NEFS Market Wrap Up - Week 6 by Nottingham Economics and Finance Society

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

03.12.18

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

The EU leaders approved the agreement on Brexit at the European Council Summit held on November 25th last week, after 20 months of negotiations between the UK government and the EU. As the deal is due to be voted by the parliament on December 11th, this week Prime Minister Theresa May has quickly embarked on selling the agreement to the country.

In the same day, the Bank of England (BoE) published its bi-annual Financial Stability Report (FSR) and the results of a stress test for the banking system. In the FSR, the BoE remarked that apart from the risks related to Brexit, “domestic risks remain at a standard level overall”. On the other hand, the stress test encompassed conditions more severe than the 2008 crisis, and it concluded that the UK banking system was “resilient to deep May faces a tough battle, considering she needs to simultaneous recessions in the UK and global convince more than 60 MPs to get the 318 votes she economies”. needs for the deal being approved at the House of Commons. In a statement to parliament on The BoE’s governor, Mark Carney, also presented Monday, she said the government had secured “the an analysis of various Brexit scenarios. He outlined right deal for Britain”, and repeated the message of that a no-deal Brexit scenario would be the most EU leaders that they will not return to negotiations severe one, triggering the worst UK downturn since if parliament rejects the deal. the Great Depression. In that case, the BoE would see GDP falling by 8% next year, unemployment On November 28th, the UK government published increasing from 4.1% to 7.5% and the pound impact assessments of the cost of leaving the EU, plunging by a quarter. showing the UK economy would be worse off under all possible Brexit scenarios after 15 years. On November 30th, the UK Consumer Confidence Compared with the UK remaining in the EU, GDP Index for November was published by GfK. The was estimated to be 0.6% lower if the current deal is index fell from -10 to -13 (analysts expected -11) in approved, and 7.7% lower in the event of the UK November, its lowest level in 11 months (see figure leaving the EU with no deal. below), showing that pessimism increased among concerns that the Brexit deal on the table will make people worse off. Sergio Bravo

03.12.18

MACRO REVIEW

The US and Canada This month marks 112 months since the US economy was in recession. The US is now 6 months away from having the longest ever streak, and the 'late cycle' of the economy is getting longer and longer. Many investors and economists are starting to worry that it could soon be coming to an end for America. Although the US economy currently appears to be in excellent condition, there are several warning signs that prove worrying. One prominent risk for the economy is the large levels of risky corporate borrowing. In the first three months of 2018, corporate borrowing in the US reached a record high of $29.6 trillion In debt (see graph).

Now that interest rates are on the rise (currently at 2-2.25% and expected to rise to 2.5% in December), the cost of this debt will rise. In addition, the quality of this debt is a worry for America. Risky corporate borrowers could have a hard time making payments if interest rates rise too fast. In addition to this, unemployment levels could potentially be too low in the US. The rate of 3.7% (as of October) is almost a 50-year-low.

Unemployment is now beginning to fall below the natural rate of unemployment (4.61%) and this could cause problems if interest rates are raised too quickly which would 'unnecessarily shorten the economic expansion, while moving too slowly could result in rising inflation expectations down the road that could be costly to reverse' as the FED Vice Chairman, Richard Clarida, said on Tuesday. However, despite concerns about the economy, most economists and investors are predicting that although the US economy will slow next year, growth is still predicted to be positive at approximately 2.4% 'as growth in business investment and government purchases slows' as CBO director said in a statement earlier this year. In Canada the outlook for 2019 is similar. Growth for the third quarter of 2018 slowed to 2% (falling from 2.9% in the second quarter). Deloitte predicts that growth in Canada is likely to fall slightly below 2.0% in 2019 and to 1.4% in 2020. This is largely due to consumption-led growth coming to an end and growth falling to a more sustainable level. One factor that will continue to be important for Canada next year and beyond is the country's levels of exports. Canada will continue to rely on the strong US economy and increasing global demand for commodities.

