NEFS Market Wrap Up - Week 16 by Nottingham Economics and Finance Society

NEFS Weekly Market Wrap-Up Presented by the NEFS Research Division

25.03.19

MACRO REVIEW

United Kingdom The US and Canada Europe Japan & South Korea Australia & New Zealand

03 04 05 06 07

EMERGING MARKETS

Africa China Latin America Russia & Eastern Europe South Asia

08 09 10 11 12

EQUITIES, COMMODITIES & DEALS

Financials Energy, Oil & Gas Tech & FinTech Pharmaceuticals Mergers & Acquisitions

13 14 15 16 17

CURRENCIES

Major Currencies Minor Currencies Cryptocurrencies

18 19 20

NEFS MARKET WRAP-UP

. MACRO REVIEW United Kingdom This week has seen the Bank of England (BoE) keep interest rates on hold during its March policy meeting on Thursday. The BoE revealed that its nine rate-setters voted unanimously to keep interest rates on hold at 0.75% just days before the economy could leave the European Union on the 29th March without a deal to smooth its way. Currently, Prime Minister Theresa May waits to hear from Brussels on her request to delay Britain’s departure from the EU by three months, to allow her to get her deal through Parliament.

This current modest inflation is helping the BoE as it holds off raising interest rates while it waits for the outcome of Britain’s Brexit impasse. However, some economists are expecting inflation to rise above the BoE’s 2% target soon, especially as many household utility bills are due to increase in April. Suren Thiru, an economist at the British Chambers of Commerce, stated that, “businesses also continue to report that the cost of their imported raw materials is rising”. As these high input costs filter through supply chains, businesses could increase the upward pressure on consumer prices in the short-term.

In Thursday’s meeting, the Monetary Policy Committee (MPC) also reaffirmed their pledge to gradual and limited rate rises but only once they have a clearer idea of what Brexit will mean for monetary stability. Some members of the MPC, including Governor Mark Carney, have said that they would probably vote to cut rates if Britain leaves without a deal.

The ONS also revealed on Wednesday that house prices rose at their weakest annual pace in 5 and half years in January, having risen by only 1.7% p/a across the United Kingdom as a whole. This has been the smallest increase since June 2013 when Britain was still struggling to shake off the effects of the global financial crisis. Additionally, prices in London alone fell by 1.6 percent, marking 11 months where prices have not risen.

Furthermore this week, the Office for National Statistics (ONS) has revealed that the UK’s annual inflation rate rose to 1.9% in February, but stayed close to January’s two year low of 1.8% (seen in the graph below).

Weak inflation combined with rising wages, lower house prices and the lowest unemployment rate in 44 years has taken the edge off the uncertainty about Brexit for many households, whose spending drives Britain’s economy. Abigail Davis

25.03.19

MACRO REVIEW

The US and Canada This week saw US stock markets finish in negative territory, with the S&P 500 ending 0.8 per cent lower as concerns about global growth weighed on investor sentiment. Additionally, reported stalemates between the US and China over any potential trade deal further increased investor scepticism. Sonny Perdue, the US agriculture secretary, highlighted hardened attitudes from the Chinese towards striking any trade deal with their American counterparts. Namely, the two countries have stalled over agreements on Chinese industrial subsidies, treatment of intellectual property and foreign investors. Additionally, the US hope for Beijing to agree to “significant increases” in purchases of American farm products contrasts China’s unwillingness to explicitly sign-off on any specific policies. Elsewhere, the Federal Reserve on Wednesday signalled that it expects no rate rises in 2019. Jerome Powell, Federal Reserve Chairman, said interest rates could be on hold for “some time” as global risks weigh on the economic outlook and inflation remains muted. Investors are now pricing in a 40 per cent chance of a rate cut by the end of the year, up from about 25 per cent earlier this week (see graph).

Looking north of the US border, Canadian Prime Minister, Justin Trudeau, promised C$22.8bn (US$17.1bn) in additional spending over five years in a bid to “invest in the middle class”. The spending increase marks a bid to recover a slowing economy and bounce back from a string of disappointing data releases. For example, Canada’s gross domestic product rose only 0.4 per cent in the fourth quarter of 2018, down from 2 per cent and 2.9 per cent in the previous two quarters. Data from Friday showed no respite from this trend of lacklustre releases, with Statistics Canada showing lukewarm and disappointing environments for inflation and retail sales respectively. Inflation ticked up from 15-month lows to 1.5 percent but still lies well below the Bank of Canada’s 2 percent target. Meanwhile, retail sales fell 0.3 percent whilst Reuters analysts had forecasted a 0.4 percent rise. The last time retail sales posted three declines in a row was between April and June 2012. Sales fell in four of 11 subsectors, with motor vehicle and parts dealers seeing a 1.5 percent dip in trade, thanks to weakness in new car sales. Ben Shepley

