NEFS Weekly Market Wrap-Up Presented by the NEFS Research Division
11.03.19
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 seen the Organisation for Economic Cooperation and Development (OECD) warn that a no-deal Brexit would plunge the UK economy into recession and that annual growth will slip below 1% this year for this first time since the financial crisis even if a deal is secured. The economic health check is resultant from a string of major manufacturing firms making it clear that their future in the UK is in doubt. Should the government fail to secure a transition arrangement that allows them to trade freely inside a customs union with the EU, this would create great uncertainty in the manufacturing sector. President of Toyota Europe, Johan van Zyl, said he could not promise British employees’ jobs were safe until the outcome of Brexit is finalised. Like most international agencies, the OECD has warned that leaving the EU will harm foreign investment into the UK and lower potential growth. Furthermore, the steep fall in investment over the past year since the Brexit vote, seen in the diagram below, has left the UK economy in a weak position to boost its poor productivity rates.
Therefore, the failure to secure a deal and transition period would potentially plunge the economy into recession due to the consequences on investment and a possible loss of access to EU trade arrangements with third countries - which may cause serious bottlenecks in integrated crossborder supply chains. This week has also seen data released on Tuesday in which the British Retail Consortium (BRC) showed total sales rising by 0.5 percent annually, a sharp slowdown from growth of 2.2 percent in January. British consumers reined in their spending in February ahead of Brexit, as shoppers began stockpiling food rather than purchasing non-essential items, data showed. “Uncertainty over Brexit appears to be driving a shift in behaviour, with many Brits worrying about price rises and cutting back on non-essential spend, and some even stockpiling everyday items,” Esme Harwood, Director at Barclaycard, said. Strong consumer spending has taken the edge off a slowdown in the economy for much of the period since the 2016 Brexit referendum, although consumer confidence levels are now close to fiveyear lows as the scheduled Brexit date approaches. Several retailers have also issued profit warnings, with Debenhams, once the country’s biggest department store, issuing its latest downgrade on Tuesday. Abigail Davis
11.03.19
MACRO REVIEW
The US and Canada Sentiment for the US economy was disappointing this week, as a string of weak data releases pushed stock markets and the dollar lower. Friday saw the publication of jobs data that significantly underperformed forecasts and deepened concerns about the impact of trade wars on the US economy. Non-farm payrolls, a measure of the number of paid US workers that excludes farm workers, private household employees, and non-profit organisation employees, grew by only 20,000 posts in February - far short of forecasts of a 180,000 increase. The dollar index fell 0.2 per cent lower off the back of the data release. The S&P 500 opened 0.8 per cent lower, compounding a poor week for the index that has seen it weaken by 3 per cent. Elsewhere, the US trade deficit rose to $621bn last year, its highest level since 2008. The data dealt a blow to US President Donald Trump, who has depicted a trade deficit as the primary threat to the American economy. America’s trade deficit with China, who have been the main target of Trump’s protectionist policies, rose $43.6bn to $419.2bn. This accounts for nearly half the total US goods deficit, which stands at $891bn.
Looking North of the US border, Wednesday saw the Bank of Canada keep interest rates on hold at 1.7 per cent, as a considerable slowdown in economic growth towards the end of 2018 forced policymakers into rethinking their case for monetary tightening. The central bank reversed their hawkish stance, highlighting “increased uncertainty” to the timing of future rate hikes. As a result, the Canadian dollar fell 0.8 per cent to C$1.3455 (see graph). Canadian bonds rallied, forcing yields lower as markets delay their expectations of rate rises in 2019. Prime Minister Justin Trudeau faced stringent criticism in the face of allegations from a former attorney general that he pressured senior officials to prevent the prosecution of a Canadian company that holds a strong presence the crucial electoral province of Quebec. Jody Wilson-Raybould alleged that she experienced a strong demand from Trudeau’s office to not prosecute SNC-Lavalin, a Montreal-based engineering firm that employs over 8,000 people, with fraud and corruption. If convicted, the firm would be banned from bidding for federal government contracts for a decade.
Ben Shepley
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NEFS MARKET WRAP-UP
Europe Severely downgraded Eurozone growth projections have caused a U-turn in eurozone monetary stimulus, whilst France forged ahead with the European Union’s first digital tax.
off a collapse in lending but had not been re-opened in almost three years. The bank also held its benchmark main refinancing rate at zero and deposit rate at minus 0.4%.
The European Central Bank (ECB) has substantially revised its Eurozone 2019 GDP growth outlook to 1.1% from a 1.7% forecast in December and cut its 2019 Eurozone inflation projection by four percentage points to 1.2%. These announcements spooked investors, with the euro falling by 1.2% to a twenty-month low.