Abigail Grierson

NEFS MARKET WRAP-UP

Europe This week we focus on the developments in Italy’s budget crisis, alongside German consumer and business confidence while exploring unemployment and bond yields in Greece. For a while now, Italy has been tussling with Brussels over their big-spending budget plans and it seems to be taking its toll. On Tuesday, it was revealed that consumer confidence has dropped, from 116.5 index points to 114.8 (Consumer Confidence Index), showing deteriorations to its lowest levels in six months. Even more worrying, figures from the Italian National Institute of Statistics (ISTAT) also show that business morale was the weakest in nearly two years, falling from 102.5 to 101.1 index points with confidence declined in manufacturing, construction and services in particular. Hearing the news, the European Central Bank (ECB) singled out Italy as an example of how quickly investors can lose confidence in a government when confronted with policy uncertainty; “the stress in Italian sovereign debt markets illustrates how quickly policy uncertainties can unearth risks to financial stability”. Also suffering from a lack of confidence, German retail sales show signs of weak consumer spending with turnover in retail declining by 0.3% in October, see graph below.

This comes after news of its economy cooling down from its long upturn, starting with slowdowns in the auto sector. Although some reports are claiming this may be due to the introduction of new emission standards, and that the economy will be on the rise again for the final quarter of 2018, others point to evidence of a wider structural slowdown across all sectors. In addition, the Institute for Economic Research (IFO), suggested that the measurement of business uncertainty among businesses has risen at its fastest level in 10 years, predominantly due to concerns over Italy and Brexit. Such concerns suggest a hold off from German companies with their investment deals, fuelling the likeliness of a sustained slowdown in the German economy. With this, as the Eurozone’s largest economy, current growth rates will make it tough for the European Central Bank (ECB) to justify a raise interest rates in 2019, a policy previously sought after. Greeks state 10-year bond yield hitting a four-week low of 4.26%, down 7 basis points on Thursday, taking further steps towards financial independence. In addition, figures show that unemployment dropped from 19% to 18.9%, staying at its lowest level since August 2011, however unemployment in Greece remains to be the highest in the European Union. Kaythi Aung

03.12.18

MACRO REVIEW

Japan & South Korea Last week’s report on consumer price growth by Japan’s Statistic’s Bureau showed that overall, throughout October, consumer price growth stalled despite a jump in fresh food prices. Headline inflation rose to 1.4% thanks to the 10.8% increase in fresh food prices. But Japan’s core consumer price index, which strips out fresh food, rose only 1% in October. This remains unchanged from Septembers’ level, and is just halfway to the Bank of Japan’s target of 2%. Japan’s core-core inflation, which excludes both food and energy prices, stayed unchanged at 0.4% for the third month in a row, (see graph below). These recent readings for underlying inflation are much weaker than expected, given that wages have currently been rising the most in twenty years. Sluggish consumption could explain the reluctance of companies to raise prices. Meanwhile, Japan’s industrial production outperformed expectations in October, indicating a solid start to the fourth quarter after the Japanese economy’s contraction last quarter. A preliminary reading from the Ministry of Economy, Trade and Industry revealed that industrial production rose 4.2% in October, year on year.

This beat a median forecast of just 2.5% from economists polled by Bloomberg. A survey of production forecasts saw expectations of a 1% year on year contraction in November swing to growth of 0.6%, with a growth of 2.2% pencilled in for December. In South Korea, shares in construction and railway companies with exposure to projects in the North jumped last week, after the United Nations granted a sanctions waiver to develop rail links with North Korea. It is the latest move of inter-Korean reconciliation, and could pave the way for further economic sanctions relief for North Korea. South Korean President Moon Jae-in hopes that deeper economic ties with Pyongyang will create, economic growth and tens of thousands of jobs at home. AN IBK Economic Research Institute report this year found that President Moon’s plans of economic engagement with Pyongyang could add more than 1% to South Korean GDP. The US administration has and continues to oppose any sanctions being lifted until the North Koreans pledges to abandon its Nuclear Weapons program. However, investors are optimistic about further sanction relief, with countries like China and Russia supporting the cause. Building stronger ties with North Korea, and helping to provide sanction relief is key for South Korea to offset slowing growth. Rudai Wang

NEFS MARKET WRAP-UP

Australia & New Zealand This week has seen New Zealand attempt to boost their housing market by lowering loan-to-value ratio restrictions. Furthermore, in Australia this week Sydney house prices have had the biggest recorded monthly fall for 14 years which continues the grey outlook for the property market. However in better news, Australia have seen a surge in company tax this week which is expected to push budget revenue and therefore reduce the budget deficit.