NEFS MARKET WRAP-UP

Europe This week, the European Union’s US trade surplus and Chinese trade deficit both widened whilst Spain defies the Eurozone slowdown with strong first quarter growth. Figures released on Monday showed the EU trade surplus with the US rose to €11.5 billion in January from €10.1 billion in January 2018. This has fuelled speculation whether President Trump, having already slapped tariffs on imports of EU steel and aluminium, will follow through on his threats to target the much more lucrative trade in cars and car parts. However, higher on the EU’s list of concerns is the trade deficit with China which rose to €21.4 billion in January from €20.8 billion a year earlier. With the EU accusing China of using its trans-continental `Belt and Road' infrastructure project to divide the EU, there has been a shift in attitude towards the Asian powerhouse. For example, ahead of an EU summit later this week with China, a new EU strategy document on China not only branded Beijing a “systemic rival promoting alternative models of governance” but also unveiled a 10-point plan to balance Chinese economic ties and push China to open up.

Among these proposals is a new International Procurement Instrument which ensures reciprocity in access to overseas procurement markets and in particular, the Chinese market. Procurement refers to the process of governments selecting suppliers and firms for projects. It has soured EU-China relations since unlike the EU’s open international public procurement, China’s policy involves guarantees to state-owned enterprises and requires direct contract offers to Chinese companies without an open tender. Elsewhere, the Bank of Spain revised the country’s first quarter growth forecast up to 0.6%, citing robust private consumption as the main driver. The increase of private consumption to an almost nineyear high of US$211.813 billion (see graph) in this year’s first quarter is thanks to strong job creation, with Spain’s unemployment expected to further fall to 12% in 2021 from 14.4% in 2018. The Spanish central bank also credited a rise in purchasing power as a result of lower inflation and a falling savings rate. In fact, despite a growing workforce boosting salaries, the Bank of Spain downgraded its 2019 inflation forecasts by 0.4 percentage point to 1.2%. Researchers noted that rather than pushing prices upward, businesses appear to be absorbing the increase in labour costs by shrinking profit margins with this surprising trend being observed across the Eurozone.

Hannah Cousins

25.03.19

MACRO REVIEW

Japan & South Korea In Tokyo, the benchmark Nikkei 225 index experienced a good week, finishing every session in the green and up 1.74% from the opening on Monday. Despite US-China trade fears once again rattling Asian markets, as well as growing Brexit fears, the Nikkei did well to prevent losses throughout the week. The Nikkei 225 remains well within the uptrend which has dominated 2019’s trade, but worrying signs are appearing for the index. The Nikkei has spent much of the last two weeks closer to the bottom of its trend channel than the top (see chart below) and many investors feel the index may struggle to perform well in the weeks to come. On Friday, the Government of Japan announced underlying inflation slowed in February as gasoline prices fell for the first time in more than two years. The nationwide core consumer price index, which excludes fresh food items because of their volatility, rose 0.7% from a year earlier, slowing from a 0.8% increase in January. According to the Ministry of Internal Affairs and Communications, lagging inflation is a headache for the Bank of Japan, which is pursuing a 2 % target in a bid to keep the economy from falling back into growth-stunting deflation.

Meanwhile in South Korea, the benchmark KOSPI index experienced relatively flat week. Despite the index falling substantially on Wednesday’s trading, the index finished the week up 0.33% from the opening on Monday. A stream of economic data was released throughout the week. On Tuesday, data for South Korean consumer confidence showed an increase to 99.50 Index Points in February from 97.50 Index Points in January of 2019. Meanwhile on Wednesday, Business Confidence in South Korea increased to 69 Index Points in February from 67 Index Points in January of 2019. On Thursday, the Government of South Korea announced manufacturing production in South Korea increased 0.2% in January of 2019 over the same month in the previous year while Industrial production in South Korea inched up 0.1% year-onyear in January 2019. However, construction output decreased 11.8% in January 2019, following a downwardly revised 9.1% fall in the previous month. It was the twelfth straight decline in construction output. Sean O’Hagan

NEFS MARKET WRAP-UP

Australia & New Zealand On Thursday, the Australian Bureau of Statistics announced that the seasonally adjusted unemployment rate had fallen to 4.9%, the lowest in 8 years. Upon this news, the Australian dollar rallied in the market up to nearly $0.7170. Whilst most analysts expect unemployment to rise as the economic cycle begins its slowdown, the market responded with optimism to this historic news from Australia. However, following the dovish comments made by the US Federal Reserve and subsequent rallies on American stock markets, the Australian dollar’s gains against the Greenback were erased with markets around $0.7080 near close on the London Stock Exchange this Friday. Across the Tasman, the Kiwi dollar also performed well in recent trading, rising as much as 0.7%. This follows strong GDP reporting from New Zealand, with a 0.6% rise on last quarter’s figure. This is mostly owing to improved performance in the New Zealand services sector, with ANZ (Australia and New Zealand Banking Group) analysts highlighting the Kiwi economy still has “fuel left in the tank”. In other news, the Australian government has recently finalised a Free Trade Agreement with Indonesia (the Indonesia-Australia Comprehensive Economic Partnership Agreement). Notably, the agreement allows 99% of Australia’s goods exports to enter Indonesia tariff-free or with a greatly reduced tariff.