These moves come only three months after the ECB were confident enough to stop expanding its €2.6tn bond buyback programme and signals how as global growth weakens, it has jumped on the growing bandwagon of central banks which have made Uturns in recent weeks.
ECB President, Mario Draghi, blamed weak economic data in recent months. For example, the manufacturing sector is contracting, shown by its Purchasing Managers’ Index recording below 50 at 49.3 (see graph). He also pointed to the global demand slowdown being compounded by some “country and sector specific factors” including the Eurozone’s biggest economy, Germany, narrowly avoiding a recession at the end of 2018. Increasingly concerned over the region’s faltering growth, the ECB revived the crisis-era Targeted Longer-Term Refinancing Operations programme. This stimulus was used to offer cheap loans to banks by holding a series of auctions of multiyear loans at low rates to stave
Elsewhere, on Wednesday, the France introduced a 3% levy on the turnover of companies with digital revenues of more than €750m globally and €25m in France. This digital tax will apply to the French revenues of roughly 30 major companies including Google, Facebook and Amazon. However, despite the government expecting the levy to raise €500m per year, it could undermine efforts by President Macron to boost France’s tech industry. Nevertheless, although the tax alone will not dent the revenues of these tech giants, it could further push other countries to begin to squeeze the profits of US tech companies in Europe. Despite an EU-wide digital tax failing to gain support last year, countries including the UK, Germany and Spain are developing their own digital tax measures. The OECD is also currently examining a global digital tax but has said it will not come to a conclusion until 2020.
Hannah Cousins
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11.03.19
MACRO REVIEW
Japan & South Korea It was a troubling week for Japan’s benchmark index, the Nikkei 225, after finishing the week down -2.7% from the opening on Monday (see chart below). This was the index’s worst performing week since mid-December. The declines come as downbeat views on European growth and poor Chinese export data sharply reduced risk appetites. Shogo Maekawa, a market strategist at JPMorgan Asset Management in Tokyo, said “investors currently are deeply worried about global economic slowdown.” Japanese shipping companies took the biggest hit with Mitsui OSK Lines down 3% and Nippon Yusen down 3.2% on Friday. Despite the bad sentiment in Japanese Markets, the Government of Japan released strong GDP figures for Q4 of 2018 on Friday. The Japanese economy advanced 0.5% in Q4 2018, recovering from a downwardly revised 0.6% contraction in Q3. The latest GDP reading was above market expectations 0.4%, due to a rebound in household consumption and upward revision of business spending following a series of natural disasters. Year-on-year (YoY), the economy grew 1.9%. Further data released on Friday showed household spending rose 2% (YoY) in January, up for the second straight month due to more expenditure on home renovations.
Meanwhile in Seoul, South Korea’s benchmark KOSPI index experienced a week similar to that of Japan. The KOSPI was down -2.6% from the opening on Monday, and finished Friday at its lowest point since January 24th. The news of weak Chinese export data was the main underlying cause of the declines, but rising tensions between the US and North Korea this week along with global growth concerns played a major part also. On Tuesday, it was announced that South Korea’s unemployment rate rose to the highest level in almost a decade in January. The unemployment rate in South Korea increased to 4.4% in January 2019 from 3.8% in December 2018. It was the highest jobless rate in nine years. Exports declined last month as sales to China shrank for a third month in a row, adding to the strains for jobs in South Korea's manufacturing and services sectors. Mr Lee Sang-Jae, an analyst at Eugene Investment and Securities said “manufacturers are likely to hire even fewer workers should the exports downturn continue." The latest jump for unemployment is a reversal from recent easing and presents a fresh challenge for the administration of President Moon Jae-in. Sean O’Hagan
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NEFS MARKET WRAP-UP
Australia & New Zealand Australian retail sales grew by just 0.1% over the past month, below market expectations of a 0.3% increase. This reflects a wider trend of a softening domestic demand in the nation’s economy over the past quarter, within which GDP grew at only 2.3%, below that market’s 2.5% expectation (see Figure 1). The causes of this are varied, however there seems to be a reduction in fixed investment. Notably, real estate and mining (one of Australia’s core industries) have seen falling investment. With inflation falling to 1.8%, against the target rate of 2%, these developments have strongly influenced the Reserve Bank of Australia’s (RBA) decision to hold interest rates at 1.5% and highlight the necessity for more dovish monetary policy as the economy faces a potential slowdown. The extent of this could be exacerbated by increasing trade tensions with China owing to Australia’s close political ties to the US. In despite of this, some good news came from Australia’s Financial Sector. Following the RoyalCommission’s report highlighting the overcharging scandal of National Australia Bank (NAB), there was a change in chairman, with Philip Chronican, acting CEO since Andrew Thorbun’s departure last month, replacing Ken Henry, stating the need for the Bank to regain customer’s trust and better serve them.