Therefore, the easing is likely to boost the housing market, however the impact may be relatively little with the restrictions remaining tight overall while the central bank reviews the impact of the eased loan-to-value ratios. The easing will hopefully reduce the need for further use of an expansionary monetary policy, yet the RBNZ has signalled that further easing in the restrictions can be expected if housing risks continue to fall.

In New Zealand the central bank (RBNZ) eased loan-to-value ratio restrictions for both investors and owner-occupiers. These restrictions include allowing banks to be allowed to lend 20% of their new loans to owner-occupiers with a deposit of less than 20%, up from the current level of 15%. Also, that no more than 5% of each bankâ&#x20AC;&#x2122;s new mortgage lending can be to investors with deposits less than 30% (previously 35%).

Furthermore, in Australia this week, there has been a surge in company tax which is expected to push the budget revenue $9.2bn higher in 2018/19 than expected in the May budget, according to Deloitte Access Economicsâ&#x20AC;&#x2122; latest forecast. Deloitte estimates that this company tax will raise almost $100bn this year, up $8.4bn on the 2018 budget forecast.

These restrictions come on the back of the housing market risks lessening - which includes fewer risky mortgages and house price inflation slowing.

This provides positive news for the Australian government when considering a quicker return to a budget surplus, we can see that this company tax revenue will help reduce the budget deficit (see graph below). Furthermore, it may also result in the government making decisions that improve their preelection campaign, such as bringing forward personal income tax cuts. Not only will this have a big impact on workers but also help boost the prospects of the current Government being re-elected.

Abigail Davis

03.12.18

. EMERGING MARKETS Africa The South African rand experienced its best November for 30 years shown by figures released this week. A gain of over 8% by the rand against the US dollar is the largest appreciation of any major currency over the past month and provides a much-needed boost to the South African economy, during a month in which the currency has previously struggled. The gain of 8.1% is the highest monthly gain of the year and has only been surpassed once, 9.1% in November 1988, as shown in the graph. However, the rand remains down against the dollar over the course of the year, given the big hit to emerging countries' currencies earlier in 2018. The rand also finished November 7.92% up against the pound and 7.69% up against the euro, demonstrating its strength.

The US mid-term elections had significant influence on the value of the rand. Prior to the US elections, the rand was already experiencing a good month, however the outcome of the elections has enhanced the upturn.

The election's results mean that it has become significantly more difficult for Donald Trump to pass bills through government. Dollar-friendly policies such as more tax cuts and escalating the trade war with China will now become harder to implement, meaning the rand should fare better in the long run against the dollar which led to the large increment of the rand in the latter half of November. Despite positivity surrounding the rand, there is still uncertainty surrounding inflation in the South African Economy. At present, inflation remains between the 3% to 6% target set by the monetary policy committee, although governor Lesetja Kganyago was keen to express caution, explaining that "inflation may have surprised because it's below Reserve Bank and market forecasts, but it is on an upward trajectory" before adding that the monetary policy committee would prefer for inflation to be nearer to the 4.5% midpoint. Interest rates have been raised to 6.75% in order to contain inflationary pressure, although this is likely to slow growth further, which was negative in the second quarter of 2018. Whilst the appreciation of the rand is good for consumers in the present, with petrol prices set to drop by R2 per litre, there remains underlying issues within their economy including rising inflation and stagnating growth, which was negative in the previous quarter. Joseph Houghton

NEFS MARKET WRAP-UP

China Profits earned by firms in the industrial sector of China’s economy have grown by 13.6% from January to October, easing down from the 14.7% increase from January to September. This industrial profit growth can be dissected to reveal that most of growth in profits came from state-owned firms which saw a 20.6% increase as opposed to the 9.3% increase private firms saw. However, although overall this shows continuous strength in the industrial sector throughout the year, the automotive manufacturing industry has seen declines in profits. Trade pressures on the automotive industry are yet to halt, following the ongoing Buenos Aires G20 summit this week. The US – China trade war has resulted in the US raising tariffs on Chinese vehicles to 40 % which was then followed up by Beijing with the same 40% tariff on US made vehicles. This escalation in trade disputes has fuelled inflation in China and is hurting the automotive industry by increasing costs and squeezing margins. Overall, these trade frictions are feeding into the automotive manufacturing sector in China resulting in a weak performance as part of China’s industrials.