In response, tariffs have been significantly lowered on Indonesian goods entering Australia. This deal seems particularly set to benefit Australian food producers and Indonesia’s car exporters, as these are areas where each country is respectively a significant importer. Ultimately, such a significant agreement between the two largest economies in Southeast Asia, with combined two-way trade of A$16.8 billion is an important step forward in the ever increasing economic integration of the region and is a deal that seems to be very complementary to both partners. Australia’s government recently announced a policy to reduce the number of migrants entering the country by 15%, claiming that increased numbers of people in cities like Melbourne and Sydney have contributed to a congested environment for many Australians. Whilst it is certain Australia’s population has seen a major increase in recent decades, many economic analysts cite this as a key reason why the nation hasn’t experienced a recession for more than 27 years. Ultimately, the impact of this on the Australian economy’s growth potential will not be known until the full effects of this policy shift are established.

James Counsell

25.03.19

. EMERGING MARKETS Africa Data released this week showed that South Africa’s foreign direct investment (FDI) inflows rose to a 5-year high in 2018 of 70.7 billion rand (£3.75 billion), up from 26.6 billion rand (£1.43 billion) the previous year. However, as South African subsidiaries repaid short-term loans to foreign parent companies, Africa’s most industrialised economy registered FDI outflows of 8.2 billion rand (£441 million) in the final quarter of 2018. A Nigerian-based e-commerce company, Jumia, is set to become the first African start-up to be listed on the New York Stock Exchange and is expected to go public within the next month. Whilst no official share price or valuation has been given, estimates are that despite having reported losses of $192 million (£146.8 million) in 2018, Jumia could be valued at $1.5 billion (£1.15 billion). The Nigerian Senate has approved a reform that sets 30,000 naira (£64) as the new national minimum wage and appealed to the Federal Government to start the implementation process. It was also revealed that a fine of 75,000 naira (£160) will be imposed on firms that refuse to comply with this new minimum wage.

However, to finance this increase, President Buhari has warned that Value Added Tax (VAT) will have to rise from the current 5% to between 6.75% and 7.25%. As well as a VAT hike, the chairman of the Federal Inland Revenue Service (FIRS) expects corporate and petroleum taxes to rise in the coming months. The Kenyan government started negotiations with China this week for a loan of 370 billion shillings (£2.8 billion) to complete the third phase of the standard gauge railway. So far, the creation of the Kenyan railway system has created more than 50,000 jobs and has boosted Kenyan growth by 1.5%. Following increases in food and transport prices, South Africa’s inflation rate rose for the first time in three months in February (see chart below). Consumer-price growth rose to 4.1% from a year earlier, compared with 4% in January. These figures come just a month after the central bank lowered its 2019 inflation forecast from 5.5% to 4.8%, largely due to lower predicted oil prices. As the central bank openly seeks to anchor inflation at the mid-point of its 3%-6% target range, eyes are now turned towards the Monetary Policy Committee who will vote next week on the key interest which was held at 6.75% during the previous meeting. Matthew Copeland

NEFS MARKET WRAP-UP

China January and February statistics combined show that household debt in China now comprises 52% of GDP, with much of this debt held by China’s growing middle class in the form of credit cards and mortgages (see graph for consumer debt levels in relation to disposable income). Faced also with rising unemployment - currently at 5.3% as opposed to 4.9% at the end of 2018 - many consumers are now unable to repay debts, causing the overdue ratio on credit cards has surged. Chinese technology firms, among the largest in the world, such as NetEase and Tencent, have begun redundancy and restructuring plans, despite strong incentives from the government to avoid redundancies, such as subsidised insurance payments. The problem of surging personal debt amid the economic slowdown is compounded by the fact that individuals cannot file for bankruptcy, meaning that there is no second chance for those caught up in debt. With an estimated middle-class size of nearly 400 million people (almost a third of the population), the scale of this problem could be enormous for China.