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Overall, a similar trend was reflected in New Zealand’s statistics. The ANZ-Roy Morgan (the indicator for New Zealand consumer confidence) fell down to 120.8 from 121.7. Whilst this remains above 100 (resembling optimism over pessimism for consumers), it reports considerably lower confidence than in recent years, such as in 2017 when the index reached 130. The ANZ’s business outlook indicator suggested firms are also feeling less confident about the year ahead, with 31% of firms vs 24% in December stating they expected business conditions to deteriorate over the next year and reflecting falling investment levels - potentially linked to a perceived lower availability of credit in the country. Whilst OECD forecasts for the economy are at 2.8% for 2019 this does show a fall since 2016’s 4.1% growth rate, ultimately demonstrating the region seems to be heading for a slowdown in their economic cycle over the year.
James Counsell
11.03.19
. EMERGING MARKETS Africa Figures released Tuesday show that South Africa’s economy grew by 0.8% in 2018 as momentum slowed during the final quarter of the year. Compared to 2.6% GDP growth in the 3rd quarter, growth in the 4th quarter fell to just 1.4%, meaning that the South African economy has now failed to expand by more than 2% annually since 2013.
Confidence in Zimbabwe has since plunged considering that these loans attract an interest rate of 6% above the London Inter-bank Offered Rate (LIBOR) and contradict President Mnangagwa’s recent promises to drastically curb borrowing after the nation’s budget deficit soared last year following a spending spike preelection.
Plagued by an unemployment rate of 27% and a crisis at the heart of Eskom, Africa’s largest electricity producer, a Johannesburg-based think-tank has predicted that the economy now needs to grow at 5%-6% annually for at least 20 years if unemployment is to be reduced to 10%.
In a bid to reverse the trend of falling inward FDI flows, Zimbabwe has also pledged to remove a rule which discourages investment by preventing foreign investors from owning platinum and diamond mines in the country. At present, 51% stake in these types of mines must be transferred to locals, yet the Zimbabwean Finance Minister has announced that the removal of this requirement will entitle foreigners to 100% ownership of their mines.
Zimbabwe’s Reserve Bank has been forced to borrow a total of $985 million from African banks in order to finance the purchase of fuel and other critical imports as current reserves are expected to only cover imports for the next four weeks due to the growing severity of the nation’s dollar shortages. These loans come just a week after Botswana extended its credit line to Zimbabwe by roughly $600 million and a month after Botswana’s request for a $1.2 billion loan from South Africa was rejected.
Following a sharp drop in the prices of basic food products, a much-needed relief for the Kenyan economy was brought about through a decrease in the inflation rate from 4.7% to 4.14% (see chart below for more). Falling prices of petrol and diesel provided further relief for the Kenyan economy in the form of a 0.5% decline in the transport index. Despite this, amid softer consumer demand, Kenyan business confidence has fallen this week, with an index tracking privatesector activity having fallen to its lowest point since November 2017. Matthew Copeland
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NEFS MARKET WRAP-UP
China On Tuesday, China announced reforms on business regulation and tax which are estimated to save businesses nearly 2 trillion yuan ($298 billion) per year. The reforms will mainly come in the form of lower corporation tax rates, but the exact numbers are not yet known. Allowing the private sector to expand and grow the economy could be a less risky strategy for China, whose growth has consistently slowed down in recent years, to get the economy back on track, considering that loosened monetary policy was ineffective and only led to a soar in the debt to GDP ratio. However, analysts say that there will be a considerable time lag before the effects of the tax cuts start showing, as payoffs from investments and business expansion take time to see. What’s more, Beijing is become increasingly strict on tax collection, adding to bureaucracy costs for businesses, which could offset cost savings made. As trade talks between the American and Chinese governments continue, with no certainty of a deal, Chinese trade and commerce has been suffering more and more as a result.