The National Bureau of Statistics of China (NBS) announced on Friday that the PMI (Manufacturing Purchasing Managers) Index in China fell to 50.0 during November (see graph below). Contrasted to the PMI of 50.2 in October and the market expectation of 50.2, this reduction during November was unexpected. This downward trend of the manufacturing sector has been driven by a slowdown in export orders for the sixth month in a row. This factor was combined with a contraction in employment leading to weaker buying activity in China. This has caused the trend of a falling manufacturing PMI to continue since August. Next week, the NBS manufacturing PMI trend is expected to be reinforced with the announcement of the Caixin Manufacturing PMI on Monday. The Caixin PMI shall give greater focus on how smaller and medium sized firms are behaving as they are not given as much of a weighting in the official NBS data set. Amar Toor

03.12.18

EMERGING MARKETS

Latin America This week looks at the G20 summit in Argentina and its potential outcomes on Latin America including any escalations of the US-China trade war. On Friday, Argentina became the first Latin American country to not only host the G20 Leaders’ Summit but also receive a visit from US President Trump. Although most eyes have been pinned on the reception of Saudi Arabia’s Crown Prince Mohammed bin Salman among the world leaders, the US-China trade war and NAFTA renegotiations are set to dominate talks. At the summit, Trump is set for further clashes with China following this week’s threat of tariffs on another $267bn of Chinese goods. This is likely to increase Latin America’s 2017 trade deficit of $67bn with China and demonstrates how with the US and China its two biggest trading partners, Latin America has found itself caught in the middle of the trade war. However, this trade war has also spurred on the shift of Chinese investment from the US to Latin America. In fact, the combination of commodityrich Latin America and the insatiable demand of China’s industries for raw materials means that China is already the largest export market for Brazil, Chile and Peru (see graph). Following the trade war, China has been increasing its trade with Latin America as it searches for new import sources which has resulted in Brazil overtaking the US as the world’s largest soybeans exporter from 2019.

In contrast to its deficit with China, Latin America enjoyed a $117bn trade surplus with the US last year. However this figure is heavily weighted by Mexico who posted a $71bn surplus by itself, provoking the Trump administration, in September, to replace the North American Free Trade Agreement (NAFTA) deal with the United States-Mexico-Canada Agreement (USMCA). The new deal, which Trump hopes to have signed during the G20 summit, contains a brand-new chapter on digital trade and further detail on tariffs such as specifying that for a vehicle to be exempt, more of its parts will have to be made in North America and by workers earning at least $16/hr. Besides from tackling trade issues, Argentina has been the first country to make development a focus on the G20 agenda. Leaders will discuss the gap in global infrastructure, which according to the G20 needs a worldwide investment of $100trn until 2030, including concerns about boosting internet connectivity through technology-related infrastructure. Hannah Cousins

NEFS MARKET WRAP-UP

Russia & Eastern Europe This week we have seen Hungarian bond yields recovery from multi-month low points while the Russian Economic Development Minister has announced the projected values of economic growth for the fourth quarter. Croatian economic growth figures were also announced on Wednesday, which came in higher than expected. The Hungarian bond market has been influenced by several factors over the past few months, tracking an increase in yield of the 10-year United States treasury bill caused bond yields to increase before reductions of around 50 basis points (which can be seen in the graph below). The latest set of auctions for Hungarian government debt has seen large oversubscription for 3 and 5 year bonds and there has been reduced yield of the 10 year bond due to expectations of an increase in EU fund inflows, which have helped to reduce government needs for financing. There is also a belief that Moodyâ&#x20AC;&#x2122;s will upgrade Hungarian credit ratings, which would be a signal of progress for the whole economy.