The Chinese Banking and Insurance Regulatory Commission is considering allowing the return of ‘shadow banking’ into the economy. Shadow banking is any financial activity, such as lending, undertaken by an unregulated institution or not recorded on the balance sheet of a regulated institution. This measure could bridge the liquidity shortage faced by private banks, caused by China’s crackdown on risky lending as well as a shortage of investment and funds into the economy. However, it will be difficult for the government to assess whether a given shadow banking operation will benefit the economy, or whether it is simply rent-seeking and will add to the mountain of Chinese debt. Assessments of risk management within financial institutions are notoriously inaccurate and numbers and figures easily faked or inflated. The Chinese real estate market is currently growing, and an unregulated mortgage market could easily cause an asset bubble, similar to the 2008 global crisis. China’s ratio of liabilities to GDP fell for the first time in a decade in 2018, and the shadow banking sector fell to a worth of 70% of GDP, as opposed to 79% in 2017. Could the return of the banking sector reverse the streamlining of China’s debt? Megan Jackson

25.03.19

EMERGING MARKETS

Latin America This week, there has been an update on growth in Chile, forecast revisions in Mexico and new information on the Brazilian stock market. Chile's Central Bank posted strong growth figures for Q4 2018, with year-on-year growth coming in at 3.6% compared to 2.6% growth in Q3. This increase, fuelled by increased activity in the country's dominant mining sector, means that the economy expanded 4% in 2018 - a large increase from 2017's 1.3% growth. However, the picture for consumers is not as positive, as domestic demand was only marginally above the previous quarter as well as growth in household spending also slowing from 4.1% in Q3 to 3.6% in Q4. The picture for businesses however remains strong, with increased fixed investments by firms and export growth picking up in Q4. As a result of this new data, Chile's Central Bank has seen an expansion of GDP between 3.3% and 4.3% in 2019 - roughly in line with data from this year. Fitch, one of the big 3 credit rating agencies, has lowered its growth forecast for Mexico in 2019 from 2.1% to 1.6%. This is one of many agencies, including Mexico's own Central Bank and Goldman Sachs, to cut its forecast after the slowdown experienced by the economy in the last quarter of 2018.

Fitch raised concerns over various persistent trends in the Mexican economy when coming to its decision including a decline in oil output, slowing job creation and a fall in government spending. Business confidence also remains weak due to uncertainty surrounding the new President's leftist policies. Brazil's Sao Paulo stock index has been increasing rapidly recently, reaching an all-time high this week when it went above 100,000 points for the first time on Tuesday. This stock market growth comes at a time when growth expected by financial institutions for 2019, surveyed weekly by Brazil's central bank, fell from 2.28% to 2.01%. This stock market growth may be driven by investors searching for higheryielding assets as the country's base interest rate, the Selic, remains at a historically low level of 6.5% due to growth concerns in the real economy. The level of the Selic over time is shown on the graph below. The market-friendly policies of the new president Jair Bolsonaro, such as privatisation of state-owned companies and pension reforms, are also helping to drive asset prices despite uncertainty in the short term. Nathan Howell

NEFS MARKET WRAP-UP

Russia & Eastern Europe In Eastern Europe this week, the main developments centre on Poland. Data released by the Central Statistical Office showed industrial output has grown by 6.9% year on year in February, largely due to gains in mining, quarrying and manufacturing output. There were additional smaller gains in electricity, gas and air conditioning supply. Last month, strong growth in retail sales were also revealed to have continued, with nominal retail sales having grown by 6.5% year on year. This expansion is driven mainly by fast sales of furniture, radio, TV, household appliances, pharmaceuticals and cosmetics. Even motor vehicle sales edged slightly upwards, following recent volatility caused by new emissions testing procedures. In addition to those figures, the Central Statistical Office released last month's inflation data, with consumer prices rising 0.4% since January, in the opposite direction from the 0.2% decline recorded previously. Recently, the Central Statistical Office revised the weighting system used to calculate the consumer price index. The most significant changes found after these alterations were price increases recorded for food and non-alcoholic beverages, as well as for communication. Inflation in Poland now stands at 1.2%, below the Central Bankâ&#x20AC;&#x2122;s target range of 2.5% plus or minus 1% allowance with core inflation accelerating.

Unemployment in Russia stood at the same rate in February as in the preceding month, matching market expectations at 4.9%. The number of people unemployed in February dropped by 12 thousand to 3.655 million, compared to 3.667 million in January. Registered unemployment grew by 65 thousand to 0.798 million, from 0.733 million recorded the month before. Real wages in Russia were revealed to have increased 0.7% from February 2018 to February 2019, coming in above market expectations. Average nominal wages spiked 6% to RUB 43,030 whilst the annual inflation rate grew to 5.2%, the highest level in over two years. Also revealed in Russia was a decline in exports at the start of the year. Merchandise exports summed to USD 29.8 billion, depicting a 11.2% contraction from the USD 33.6 billion amount recorded exactly a year before. This was the first fall in export growth since October 2016 (see graph below), at a stark contrast to the 10.2% increase recorded only the month previously in December. Imports contracted 1.3% over the whole of 2018; Russia's trade surplus was calculated to be USD 13.4 billion in January 2019 - significantly less than the USD 16.9 billion recorded the year prior. Amy Chai