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Around $250 billion worth of US imports from China have had new tariffs imposed since the start of the ‘trade war’, damaging China’s export industries. And now, major companies such as BMW are debating whether to leave China behind. The company set up a plant for its electric car manufacturing in China in order to take advantage of the huge market size on their doorstep, which would have meant lower transport costs and cost savings as a result of scaling up operations. If tariffs on Chinese exports are not reduced, it may not be worthwhile to export BMWs from China, with locations in the UK and the Netherlands now under consideration. This would deal a huge blow to Chinese FDI (Foreign Direct Investment), as well as removing jobs from the economy. China’s defence budget is about to receive a huge boost – of around 7.5% of GDP. With 2019 growth forecast at 6.5%, defence spending is set to increase by more than GDP. While this is nothing new (see graph for figures up until 2015), it may have more negative consequences now than in the past, due to China’s ballooning debt and sluggish economy. Megan Jackson
11.03.19
EMERGING MARKETS
Latin America This week there has been mixed news for sentiment in Mexico's economy, signs of an end to Argentina's recession as well as news on Peru's economy. New data arrived this week showing an increase in Mexico's consumer confidence index according to the national statistic's agency - from 113.2 in January to 119.9 in February, a record high. Any reading above 100 indicates an improvement in consumer confidence, and the historical index performance can be seen on the graph below. This data is contrasted by the direction of Mexican credit ratings, which have fallen for various stateowned companies after concerns surrounding the government's debt load and the outlook for Petroleos Mexicanos, the state oil firm were raised. Whilst not affecting consumer confidence, according to Alberto Ramos of Goldman Sachs "business sentiment has been more subdued as producers have been apprehensive with regards to policy direction�. Argentina's economy is beginning to show signs of recovery as contractions in industrial production eased in January from the previous month according to the INDEC National Statistical Institute. Most of January's decrease can be blamed on weak domestic demand as the country is currently in a recession.
This has also caused panellists in the LatinFocus Consensus Forecast to expect a contraction in industrial production for 2019 of 0.5%, down 0.7% from the previous month's forecast. Whilst the increase is good news, industrial output is still down 10.8% year-on-year indicating that the economy has not recovered from its recessionary period just yet. Peru's consumer confidence data published by GfK rose to 104 in February from 93 in January, the highest reading in over 2 years. A reading above 100 indicates optimism on behalf of consumers for the first time in over a year. This was primarily due to improvements in expectations for both consumer's personal finance situations as well as optimism with regards to the economy. Inflation also remains muted in one of the region's fastest growing economies, with consumer prices in Lima, the country's capital, falling slightly from 2.1% in January to 2.0% annualised in February. However, core inflation which excludes volatile energy and food prices showed a 0.2% increase month on month, up from 0.1% in the previous month. Economist's expectations for the future inflation prospects of Peru remain unchanged from the previous month's forecasts at 2.3% for 2019. Nathan Howell
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NEFS MARKET WRAP-UP
Russia & Eastern Europe In Russia, it is thought that the government raising VAT from 18% to 20% in January is having transitive effects on the economy, with the annual inflation rate growing to 5.2% last month from 5% in January, matching market expectations (see graph below). This was Russia's highest inflation rate in over two years, largely due to rising price pressures from food, non-food and services, with consumer prices edging upwards by 0.4% since last month. Highlights this week in Eastern European news are mixed, including strong industrial production in Croatia, with industrial output rising 4.7% in February, in stark contrast to a sharp 6.6% fall the previous month. This recent rebound is Croatia's most powerful expansion in over two years, caused by output boosts in manufacturing, electricity, gas and steam supply sectors. Meanwhile in Latvia, the Central Statistical Bureau calculated a fall in industrial output by 1.8% in January, a rate very different from a 4.5% expansion in December. The decline reflects recent contractions in the electricity and gas supply sectors, which outweighed and thus offset expansions in manufacturing, mining and quarrying. In Bulgaria, it was revealed by the Statistical Institute that economic growth increased in the final quarter of 2018, with the economy growing 0.1% faster than in Q3 and 3.2% over the whole year; this is a slower pace of growth than the 3.8% recorded in 2017.
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Declining wage growth, deteriorating consumer sentiment and less household spending all are believed to have contributed to decelerating domestic demand. However, exports rebounded after two consecutive quarters of contracting, a good sign in the current global trade backdrop. In Tuesday's March monetary policy meeting, the National Bank of Poland (NBP) kept the country's reference rate at the record low 1.5%, a number largely expected; it has been over three years since the bank has changed this reference rate. Also held the same were the deposit rate (at 0.5%) and the rediscount rate (at 1.75%), in addition to the Lombard rate which stands at 2.5%. The NBP's decisions were swayed by current low inflation in Poland, weaker economic activity and loose monetary conditions in the Eurozone. Moving into the future, the NBP predicts GDP growth to slow even further, with only weak inflation as the freeze on electricity prices as well as contained oil prices is expected to restrict rises in inflation. The NBP's rates are not predicted to change.