On the back of relatively large year-on-year October GDP increases, Russian Minister of Economic Development, Maxim Oreshkin, announced on Monday that GDP growth for the fourth quarter will be around 2%. The year-on-year increases of 2.5% to October were reported last week and Oreshkin stated that November and December figures were forecasted to be lower, but that GDP was likely to reach its forecasted mark of around 1.8%. This represents solid economic growth for Russia, especially when the impacts of tensions with Ukraine are taken into account. Also this week, Croatian growth figures were announced at 2.8% in quarter 3 of 2018, in comparison to quarter 3 2017. A strong summer of tourism and increased demand as a result of the Croatiaâ&#x20AC;&#x2122;s successful run to the World Cup final meant that growth exceeded previous expectations, which were set within the bounds of 2.2%-2.5% by various analysts. There are also vast increases in most sectors, including in construction, where a 7.1% increase was recorded. The strong growth figures mean Croatia continues to grow faster than the European Union (EU) average. Looking at quarterly growth alone, the Croatian economy grew by 0.6% while the EU average was only 0.3%.

Ashley Brumfield

03.12.18

EMERGING MARKETS

South Asia Political instability developed in both India and Taiwan this week. In New Delhi, tens of thousands of farmers congregated in the heart of India’s capital on Friday demanding debt waivers and guaranteed prices for crops, threatening Prime Minister Narendra Modi faces chances in national elections next year. Meanwhile, Taiwan’s ruling Democratic Progressive Party (DPP) suffered heavily in local elections, losing more than half the cities and counties it had held. The Kuomintang party (KMT), which lost power to the DPP in 2016 and is friendlier to China, benefited from a surge in support. Developments in both countries are likely to have a negative impact on confidence, which may be felt in markets in coming weeks. The Indian rupee and the Indonesian rupiah, two of the worst preforming currencies in Asia, narrowed much of the losses seen in the values of the currencies in recent months due to positive economic performance. The two currencies surged on Thursday due to falling oil prices and comments from Federal Reserve Chairman Jerome Powell that spurred bets of slower rate hikes, relieving pressure on emerging markets.

The Indian economy grew 7.1% year-on-year in the third quarter of 2018, well below 8.2% in the previous period and market expectations of 7.4%. This has been a direct effect of falling oil prices and the currency’s weak performance in forex markets. n Indonesia, the Rupiah (IDR) saw similar monthly gains to the rupee following the battering the currency received in FX markets in the months leading up to November. The Rupiah added 5.43% to its value against the dollar over the course of November, suggested to be a result of a surge in lending. In Jakarta, loan data released by the government showed that the value of loans in Indonesia increased 13.35% in October of 2018 over the same month in the previous year. This surge in lending is despite Indonesia’s central bank raising interest rates six times this year, yet consumer lending rates are still falling in South-East Asia’s biggest economy.

Sean O’Hagan

The news of the strengthening value of the Rupee provided some respite to investors following the Indian Government realising GDP figures for Q3 on Friday morning.

. EQUITIES, COMMODITIES & DEALS Financials The Dow Jones index closed lower on Thursday after steady results throughout the week as the likelihood of a trade deal between China and the USA grows weaker. Banks were amongst the fallers, with Dow component J.P Morgan seeing a 0.81% fall on Thursday. The investment banking giant closed down 2.70 points, only 17 cents lower despite strong growth at the beginning of the week. Shares in Frankfurt-based Deutsche Bank tumbled on Thursday morning after allegations that two members of staff engaged in money laundering activities with clients. The bank which provides private, corporate, investment and commercial banking services to clients worldwide saw its share price fall 3.40% in early hours of trading. Shares fell to $9.51 by 10am, only just above its record low of $9.21.

Deutsche remains Germany’s largest bank and Europe’s fourth largest in terms of total assets. The USA’s largest mortgage lender - Wells Fargo also suffered weaker results on Thursday. The San Francisco based financial services company has gained 4.46% over the last month, beating the finance sectors loss of 1.08%. However, shares closed at $52.43 down from $53.97 at market opening (see graph), a 0.21% fall compared to the previous day. However, despite these results the outlook for the USA’s fourth largest bank looks strong.