25.03.19

EMERGING MARKETS

South Asia This week, we look at the Philippines’ holding rates alongside Malaysia’s second month in deflation and Indonesia’s threat to ban European goods. In Governor Benjamin Diokno’s first policy meeting, the Philippine central bank left its benchmark interest rate unchanged at 4.75% as an ease in inflation leaves officials cautious, shown by the graph. Doubts have arisen due to risks in the economy, including the budget impasse in Congress, despite projected recovery in household spending and the government’s infrastructure program supporting the economy. In addition, the global wave of low inflation and the US Federal Reserve’s shift to a more cautious stance on rate hikes has given the Philippines, and other Asian emerging markets, some breathing room and space to ease monetary policy. Alongside this, Malaysia recorded a second month of deflation in February, as consumer prices fell 0.4% from a year ago and dropped 0.7% in January. At a time when economic growth is also under pressure, memories of the last time Malaysia was in deflation in the aftermath of the global financial crisis in 2009 have resurfaced.

To ease pressure, the government released a statement reiterating that this decline is only due to temporary factors, such as fuel costs, and not a sign of falling demand or recessionary factors. This drop in prices has fuelled speculation that the central bank will be among the first in Southeast Asia to cut interest rates this year. Growth risks are also rising in an economy that’s so far been buoyed by resilient exports, with a slowdown in China and broader global demand pressures set to limit expansion. Finally, the world’s largest palm oil producer, Indonesia, has threatened to ban imports of some goods form the European Union (EU) in retaliation for the bloc’s move to impose stricter limits on how palm oil can be used in green fuels. Palm oil exports fetched Indonesia $17.8 billion last year and the industry contributes about 3.5% to the nation’s GDP. But, Indonesia’s Coordinating Minister for Maritime Affairs, Luhut Pandjaitan, claims that this threat comes with the aim to protect the interest of almost 20 million people, whose livelihood is tied to the commodity. He says, “palm oil is not just an export earner for Indonesia as it is instrumental in lowering poverty”. Kaythi Aung

. EQUITIES, COMMODITIES & DEALS Financials On Wednesday, the Federal Reserve announced that it had no plans to increase rates through 2019. This announcement came as no surprise for many investors who have suspected this would be the case for some time.

The pound slumped following news that a no-deal Brexit could become a possibility, and many large-cap UK firms earn a large share of their Income in foreign currency. The FTSE 250, however, was only 0.2% lower this week.

The Fed has left interest rates at 2.25-2.5%, where they have been since December. The only surprise to come from the announcement was that policymakers took a 'dovish tone' towards the US economy. Therefore, it is very unlikely that the Federal Reserve will take any aggressive actions towards the economy in the near future.

Among the firms in the FTSE 100, few of these are purely British, with only a quarter of earnings coming from the UK. On the basis of the forward PE ratio, the FTSE 100 is currently at a historically cheap level, at 12.5 times earnings. This makes FTSE 100 shares particularly attractive investments at the moment, as their average income yield is currently 4.5% (10-year UK Gilt yield is <2%).

US equities reacted to this news by resuming their upward trend for the year. On Thursday, tech, real estate and consumer sectors rose, pushing up the S&P 500 index whilst the dollar also rebounded. The S&P 500 is also headed towards its highest close since October, as shown in the graph. In the UK markets, the FTSE 100 was down by approximately 1%, despite a growing sense of optimism towards the end of the week. The index also soared to its highest level in over 5 months because multinational stocks that are part of the Index were boosted by a drop in the pound.

Elsewhere, in Brazil, markets fell in highly volatile trading on Thursday following fears of proposed pension reform. At one point during trading, the Bovespa lost 3.7% for the week. Asian markets were mixed as they responded to the Fed's new stance. The Japanese Nikkei rose 0.09%, the Hang Seng rose 0.14% whilst the Singaporean STI was down 0.05%. The biggest individual movers included Sony down 4.89%, Softbank Group up 2.73% and Beach Energy which was up 1.53%.

Abigail Grierson

25.03.19

EQUITIES, COMMODITIES & DEALS

Energy, Oil & Gas For the first time since September 2018, the US has experienced an oil supply deficit, following an unexpected 9 million-barrel (mmb) withdrawal this week. The supply cut means that the Comparative Inventory (CI) turned negative, below the 5-year average, following booming oil production in the past 6 months.

Whilst these firms are purchasing larger amounts of renewable electricity, amounting to over 13GW worth of contracts over the last 5 years, they are finding it difficult to adapt their large-scale manufacturing processes to greener thermal energy due to a lack of appropriate technology in the market.

The pressing issue is the low price, $59 per barrel, at which it passed below the CI threshold. At this point in the cycle, oil prices should be peaking due to restricted supply and storage, yet prices are not reflecting the market activity. WTI oil prices fell by 1.6% on Friday 22 March to finish at $59.04 per barrel, down from the 2019 high experienced the previous week.

