite index closed down 1.8% on Thursday 28th February, which followed a sharp fall immediately following the announcement of a schedule change, as shown in the graph below. Similarly, in the US, stocks also finished lower because of the news, although the main Indexes posted strong gains in February overall.
However, Wall Street has seen its best start to a year in almost 3 decades this year. The S&P 500 is up over 11% so far this year whilst the Nasdaq Composite is up 13.5%. This could be a very promising sign for investors, as LPL financial has shown, since 1950 92% of the time the S&P 500 has posted gains in the final 10 months of the year following a rise in January and February. In London, stock prices opened in the green on March 1st, following positive economic readings in China and London Stock Exchange reported growth that is in line with expectations. However, Brexit is still posing some concerns for UK markets. It is expected that the rally In Britain's top stock Index will come to an end this year due to uncertainty caused by Brexit. The median forecast was for the FTSE 100 to reach 7,500 by the end of 2019, however now forecasts predict it will be much lower at 7,185. Since the start of the year thought, the Index is up 6%. This week also saw shares In Rolls-Royce fall over 3% following its drop out of the race for Boeing's aircraft and this marked its worst trading day since December. British American Tobacco's price also fell 2% despite posting higher full-year sales.
Abigail Grierson
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04.03.19
EQUITIES, COMMODITIES & DEALS
Energy, Oil & Gas Oil prices fell this week finishing roughly 3% down worldwide following concerns around the United States' weaker than expected economic performance and record levels of domestic production. The ISM manufacturing index slumped to its lowest level since November 2016, below expectations, adding to increasing concerns over the US economy. Oil (Brent) finished 3.18% lower, dropping from $66.97 per barrel at the start of trading on Monday before closing at $65.07 by the end of trading on Friday. Oil (WTI) also fell, decreasing 2.45% across the week, starting at $57.17 and ending at $55.80, as shown by the diagram. One key reason for the decline in oil prices is the expanding production of oil in the US. Since the shale revolution in 2008, crude oil production has increased by 140%, a number which has surpassed expectations of even the most experienced banks and economic modelers. The consensus was that crude oil output had peaked just below 9.7 million barrels per day back in 1970, and yet EIA estimates that the US produced just over 12 million barrels per day in the week ending 15 February.
Since the start of 2018, crude oil production is up 30%, yet prices have fallen around 14% in that period, and record levels of crude oil have been exported, surpassing the 3.6 million barrels per day mark. Cuts in oil production from OPEC have also bolstered the US market share of crude oil. Venezuela and Iran, both founding members of OPEC have been hit by sanctions by the US, with Iran's oil production halving since April 2018, and Venezuela's oil exports falling 40% since the implementation of sanctions on January 28, 2019. The price of natural gas remains very low despite severe bouts of cold weather over the winter. Prices for the Henry Hub natural gas supply have frequently dipped below $3/MMBtu over the winter and have recently dropped from $3.50/MMBtu in Mid-January to $2.60 a month later. The price slump is surprising given that gas storage prior to the winter was at its lowest level in 15 years and during a deep freeze in January, residential and commercial consumption in the Midwest reached a record high of 26 Bcf, yet the price continued to fall, despite increasing demand and reduced supply. Futures in Henry Hub are set to rise though, up to $2.895 in April before reaching a high of $3.22 in January 2020. Joseph Houghton
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NEFS MARKET WRAP-UP
Tech and FinTech Lyft, a ride-hailing company borne out of San Francisco, has announced its initial public offering (IPO) plans. In addition to the normal offerings of IPO shares to large institutional investors, Lyft is providing some of its 1.9m drivers with direct access to share at the IPO’s listing price. Whilst unusual, this can be explained in some way with reference to the ongoing competition between Lyft and the biggest player in the sector, Uber, over attraction and retention of drivers. Executing an IPO before Uber will allow Lyft to set its own benchmarks on valuation and growth metrics without investors and analysts being able to make constraining references to Uber, which explains why Lyft has been so hurriedly pushing through the necessary fillings. The freedom afforded by being first will undoubtedly help orchestrate an IPO with the potential to make up for years of lossmaking experienced by Lyft, including a loss of $911m in 2018 alone. On Wednesday, Spotify launched in India. This comes despite the behemothic record label Warner Music Group filling a lawsuit with the High Court of Mumbai with the intention to secure an injunction preventing Spotify from using its music.
The court has deferred Warner’s application, paving the way for Spotify to tap into the market with a population of 1.3bn people and 4G networks which are only spreading as well as becoming cheaper and cheaper by the day. HP has lowered its 2019 outlook for reported earnings after weak sales in Q1, which the American personal computer and printer company has blamed on fewer desktops being sold. They have amended their expected range for earnings in 2019 from $2-$2.10 to $2.04-$2.14. This news knocked HP’s share price down 5.7% on Wednesday alone. Square, a card and mobile payment servicing company headed by the Twitter founder, Jack Dorsey, experienced a fall in share price by 6% following an announcement that it was set for weaker-than-expected profits. Rather than the analyst forecasted adjusted earnings of 11 cents per share, it is likely to output earnings of 6% to 8%. Regardless of this shortcoming, Square posted stronger-than-expected earnings for 2018’s Q4 whilst increasing operating costs by 52%, marking an expansion on product development, marketing and staffing, which sets the stage for accelerated future growth. It is likely because of this that the share price rebounded to its original price (see chart) after Thursday’s announcement.