Citigroup analysts have given the bank a rating of ‘buy’ as Wells Fargo approaches its next earnings release in early 2019. Earnings of $1.19 per share are expected which would mark a year over year growth of 22.68%. Shares are still up $2.12 compared to opening on Monday and reached a However, it is unlikely that these allegations will have any real impact on the retention of the bank’s weekly high of $54.41 on Thursday. This suggests clients, as Deutsche continues to work closely with that weaker results towards the end of the week are not reflective of the long-term consensus for German authorities. Despite being down when Wells Fargo. Furthermore, stock in the bank comparing against better results throughout the remains the largest position for holding company week, shares are still up from $9.40 at market Berkshire Hathaway, who’s stake totalled $28.21 opening on Monday to $9.45 at closure on billion as of late last year, with CEO Warren Thursday, suggesting that a recovery is still Buffett confident that the bank will see growth possible towards the end of the week. for years to come. Oscar Miller

03.12.18

EQUITIES, COMMODITIES & DEALS

Energy, Oil & Gas Yet to meet with other OPEC members to agree on a clear-cut production quota, is Saudi Arabia, the largest exporter of crude oil, which this week refused to reduce its supply of oil. Resultantly, Brent crude oil (the price of which is benchmarked against similar oil types, such as that produced in Saudi Arabia) prices fell to a 2018 low at the beginning of this week, at just below $58 per barrel. The Brent crude price had already lost 22% of its October value. However, an early meeting between Russian oil producers and the Russian Energy Ministry, during which the Ministry laid out plans to cut domestic supply, may have helped to bring prices up slightly, as purchasers realised that the downward pressure on prices is quickly coming to an end. On Thursday, Brent crude prices were back up to $60 per barrel (see graph).

Decreases in the Brent crude oil prices (as explained above) are also responsible. WTI oil is typically of a slightly lower quality than Brent crude, making it even more unfavourable as Brent has become more accessible and cheaper. Despite the UK’s apparent lead in the movement towards renewable energy, annual investment in the sector is its lowest in a decade. One reason given by analysts is that as renewable energy technology has advanced, new entrants to the budding market have been able to start up with more knowledge than their competitors, putting them at a time and cost advantage. With the price of renewable energy technology hence on a downward trend, investors in the market are seeing lower rates of return. Moreover, cuts of 65% in 2015 in subsidies to households installing solar panels have weakened demand in the solar power market, dampening profits and shareholder confidence. It appears that the market for renewables is moving elsewhere. European markets, with a larger client base and continent-wide intellectual property rights, have built wind farms so cheap to run that subsidies are no longer needed, while China is the world’s largest investor in renewable energy markets.

Megan Jackson Meanwhile, WTI (West Texas Intermediate) oil prices fell to under $50 per barrel this week. This was due to a glut in US supply, as the country sold off ‘strategic reserves’ before the end of the month.

NEFS MARKET WRAP-UP

Tech and FinTech The technology sector picked up mid-week with dovish comments from Federal Reserve Chairman Jerome Powell. Nonetheless, this positive rhetoric may be outweighed by regulatory concerns throughout the industry. German authorities have launched a probe into Amazon’s treatment of sellers on the website amazon.de. This piles on to EU concerns about whether amazon gains information on rival sellers to help launch its own products. The German cartel office has received “many complaints” over Amazon’s product, and any major headwind Amazon face in Germany will have consequences, considering that Germany is Amazon’s biggest market outside the US. Amazon shares fell 1.5% on Thursday as a result. Likewise, Uber continues to entertain further regulatory enquiries, as British and Dutch data protection regulators have fined Uber £917,000 for “failing to protect customers’ personal information during a cyber-attack”. However, this represents a small fraction of the record $148mn settlement claims following Uber’s data breach in 2016. Additionally, Uber has stated it has made a “number of technical improvements to its security”. Conversely, negative sentiment regarding Apple has been exacerbated by Trump’s suggestion that 10% tariffs could be placed on apples mobile phones made in China, prolonging the slowdown in sales.

King Lip, Chief Strategist at Baker Avenue Asset Management highlights this would lead to a 30-50dollar mark-up on each iPhone, which would facilitate a slowdown in demand. The trend in Apple’s share price on a monthly chart is shown below. Sentiment will be characterised by the Trump administration’s meeting with major tech executives next week, a move that marks the easing of tension between the White House and tech giants including Microsoft, Qualcomm and Alphabet. Key themes to be discussed include data privacy and company exploration of censored search engines for Chinese users. Meanwhile, Societe Generale Group’s (SocGen) chief executive outlines that the French bank is taking the technology disruption head-on, capturing increased demand for online banking services in the EU through, Boursorama, which has doubled its customers in the three years to 1.6mn. This is in response to BnP Paribas’s Nickel online service that occupies 940,000 customers. Thus, there is a convergence towards increased digitalization of key banking services in the financial industry. Despite increased technology R&D and a fall in 23% in share price in the past year, SocGen aims to achieve its target of 3% annual revenue growth up till 2020. George Kennedy