These firms were among the first businesses to sign the Renewable Thermal Buyers' Statement, 5 years ago, which aimed to drive development of improved thermal energy technologies, however these firms still feel that current thermal energy production systems are not cost-effective and reliable enough to switch from traditional methods.

Decreasing supply has been offset by uncertain demand, following bleak manufacturing data, in which firms from US, Japan and Europe revealed that they are holding back on factory output and large-scale investment decisions due to trade tensions including stagnating US-China trade talks and the ongoing Brexit deadlock. Many of the United States' largest firms including Mars, L'Oreal USA, General Motors and Cargill have called for greater access to renewable thermal energy sources.

Canada continues in its natural gas struggles as it attempts to compete with US supply lines. Bloomberg data demonstrated that the gap between the US Henry Hub benchmark and Alberta's AECO was at its widest in almost 2 decades, as shown in the diagram. Even though fracking has opened some opportunities in Western Canada, booming production in the US has continually eaten away at Canada's market share, so that they are struggling to compete globally. Alberta set up a specialist investment team, LNG, in late 2018 to reduce barriers in order to secure â&#x20AC;&#x153;final investment decisions on export projects." and they acknowledge that they need to expand market access to become competitive again. Joseph Houghton

NEFS MARKET WRAP-UP

Tech and FinTech On Wednesday, Google was met with a €1.5bn fine mandated by the EU for violating antitrust rules in reference to the tech giant’s imposition of unfair terms upon European companies that used its search on their websites. This fine marks the third major discipline of its kind applied to Google by the EU, bringing the total to roughly about €8.2bn. An interesting data point is that this means that Google is set to pay more in fines than tax within Europe. Crucially, however, due to ongoing and drawn out appeals, Google has still not paid up on any of these fines, and it is likely that they will also appeal this most recent fine. In happier news for Google shareholders, the company announced on Tuesday that they are launching a new video gaming streaming service called Stadia, set to release within the year. Stadia will supposedly stream games in high definition, 4K video at 60 frames per second, all without the need to install games to a hard drive. Instead, by tapping into YouTube’s phenomenal success, Stadia will allow users to click on a link embedded within a YouTube gaming video and start the game within 5 seconds through the power of Google’s cloud computing.

Whilst analysts have agreed that this new venture will face a tough uphill battle against already wellestablished players Sony, Microsoft, Nintendo and Valve, Japanese entertainment technology giants Sony and Nintendo have already seen worrying falls in their share price in the face of Stadia’s reveal (see chart; Sony in blue, Nintendo in orange). US Fintech group Fidelity National Information Services (FIS) has unveiled plans to acquire rival Wordplay. Wordplay was carved out of Royal Bank of Scotland (RBS) in the aftermath of the financial crisis and was largely ignored by its parent company before said split. However, this deal, which is the biggest financial service takeover since the financial crisis itself, with a price tag of $43bn, is equal in worth to all of RBS’s current market value. Though not too significant, some details about the race between Lyft and Uber to be the first to execute their IPO, have been released. The smaller of the two and more US-centric, Lyft, has declared their intention to secure a $23bn valuation in their IPO, with frontrunner Uber choosing NYSE as the site for their IPO, which some analysts are saying could exceed a valuation of $100bn. Sebastian Hodge

25.03.19

EQUITIES, COMMODITIES & DEALS

Pharmaceuticals The Russell 2000 index, which tracks small cap companies in the USA, saw a recovery on Thursday after a volatile Wednesday - rising 1.25% to 1,561.90 - over 20 points higher than where it was the same morning. Russell 2000 component Bellicum Pharmaceutical, had a rough day trading on Thursday, sinking 8.07% (-0.33 points) to $3.76 compared to Wednesday’s high for the week of $4.09. Market cap for Bellicum has now fallen to $163.54 million, with shares trading between a range of $10.26 and $2.74. However, a slump for Bellicum this week may not be reflective of the long-term outlook for the Texas based firm. Analysts at Wells Fargo raised their recommendation to outperform in a recently released opinion, with many analysts also raising their price target for the stock to $12 from $10. Bellicum’s current quarter revenues are expected to rise by nearly 33.33% to $0.2 million, with the firm’s full year revenues expected to expand by over 271.96% from $1.12 million to $4.17 million. Adjusted earnings are expected to surge by around 17.65%, with earnings for the fiscal year projected to rise by around 14.34%.