Sebastian Hodge
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04.03.19
EQUITIES, COMMODITIES & DEALS
Pharmaceuticals It has been a strong performance this week for pharmaceuticals equities across the board, with the largest five firms in terms of market capitalisation seeing their share price rise since opening on Monday. North Carolina based Aerie Pharmaceuticals performed particularly well this week, with shares jumping 14.81% at close on Tuesday to $46.13 per share (see graph). Around 2.24 million shares were traded with 19,179 trades being completed on the Tuesday alone. Shares which struggled to breach the $40 per share last week have hovered comfortably around the $45 per share mark after Tuesday’s growth, reaching $47.27 during afternoon trading on Thursday. With the week’s performance, Aeire now has a market cap of $2.1 billion. Positive results are reflective of a strong financial position for Aeire, who have recently announced they met revenue guidance announced last year. After rolling-out Rhopressa, a treatment that lowers eye pressure in patients. Aeire were able to meet revenue projections as net sales of Rhopressa doubled from the third quarter to the fourth quarter with net revenues of $14.5 million and $24.2 million for the year. Aeire have also reported significant gains in market access, as well as £300 million available in liquidity which will boost investor confidence.
Orphan drug company Horizon Pharma saw its shares gain as much as 29% at early trading on Thursday on the back of successful drug trials. Shares which closed at $21.85 on Wednesday opened at $25.78 on Thursday, reaching a high for the day of $29.19 during late trading. Positive results continued on Friday for the Dublin based firm, staying close to the $29 per share mark and even beating Thursday’s high on Friday afternoon. The company’s thyroid eye disease (TED) treatment, Teprotumumab was successful in recent late stage trials. Horizon reported that nearly 83% of patients that received the treatment reported a considerable reduction in eye bulging, and that the drug safety results were consistent with the positive results of mid stage trials. If approved, the treatment is predicted to generate peak annual sales of approximately $750 million which is an excellent prospect for a firm with a market cap of only $4.71 billion. The company is currently trading at less than 4 times next year’s projected revenue haul assuming that Teprotumumab launches in the first half of the year. Oscar Miller
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NEFS MARKET WRAP-UP
Mergers & Acquisitions Marks and Spencer (M&S) and Ocado have launched their joint venture within the online food retail market, following a £750 million deal. This will allow M&S to penetrate the online market through the home delivery services Ocado delivers, driven by its technology and infrastructure. To finance the deal, M&S has announced that it shall defer 25% of its payment which shall be financed through a 40% dividend cut. This news hit the M&S shares dramatically, leading to a 12.5% fall to 275p a share (see graph below), as investors faced concerns that the firm has overpaid for this deal. On the other hand, Ocado which just holds a 1.3% share of the UK grocery market, rose sharply by 2.9% following the announcements on Tuesday. Nonetheless, M&S’s chief executive Steve Rowe, stuck firm with the decision stating that they believe that the deal with Ocado is a “fair price” for “long term proposition”. The mobile phone and internet services company Sunrise Communications has agreed to acquire Liberty Global’s Swiss business UPC in a $6.29 billion deal.
This move comes as Sunrise wishes to strengthen its position as telecoms company in Switzerland, alongside Liberty Global’s continued effort to divest in Europe, selling its Austrian business to T-Mobile last year and is currently awaiting EU approval on its sale of German assets to Vodafone. This deal will lead to Sunrise becoming the second largest telecoms firm in Switzerland, accumulating an additional 1.1 million television customers and 138,000 mobile phone clients. Overall, following the acquisition, Sunrise shall have a greater market power, allowing it to better rival the dominant state-owned Swisscom which currently holds a 60% for mobile services and 33% for TV communication. Premier Oil and Apollo Global Management have joined forces in a bid for oil and gas fields owned by Chevron within the British North Sea. The assets have been estimated to be valued at around $1.5 billion and shall provide Premier access to this region which it has previously expressed a desire to invest into. Other firms are also competing in this deal such as Ithaca Energy and Chrysaor, with the outcome leading to a party (or parties) gaining access to an area which has provided Chevron with an average daily production of 50,000 barrels of oil as well as 155 million cubic feet of natural gas. Amar Toor
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04.03.19