03.12.18

EQUITIES, COMMODITIES & DEALS

Pharmaceuticals German pharmaceutical and life sciences giant Bayer has announced that it will cut 12,000 of its 118,000 jobs by the end of 2021. Bayer also plans to sell its animal health products division, its Coppertone sun care product line, its Dr Scholl’s foot care product line, and 60% of its stake in service provider Currenta. This decision is taken with the declared aim to make €2.6bn in annual savings by 2022, as well as raise EPS to €10 by 2022 in comparison to the €6.80 it currently provides. British respiratory specialist Vectura endured a disheartening week. Mere weeks after its share price surged with the announcement of a new development deal with generics giant Hikma, Vectura has seen most of said gains wiped by the announced failure of its own drug – VR475 – at third stage clinical trials. This result saw its share price fall from last Friday’s closure of £77.90 to a nadir on Tuesday of £66.15 and stabilise somewhat at about £72.50 for this week’s end. Allied Healthcare, one of the UK’s largest care home companies, has been saved from bankruptcy after being sold to German private equity firm Aurelius.

The care home company, which servers 13,500 people across 150 local authorities, has been partly blaming the increased minimum wage which is said to have added £65,000 in costs per week for the company. The company would also have suffered from a lessened support from local authorities as said authorities have had their budgets slashed under the current UK government. This week South Korea became the first east Asian country to legalise medical cannabis. Whilst the distribution and supply will be strictly controlled by the government body Korea Orphan Drug Centre, such legislation will surely provide opportunities for private companies. A fitting example is British biotech company GW Pharmaceuticals seeing a 2.4% climb in its share price on Monday after it announced a further trial of its cannabis based Epidiolex treatment for child epilepsy fostered positive results. This surge was short lived however, as share prices landed at $123.02 at week’s end after Monday’s peak of $133.00 (see chart). Such a fall is due to GW reporting revenues of $2.4m compared to last year’s $2.5m. This fall marks a yearly loss of 7.8% in GW’s share price. Sebastian Hodge

NEFS MARKET WRAP-UP

Mergers & Acquisitions As of this week, food and beverage giant, Kraft Heinz, have agreed to purchase ‘Primal Kitchens’ a health-conscious sauce and condiments start-up. Kraft Heinz are looking to diversify their product range by introducing a health-orientated alternative to their traditional options. The deal is said to be worth in the region of £200m and will help Kraft Heinz compete against other start-ups that could steal precious market share. The health food industry has risen greatly in popularity over the past 5 years. A survey by Forbes suggested that 88% of those polled were willing to pay more for a healthier alternative, outlining the stamina at which the industry is growing. On paper, this merger proves to be an intelligent move from the Kraft Heinz board which should pay dividends in the future. However, Kraft Heinz shares only recovered by 1% following the news of the merger, having previously fallen by 34% since January. The takeover of shopping centre brand ‘intu’ has been halted after Brexit speculation heightens. A joint bid was proposed by several firms, Saudi Arabian Olayan group who already own 30% of the firm, Peel group and the Canadian firm Brookfields Property. The bid has been removed from the table amid difficulty in “current macroeconomic conditions”. This is not uncommon.

Brexit speculation has caused difficulty for business and intu is just another firm to fall victim. Intu will likely suffer over the next months as debt rises, property becomes difficult to sell, clients depart, and the chief executives step down is completed. Icelandic Air have scraped a proposed takeover plan of Wow Air, provider of low-cost flights to Iceland, USA and Canada. The news comes after the two were unable to come to an agreement over the share purchase agreement conditions, a mutually accepted outcome. Other mergers making the headlines this week include Donald Trump’s blockage of a $140bn tech merger, the biggest in history, of USA owned Qualcomm by Singapore’s Broadcom. This ties in with his policies of Buy American, Hire American and is another example of Trump’s domestic policies. Trump is claiming that the proposed deal could have the potential to threaten the overall security of the USA yet it is likely he is using this as a façade for his protectionism. Usmaan Jamil

03.12.18

.CURRENCIES Major Currencies The Pound will hit historic lows against both the Euro and Dollar before March according to analysts, because Prime Minister Theresa May's Brexit proposal looks almost certain to be rejected by parliament. The Bank of England has warned a no deal disorderly Brexit would send the pound plunging while inflation soars and interest rates rise. On the 11th December, UK law makers are set to vote on the Brexit plan that Prime Minister Theresa May agreed with Brussels earlier this month. On Wednesday, the Bank of England outlined its worst case scenario for a no-deal Brexit, which could see UK GDP as much as 10.5% lower by the end of 2023. As a result, Sterling was down at $1.2771, from $1.2824 late Wednesday.