Pennsylvania-based Zynerba Pharmaceuticals saw considerable growth on Wednesday, with its share price rising 9.3% to close at $6.22 compared to its previous close of $5.57 (see graph). These are positive results compared to earlier in the week on Monday, where shares failed to breach the $5 mark, and failed to breach the $6 mark on Tuesday. The clinical stage speciality pharmaceutical company which specialises in cannabinoid treatments released its quarterly earnings which came in at $0.44 per share, beating analysts’ consensus by $0.21. As of this week, the company has a total market value of $115.63 million dollars. Institutional investors are becoming increasingly confident in the stock, with many modifying their holdings. Campbell Capital Management bought a new position in Zynerba worth $510,000, with Two Sigma Investments buying a position worth $120,000. Blackrock lifted their holdings in Zynerba by 0.9% in the fourth quarter, now owning over 300,000 shares in the company valued at around $893,000. Vanguard group have the most significant stake in the firm, raising it’s holdings by 23.8% in the third quarter to 651,400 shares worth $5,316,000. Hedge funds and institutional investors own 12.86% of the company’s stock overall. Oscar Miller

NEFS MARKET WRAP-UP

Mergers & Acquisitions Disney and Twenty-First Century Fox have closed their $71.3 billion acquisition of assets, providing them with the power to take on the dominant power Netflix. The upcoming streaming service, Disney+, shall now have a diverse portfolio of content with the addition of Fox’s franchises such as ‘The Simpsons’ and ‘X-Men’. However not all of Fox’s assets shall be acquired, Fox News and Fox shall became a spin off to form a new company named New Fox. This deal has come under heavy competition with Comcast who made a bid at $65 billion, rivalling the initial $52.4 billion bid Disney made. Instead, Comcast was able to acquire Sky to become a majority owner in October 2018, with a £30 billion deal for 75% of its shares. Nonetheless, this move will give Disney great power to penetrate the video streaming service market, in which Netflix sits with a 48% global market share in the video streaming market. Overall, since the initial news of this potential merger in December 2018, Disney have seen a healthy rise in the share price of around 10% to $109 a share (see graph below).

Meanwhile, Deutsche Bank has opened merger talks with Commerzbank following years of billiondollar fines post-crisis. This has caused great uncertainty with job security as stated by Jan Duscheck, a representative of the German union Verdi, that 10,000 jobs were at risk in the short term, though that number could triple over the longer term. Since last year Deutsche Bank had already began cutting back its workforce by 7,000 within investment banking divisions however now it is believed that they shall scale back their USA operations putting more jobs at risk. This is due to the 15% stake the German government has in Commerzbank as part of a state bailout in 2009, which makes US employees fear that they could pressure the bank to focus on its home market and therefore make cost savings abroad. The markets have reacted to the talks of this merger by sending the shares of both banks climbing upwards, with Commerzbank increasing by 6.9% and Deutsche Bank by 4.2%, indicating a certain confidence that this merger shall take place. Amar Toor

25.03.19

. CURRENCIES Major Currencies Large dollar volatility (as seen below) occurred this week due to a dovish announcement from the Federal Reserve. The Fed has decided to suspend interest rate rises for the rest of the year in light of slowing US growth, the Dollar index was on the defensive on Tuesday as analysts began to expect the move. Overall the index dipped 0.1 percent to be near a two-week low at 96.43. After the Fed announced its decision, the Dollar lost further ground. The Euro moved to a seven week high against the dollar at $1.1424, while the Dollar index fell to 95.908, losing 0.5% overnight. According to Richard Franulovich, Head of FX strategy at Westpac, “markets were universally poised for a very benign outcome and the Fed dutifully delivered, their message overall matching the most dovish of expectations”. Market reaction to the Fed’s policy announcement did however overshoot and the Dollar index was up 0.53 percent at 96.271 on Thursday, paring its losses from the previous days of trading. Brexit was once again the controlling force behind moves in the Pound this week. On Wednesday, the Pound began to slide on the news that Theresa May was seeking a 90-day extension to the Brexit process.

Many analysts had hoped for a longer term arrangement which would have allowed a general election or another referendum so Brexit could be avoided. The Pound did however make gains on Friday, with The Pound-to-Euro rate 0.03% higher at 1.1550 during early trading. This came on the back of news that Donald Tusk would allow the UK a longer extension on article 50 on the basis that Theresa May’s deal were to get through parliament this week. The Pound was also quoted 0.18% higher at 1.3152 against the Dollar on the back of the news. The Euro has been unable to capitalise on the weakening positions of both the Dollar and the Pound this week due to various factors, such as political unrest. The European People’s Party (EEP) have withdrawn the voting rights of the Hungarian President, Viktor Orban’s party, Fidesz, while Euro traders are also becoming increasingly concerned over Italy’s attraction to China’s New Silk Road, which has further ignited fears over Rome’s allegiance to the EU. With a European Council Meeting due to take place later on Friday, these concerns could further weigh down the Euro.