Amy Chai
11.03.19
EMERGING MARKETS
South Asia This week, we look at the reasons behind Malaysia’s interest rate hold alongside the new priorities set by Philippine’s new Central Bank governor and Singapore’s infrastructure push. On Tuesday, Malaysia’s Central Bank decided to keep its benchmark interest rate unchanged (at 3.25%), saying inflation is likely to remain low after the economy slipped into deflation in January where consumer prices dropped to -0.7%, shown by the graph below. Previous predictions had suggested higher inflation rates in the future, but now experts say that it will remain low in the immediate term due to the “policy measures” and the “downside risks in the economic and financial environment”. One constraint comes from the economy’s budget deficit, with the government reviewing projects and making vast spending cuts. Overall, economists expect the government to miss its 4.9% growth goal in 2019, predicting 4.5% instead, as global risks and uncertainty mount. The new Central Bank Governor for the Philippines, Benjamin Diokno, has made his priorities for the economy clear: price and economic stability and ensuring the independence of the institution with policies “determined by clear analysis” and very “data-driven and evidence-based”.
These comments have jolted financial markets as traders believe that he’d be more open to cutting interest rates and tolerant of a weaker peso after saying there was “room to ease policy”. So far, the unchanged 4.75% baseline rates have only raised borrowing costs by 175 basis points in 2018 as inflation climbed to a nine-year high. The next decision to amend rates will take place on the 21st March. Finally, Singapore is transforming its infrastructure to fend off competition from the seas to the skies. Singapore has been investing to expand its airport, port and overall transport infrastructure as a swelling middle class in the Asia Pacific region allows an increasing number of people to fly and more trade crosses its borders. In the sky, the country plans to begin operating its fifth terminal at Changi Airport, Asia’s second-busiest international aerodrome, by 2030. Similarly, on the sea, Singapore expects to begin operating a new port in Tuas (on the western part of the island) in 2021 to free up space for development in the waterfront of the central business district. With this, Singapore is preparing to provide liquified natural gas as fuel to vessels by 2020 to meet the stringent global rules set by the International Maritime Organisation.
Kaythi Aung
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. EQUITIES, COMMODITIES & DEALS Financials The FTSE 100 has had a good week overall with improvements seen from a weaker pound and gains from tobacco stocks. British American Tobacco ended Wednesday as the best blue-chip performer, up 5.2% and the pound traded across the session on Wednesday hitting a nadir of USD1.3124. Brexit is continuing to test investor optimism. One poor-performer this week was Burberry, which was the worst performer of the large cap index, down 4.0% following Goldman Sachs' decision to downgrade its rating to Sell. On Thursday, the European Central Bank unveiled announcements to keep interest rates on hold until 2020, hold another series of auctions of multiyear loans to banks at low rates to support growth as well as announcing growth predictions for the next few years. Economic growth is expected to fall from 1.9% in 2018 to 1.1% in 2019. Following these announcements, the European Banks Index fell 3.9%, which made Thursday its worst day of the year so far. However, the Stoxx Index that tracks the region's banks (the main beneficiaries of the low-rate refinancing scheme) rose by 0.1%, having been down as much as 0.7% as shown in the graph below. Similarly, Eurozone bonds also rallied, which sent their yields lower. For example, the German 10-year Bund yield fell 4.1bp to 0.089%.
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On Wall Street, the futures turned positive after the announcements from the ECB to preserve favourable bank lending conditions and the smooth transmission of monetary policy. However, the US stock market has fallen every day this week, and on Thursday the Dow fell 50 points at the open. One big mover was Kroger (KR) which opened 12% lower after the announcement that new Initiatives squeezed profit last quarter. Barnes and Noble also dropped by a massive 13% following weak profit outlooks. Brexit is still continuing to affect the Financial Markets. In particular this week, the housing markets have been hit hard with Britain's largest estate agent, Countrywide Plc down 15% on Thursday following flat earnings in 2019 due to Brexit uncertainty. Continuing from last week, the Asian markets continue to be affected by uncertainty over US and China trade deals. Asian shares were mostly lower, with the Japanese Nikkei slipping 0.7% on Thursday, the Hong Kong Hang Seng down 0.5% and South Korea's Kospi slightly lower on Thursday. The general trends include financial and property shares down with IT companies on the up.