.CURRENCIES Major Currencies This week has seen the Pound rise against both the beating analysts’ expectations of 2.2% and providing some confidence in the Dollar. US Dollar and the Euro on the back of Brexit developments. The GBP/USD pair fell by 0.16% on Friday on the back of the news while the Dollar parred losses It is looking increasingly likely that the UK could remain within the EU for up to two years and avoid versus the euro on Thursday. Before the announcement, the Dollar index, a measure of a no deal scenario. An extension to article 50 has the dollar’s value against 6 major currencies, had been suggested by the British government and Donald Tusk (European Council President) said that fallen to a three-week low. The outlook for the dollar has not changed on the back of the GDP the extension was a ‘rational solution’ to solving news with Eric Viloria, FX strategist at Credit the uncertainty surrounding the UK’s upcoming Agricole in New York, stating that there is still proposed EU exit. the expectation of one more interest rate hike The Pound-to-Euro exchange rate rallied to a two- this year. year high at 1.1727, while the Pound-to-Dollar rate recorded its highest level since July 2018 at 1.3348 As for the Euro, it struggled against the Pound this week due to the reduced likelihood of a no on the back of this news (as seen in the diagram deal Brexit. Another influence on the EUR/GBP below). According to Mark McCormick, Director exchange rate included the continued struggles and North American Head of FX Strategy for TD Securities, an extension to the Brexit deadline will of the Italian economy. Consumer confidence fell provide certainty for the pound. He also stated “the to 112.4 for February which forced the Euro down longer it gets delayed, the more bullish it becomes further. The Eurozone’s core CPI inflation measure came in at 1% against forecasts of 1.1% for Sterling”. which overall mean that against the dollar the Euro has been almost unchanged in the Friday The Dollar gained back some ground on the session, with the pair trading 1.1376, up 0.05% on Sterling after the Brexit developments. A US the day. growth rate of 2.6% was announced this week,
Ashley Brumfield
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NEFS MARKET WRAP-UP
Minor Currencies The Australian Dollar (AUD) reversed hard last Wednesday as renewed global risks weighed heavily on the currency. Comments made by the US Trade Representative Robert Lighthizer dimmed positive expectations for a near term trade deal between the US and China, catalysing the sweeping declines of the AUD across the board. Examples of the extensive drops include, the AUD/USD pair which traded -0.67% lower the following day, at 0.7138. Pairings with the British Pound were amplified by the continued optimism that a hard Brexit will be avoided, with the AUD/GBP trading at -1.09% lower, at 0.5364 the next day. Imminent data releases include the Q4 CAPEX report and the Reserve Bank of Australia’s (RBA) private sector credit figures for January, of which the housing components will likely be the focus - given the link between credit growth and home prices. With business confidence and conditions also softening early this year, business credit will also be an area of interest. Sentiment around AUD is generally bullish, shown best by the AUD/USD pair’s continued upward momentum from lows of 0.7084.
Meanwhile, Friday’s disappointing release of monthly Canadian GDP growth figures for December saw the CAD weaken, with the CAD/USD down by 0.4% to a low of 0.7554 on the day (see graph). The report revealed that the Canadian economy had contracted by 0.1% on a monthly basis in December. Further details of the report showed that the real GDP’s annual growth rate in the fourth quarter slumped to 0.4% from 2% in the third quarter, missing the market expectation of 1.2%. The next data release to look out for is the IHS Markit’s manufacturing PMI data (for Canada). The USD/JPY trades at ten-week highs just under the 112.00 handle as the yen remains weak across the board as a result of improved risk sentiment. However, the downside is still generally favoured for the pair considering global growth momentum. For now, investors are stuck trading based on what price action is suggesting, Open interest in JPY futures markets increased for the second straight session on Thursday, this time by around 7.5K contracts from Wednesday’s final 190.827 contracts. In the same line, volume rose by almost 46.5K contracts.
Rudai Wang
19
04.03.19
Currencies
Cryptocurrencies Out of all the major coins, Ethereum (ETH) experienced the biggest losses this week. The coin is down by 9.89% from seven days ago and has experienced a 2.73% drop in 24 hours. As of Saturday, ETH is trading around the $133 mark, holding above the $130 support level. The next resistance level is at $145 but, because of its recent relative weakness, it has not come near this since Wednesday. In somewhat better news, the February candle for Ethereum has closed in favour of the bulls. This is because, for the second consecutive month, Ethereum failed to revisit previous lows of 0.02463 BTC and has instead set a higher low at 0.029865 BTC. This is sending a clear message - those who want to buy into the Ethereum market will have to come in at a higher price. Potentially, this looks to be the start of a very bullish market. Litecoin (LTC) has been one of the best performing major altcoins in the latter part of this week. It has gained 0.96% in 24 hours, which is more than any of the other top 25 cryptocurrencies.
According to CoinMarketCap, Litecoin is trading at $47.50 on Saturday, which is just below its shortterm resistance level of $48. If the price drops, further support will likely be found at the $44 and $38 levels. Binance Coin (BNB) continued to defy the market. Outperforming its peers, the coin gained 4.49% this week and has replaced TRON (TRX) as the 9th highest cryptocurrency in the rankings by market capitalisation. It is trading at $11.13 on Saturday, after experiencing a 24-hour gain of 1.41%. This is the highest level it has traded at since August and further gains look likely in the short-term. The majority of the market experienced losses this week. Only two of the top ten cryptocurrencies, and four out of the top twenty-five, reported positive weekly gains. The biggest weekly losses for the major altcoins were seen in Ethereum at 9.89%, EOS at -9.17%, TRON at -8.74%, and Bitcoin Cash (BCH) at -8.41%. This has caused the cryptocurrency market capitalisation to drop from $134.5bn down to $129.5bn in seven days (see graph).
Rhys Dil
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