Ashley Brumfield

NEFS MARKET WRAP-UP

Minor Currencies Hong Kong has spent almost $1bn USD so far this March in order to defend its currencyâ&#x20AC;&#x2122;s peg against the dollar from speculation. Downward pressures on this rate, which is seen as an anchor for the financial stability in Hong Kong, have made it become vulnerable recently to currency speculators who aim to short the currency, driving the value of the Hong Kong Dollar (HKD) further downwards. The Hong Kong Dollar has managed in a narrow band of HK$7.75 to HK$7.85 since 2005, but in recent weeks the authorities have had to step in as the currency threatened to move past the lower bound. The most recent intervention was last Monday, as the Hong Kong Monetary Authority (HKMA) sold $256m and bought HK$2.01bn, which marked the third intervention so far this month. March marks the first series of such transactions since August 2018. Shown in the graph below (USD/HKD), the HKD has been hovering around the 7.85 lower bound. Moving forward it is likely that the HKMA will intervene again if the trajectory of the HKD approaches the lower bound again.

Meanwhile in Australia, a bearish mood for the AUD has set in as the Reserve Bank of Australia (RBA) continues to send dovish signals amid feeble macroeconomic data figures. The coming week will bring two speeches from RBA monetary policy meeting members as well as the release of Marchâ&#x20AC;&#x2122;s Purchasing Managers Index figures. Since it is expected for the RBA to continue its relatively dovish stance, it is likely that the AUD rates will slide after the speeches. In addition, the overall downward trend of the AUD/USD throughout 2018 is still with us, with the AUD down to 0.70835 from highs of 0.71619 last week. The NZD/USD rallied to 7 week highs, trading at 0.693 last week as the pair benefited from the postfed slide in treasury yields and the broad-based selling of the USD. The NZD maintained this rate as New Zealand Q4 GDP growth (QoQ) met the market consensus of 0.6% versus the 0.3% prior. The pairing cleared the resistance line at 0.6920 and is now looking for the next line as the treasury yields look set extend further USD losses. Moving forward, a sustained break is unlikely if equities turn red in response to reports stating that US tariffs on Chinese imports could remain in place for a substantial amount of time.

Rudai Wang

25.03.19

Currencies

Cryptocurrencies Ripple (XRP) is currently trading just above a big bargain buy zone- where buyers tend to be drawn in. This, combined with the recent price stability, has led to interest around Ripple growing. The stability has arisen from the price being wedged between the resistance at $0.33-$0.35 region and the support zone at $0.25-$0.30 where the big buyers come in. On the 15th March, the bulls managed to push the price into the resistance zone but failed to keep momentum (see graph). Even since, the price has been trading within the consolidation zone. There have been several good pieces of news regarding Rippleâ&#x20AC;&#x2122;s fundamentals recently but this seems to have done nothing to the price. However, the price is still at a huge bargain area- given the area around $0.30 seems to be relatively stable, these levels remain attractive to buyers. Given the bottom for the year continues to hold, the bullish case seems strong for the future. Bitcoin Cash (BCH) has lately calmed down after a huge rally. After producing a year to date low of $104.40 on 28th January, the price has been supported by a near-term ascending trend line.

Over the last 4 weeks, the price has typically been rising and closing in the green. Recently, Avnet- a Nasdaq listed electronics firm- has announced that they are going to start accepting Bitcoin and Bitcoin Cash as payment. They have chosen to do this because a lot of their customers have been asking to pay in cryptocurrency. Earlier this week, the bulls pushed for a retest of the year to date high which is around the $170 area. Given the recent cooling of the price, the support of $145-$155 must be watched. If the bears manage to drag the price below this zone, the result would be a test of the before mentioned ascending trend line. If the price goes below this, the next support zones are at $130 and then the year to date low of $104.40. Looking at the bullish case, the target is the above supply area of $170-$182. Bitcoin Cash has not traded in this region since 24th December. If the bulls do manage to get the price within this area, it would leave the door open for a test of the December high of $240. Sellers will be at $220$240 where the price was losing ground at the end of 2018. Rhys Dil

The Research Division was formed in early 2011 and is a part of the Nottingham Economics and Finance Society (NEFS). It consists of teams of analysts closely monitoring particular markets and providing insights into their developments, digested in our NEFS Weekly Market Wrap-Up. The goal of the division is both the development of the analystsâ&#x20AC;&#x2122; writing skills and market knowledge, as well as providing NEFS members with quality analysis, keeping them up to date with the most important financial news. We would appreciate any feedback you may have as we strive to grow the quality and usefulness of weekly market wrap-ups. For any queries, please contact Amelia Hacon at ahacon@nefs.org.uk. Sincerely Yours, Amelia Hacon Director of the Nottingham Economics & Finance Society Research Division

This Publication has been prepared solely for informational purposes, and is not an offer to buy or sell or a solicitation of an offer to buy or sell any security, product, service or investment. The opinions expressed in this Publication do not constitute investment advice and independent advice should be sought where appropriate. Whilst reasonable effort has been made to ensure the accuracy of the information contained in this Publication, this cannot be guaranteed and neither NEFS nor any other related entity shall have any liability to any person or entity which relies on the information contained in this Publication, including incidental or consequential damages arising from errors or omissions. Any such reliance is solely at the userâ&#x20AC;&#x2122;s risk.

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