Abigail Grierson
11.03.19
EQUITIES, COMMODITIES & DEALS
Energy, Oil & Gas Crude oil prices fell by more than 3% on Friday 8 March following disappointing economic data released in China and the United States, and growing concerns over the global economy. Brent (oil) traded 2.8% down at $64.34 a barrel in latemorning trading on Friday meanwhile WTI fell 3.1% to $54.90 a barrel. Saudi Arabia continue to cut oil production, dropping to 10.1 million barrels per day (bpd) in February, down from 11 million bpd in November 2018 as the diagram shows. Reductions by OPEC's informal leader represent cuts far greater than those agreed in the OPEC+ deal which committed to 1.2 million bpd cuts in the first half of 2019. Saudi Arabia's allotted cuts were worth 322,000 bpd, from their October production of 10.6 million bpd, yet they had already surpassed that by January. Saudi Energy Minister Khalid al-Falih suggested that cuts were likely to continue, predicting a drop to 9.8 million bpd in March, 500,000 bpd lower than the commitment made in the OPEC+ deal. These actions demonstrate a clear attempt to reduce market supply to stabilise the market and raise oil prices which have been falling over the past few months in retaliation to the United States' booming oil production.
Intercontinental Exchange Inc. revealed their lofty expectations for the Dutch natural gas market to transform into a global leader, akin to Brent, the established benchmark for Crude Oil worldwide. Several years ago, the market was dominated regionally by the UK, yet roles have reversed, with imports increasing and utilities contracts from nations such as Norway and Russia now pegged to the Euro, as well as Brexit uncertainty hampering UK activity. Trade on the Dutch Title Transfer facility is booming with volumes increasing 13-fold in the last 4 years on the ICE Index and TTF has established itself as the most important hub for fuel. The UK also announced plans to increase wind power to 30% of energy production by 2030 despite wind power providing only 17% of the UK's energy demands in 2018 with a predicted 70% coming from renewable sources by 2030. ÂŁ250 million will be invested into offshore wind power, a sector in which the UK is already an industry leader, yet many remain unconvinced, as renewables would have to be scaled up significantly, given a stagnation on nuclear power production in the UK.
Joseph Houghton
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NEFS MARKET WRAP-UP
Tech and FinTech San Francisco-based cloud software giant Salesforce released a disappointing forecast for earnings. The $121bn company stated an expected Q1 profit of $0.60 to $0.61 per share, with revenue on track to fall somewhere between $3.67bn and $3.68bn. As for the full year, they expect profit of $2.74 to $2.76 per share and revenue between $15.95bn and $16.05bn. The decent, but not quite good news was met with a 6.1% fall in share price across this week (see chart). Whilst Salesforce has seen impressive revenue growth of 26% on top of last year’s Q1, it has also been bogged down by rampant spending in order to stay afloat amongst fierce competition. Google made a final plea to European MEPs to reconsider an update to EU copyright rules which the search engine giant claims will force their subsidiary, YouTube, to pre-emptively take down swathes of content or risk getting sued. In addition, Facebook has joined Google in warning the Australian Competition and Consumer Commission that proposals to reduce the monopoly power held by the tech giants could have “unprecedented” effects that would hurt consumers and advertisers alike, whilst not achieving their goal of boosting the sustainability of journalism outside the sphere of the aforementioned giants.
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Google’s parent company, Alphabet, has deployed its first aggressive venture into cyber security, with a new product called Backstory. Backstory, created by Alphabet subsidiary, Chronicle, will allow companies to store masses of security data in their own private cloud server and instantly search for and purge potential breach threats. With Chronicle having direct access to Google’s nearly unlimited amount of computing and very cost-effective technical infrastructure, the hope is that it will succeed in disrupting the cyber security sector currently dominated by the like of Microsoft, Cisco and McAfee. British building society Nationwide has invested in 10x Future Technologies, a fintech firm specialising in the core banking platforms that power lenders’ operations, to the tune of £15m. This injection came as part of a £32m investment round which will hopefully bolster 10x’s growth after just losing its primary client Virgin Money, when the latter was acquired by CYBG. On Wednesday, French finance minister, Bruno Le Maire, introduced a 3% levy on turnover for companies with digital business models and revenues more than €750m globally and €25m in France. How the technology sector responds to this remains to be seen. Sebastian Hodge
11.03.19
EQUITIES, COMMODITIES & DEALS
Pharmaceuticals It was a relatively weak performance for Pharmaceuticals equites this week, with four of the largest five companies by market share seeing a decline in their share price, excluding only Novartis. However, shares in Boston based Rhythm Pharmaceuticals soared on Friday after progressive decline earlier in the week. The NASDAQ listed company surged over 2.61% during afternoon trading to $28.48 USD compared to $26.98 USD during morning trading. Shares slumped on Thursday to $25.52 USD, so the growth is welcome, however Rhythm stock is still off its high for the week of $29.67 USD. These positive results come off the back of positive quarterly earnings results, with earnings per share beating analysts’ expectations by $0.17 coming in at $0.74 compared to a projected $0.57. These results also beat the last EPS for the last four quarters (see graph). Most research firms have upgraded Rhythm from a ‘hold’ rating to a ‘buy’ rating, with some upgrading it from a ‘sell’ to a ‘hold’. Shares in GlaxoSmithKline climbed on Friday as the group’s majority owned ViiV healthcare unit posted positive data from late stage trials of HIV treatment.
Shares reached 1,512.40 GBX, a positive increase compared to a low for the week on Thursday of 1,502.60 GBX. GSK’s share price added 0.53 percent as of Friday morning, outperforming the broader UK market with the FTSE 100 index standing 0.79 percent lower. Connecticut based Purdue Pharma is exploring bankruptcy in order to address liabilities from thousands of lawsuits suggesting the company has contributed towards the current opioid crises sweeping the USA. The firm is under pressure to address accusations suggesting they misled doctors over the prescription of OxyContin, an opioid pain killer which many claiming it has led patients to develop opioid addictions. Hedge Fund Hildene Capital Management have tossed the Sackler family, owners of Purdue Pharma from their fund saying it felt uncomfortable managing their money after the crisis. The hedge fund, which manages over $10 billion, dropped the family from their management claiming that an opioid tragedy affected one of their employees personally. This comes as a blow to the family who have a shared fortune of $13 billion tied to Purdue Pharma which generated 3 billion dollars of revenue in 2017. Oscar Miller
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NEFS MARKET WRAP-UP
Mergers & Acquisitions The German wholesaler Metro has set a target to sign a deal to sell the Real hypermarket chain by April or May; the loss-making chain has attracted the attention of five parties with its annual sales revenue of over £6 billion. With over 279 hypermarkets run by Real, the value of the real estate has also caught the interest of retail property investors. This has been clear with the shopping mall operator ECE joining efforts with Morgan Stanley Real Estate to work towards a possible deal. However, even with the estimated value of properties to be valued at around 750 – 900 million euros, this is expected to balance against the loss of operating the company. Overall, Germany’s competition authority is expected to voice its concern over any takeover of Real by other large hypermarket chains. Additionally, OneSavings and Charter Court are in talks concerning a potential merger which would create a £1.6 billion firm in the financial services industry. This new power shall be able to compete with other better-known challenger banks such as Metro bank with a valuation of £850 million. Within the electricity and gas industry, the British firm National Grid has announced that it has agreed on a deal to buy the wind and solar US energy developer Geronimo Energy.
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Coming in at a $100 million deal, shareholders viewed this expansion as a step in the right direction towards long-term sustainable power projects. This was reflected in the upswing in the stock price beginning on Thursday from 845p, climbing through the week to 875p, see graph below. Meanwhile, Airbnb has announced that it has plans to acquire HotelTonight, a competitor which provides a service for travellers to make last minute hotel bookings. This move will help provide the company an opportunity to expand its portfolio of offerings, with traditional and boutique hotels. Although a deal is yet to be struck, the acquisition has been given a private valuation of $465million, making it Airbnb’s biggest acquisition. This shall be a deal to watch as it shall impact the competitive market place which includes firms such as TripAdvisor and Booking.com. This shall overall be seen as a healthy diversification, however as the firm is not publicly traded, this has not been reinforced with a price reaction to show the true market sentiment of such deal. Amar Toor
11.03.19
.CURRENCIES Major Currencies A double dovish move this week from ECB president, Mario Draghi, created negative sentiment towards the Euro.
Analysts were anticipating further dollar gains on Friday with the announcement of January’s job creation figures.
Draghi announced that the ECB would rule out interest rate rises for the rest of the year and create a new Targeted Long-Term Refinancing Operation to provide cheap funding for banks. The euro fell to a new session low of $1.1254, down 0.5% on the day, after Draghi announced the sharp downgrade to this year’s growth outlook. Prior to the announcement the Euro had been trading at $1.1316 as traders had hoped for a stimulus announcement from the ECB.
However, with only 20,000 non-farm jobs added, the figures were well below analysts expectations. This was balanced out by a 3.4% year-on-year increase in hourly wages. The dollar therefore remained stable in Friday trading. Medium term expectations are still strong for the dollar according to Christin Tuxen, chief analyst at Danske Bank, who suggested that the EUR/USD pair would drift below the 1.12 mark in the near-term.
As for the Sterling, fresh Brexit concerns left the pound struggling on Tuesday, with the GBP/EUR exchange rate briefly falling below €1.160. However, the dovish attitude of the ECB has now pushed the pound into the ‘buyzone’ (between the 10 and 20-day moving averages) with analysts now expecting the pound to hold strong against the Euro following the ECB’s The dollar index soared 0.75% on Thursday to brush announcements on Thursday. a near three-month peak of 97.71 (as can be seen in Against the Dollar, the Sterling was trading at the figure below). The dollar has demonstrated $1.3151 early on Thursday morning. However, a strong performance over the last few months and reported impasse on Brexit in which EU “is head and shoulders above peers” according to negotiators rejected the latest Northern Irish Daisuke Karakama, chief market economist at “backstop” proposals saw the Sterling fall 0.4% Mizuho Bank. on the day at $1.3115. As for analysts’ short term expectations for the EUR/USD pair, the possibility of Federal Reserve interest rate increases will likely force the pair to trade around 1.10 over the next 3 months. Over the medium term (3-6 months) the EUR/USD pair is expected to remain around 1.12-1.16 with limited probability of anything in excess of this.
Ashley Brumfield
18
NEFS MARKET WRAP-UP
Minor Currencies Last week, South African President, Cyril Ramaphosa, announced that the government intends to continue with plans to nationalise its central bank, the South African Reserve Bank. The announcement, alongside dovish signals from the European Central Bank (ECB) and global growth concerns, pushed the South African Rand (ZAR) near to a 9-week low, trading at 14.5625 on Thursday - its weakest level since January 3rd. The currency, after its top performance in January, will record its worst February since 1996. Last month, the ZAR made the biggest decline against the dollar in a basket of similar emerging market currencies tracked by Bloomberg. Local woes at state power utility Eskom and global risk continue to weigh on market sentiment, and the currency market is bracing for further volatility ahead of US jobs data, giving the rand a bearish outlook for the near future. Meanwhile, disappointing job creation and unemployment figures have set a poor outlook for the Canadian economy, and is expected to bring further losses to the Canadian Dollar (CAD).
The currency took a tumble last Wednesday as the Bank of Canada (BoC) seemed to push back their intended rate hikes, causing the CAD to immediately fall from 0.7476 against the greenback to 0.7432. Alongside the disappointing macroeconomic data pointing to a slowing domestic economy, the BoC cited the weakening global economy and the fresh fear of recession as chief concerns in their statement. These concerns and the volatility of oil prices over Chinese trade data are the main driving forces behind sentiment for the CAD, which is expected to continue on its current bearish trajectory. The Australian Dollar plummeted last week as growth was reported to have fallen short of forecasts. The year-on-year GDP growth was reported at 2.3%, undershooting the 2.6% predictions. This is also the slowest rate of growth reported since Q2 of 2017. Release of the GDP data instantly brought the currency to 0.70560 against the dollar, as shown on the graph. As the global economy slows, and faces the increasing uncertainty over trade wars, AUD/USD and other business cycle tied assets have been relatively unresponsive so far.
Rudai Wang
19
11.03.19
Currencies
Cryptocurrencies Ethereum (ETH) is trading at $138 as of Friday; the price has been slowing down since Wednesday after its recent surge.
Litecoin is certainly on the path to recovery from the crypto winter, having gained approximately 160% since December lows (see graph).
Through analysis of the ETH/USD charts, it can be seen that the price was moving within a descending wedge pattern before the recent breakout. The price breakout resulted in a price increase of 13%, setting new monthly and weekly highs. As the initial push was so aggressive, analysts predict that there will be some exhaustion from the bulls in the coming week, which could in turn result in a retest of the $133 mark.
The bulls have pushed the price to the highest level since October, reaching highs of around $58.50. LTC is currently trading around $57, a result of the price moving in a sideward pattern for the last two days, meaning the coin is trading slightly above the $54-56 support area having recently fallen 20% from this region in February. Should the $54-56 support fail to hold, the bears could fully reverse the bull run.
If the price breaches the support at $133, it will likely continue falling until the ETH/USD chart is trading within the descending wedge pattern again, wiping away the progress bulls have made this week. However, if the retest of the $133 support results in significant bullish backing, prices could make their way up to the $170 region - the barrier which Ethereum has fallen from twice this year.
However, given the current upside momentum behind the price, the bulls will likely be aiming to breach the next significant resistance level. This would be the $68 area, which the price fell from at the end of last September. If this is reached, analysts predict the bulls will aim for the $74-77 mark which was a major demand zone between June and August before the bears finally breached it. The last major zone before the great psychological level of $100 would be the July highs of around $90-95.
In other news, Litecoin (LTC) has been experiencing a huge rally, consecutively increasing in price over three sessions (ending Thursday).
Rhys Dil
20
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