In a speech delivered after the Fed released its first-ever financial stability report, the central bank boss said interest rates were “just below” neutral, which many investors took as a signal that the rate-hike cycle may be nearer an end than previously indicated. While the Fed is expected to raise rates for a final time this year in December, Powell’s remarks cast a shadow over future rate hikes in years to come. So far, global interest rate differentials had favoured the U.S. dollar versus its peers, where interest rates were still lower.

Freddie Serfaty

The US dollar stabilised on Thursday following the turbulence inspired in the previous session by Federal Reserve Chairman Jerome Powell’s speech. The US Dollar Index is up 0.1% at 96.848. Wednesday’s slide, which was its worst one-day percentage drop since the 1st of November, came after words by Powell.

NEFS MARKET WRAP-UP

Minor Currencies A bleak economic forecast from Bank of England Governor Mark Carney has weighed down the pound this week and thus helped to boost many minor currencies paired with the GBP. The Bank of England’s analysis released on Wednesday revealed that a no-deal Brexit is likely to push the UK into a recession, with the economy shrinking by 8% before the end of the first quarter in 2019. This news caused both antipodean currencies to rally against the pound, with the GBP/NZD having started the week at 1.8957 before dipping to 1.8559 on Friday. Similarly, the GBP/AUD, which was trading at 1.7770 before markets opened Monday, fell to a monthly low of 1.7393 on Thursday. Elsewhere, two of Asia’s worst performing currencies in recent times, the Indian rupee and the Indonesian rupiah, are set to finish the month with gains of over 5% each. The turnaround for these currencies started earlier this month when oil prices dived, helping both of these heavy crude importers to narrow their current account deficits.

However, the turnaround accelerated this week, notably on Thursday, after comments made by US Federal Reserve Chairman Jerome Powell hinted further that we can expect to see slower interest rate hikes moving into 2019, relieving the pressure on emerging markets. Powell’s rather dovish comments enabled the Indian rupee to advance from 70.97004 to a high of 69.60154 against the dollar on Friday. Meanwhile the Indonesian rupiah, which fell to its lowest since 1998 in October, has the potential to continue to rally further thanks to a change in strategy by Bank Indonesia, the country’s central bank, which now aims to provide sufficient room for the currency to appreciate. This change, coupled with the fact that Indonesia’s stock and bond markets are very sensitive to currency movement, should enable the rupiah to push past its monthly high of 14277.19228 against the greenback that was recorded early Friday morning (see chart). This weekend’s meeting between President Donald Trump and Chinese President Xi Jinping on the sidelines of the Buenos Aires G20 summit is expected to cause large currency speculation in both major and minor markets as the two look set to discuss future trade conditions in what will be their first meeting since the beginning of their trade war earlier this year. Matthew Copeland

03.12.18

Currencies

Cryptocurrencies Bitcoin saw an increase in its Google searches this week due to the huge market decline. Queries for “bitcoin” are at the highest level they have been for 8 months and the Google trend score is currently at 14/100. This shows the amount of speculation around Bitcoin is at the highest it has been since the end of the bull market earlier in the year. Bitcoin rose more than $1000 this week to around $4,500 on Thursday at the height of the recovery. However, due to a technical selloff, the Bitcoin price (Bitcoin/US Dollar) dipped below $4,000 on Friday before recovering above the psychological threshold. At the current time, the price is at $4,056, declining 6.2% in 24 hours. Daily trade volumes calmed down, falling from $7.3bn highs to around $6bn. The 30-day Bitcoin volatility index registered at 5.28% on Thursday (the highest in eight months), up from 1.02% on the 11th (the lowest recorded in two years). Most of the major cryptocurrencies are still in a bear market and show no sign of recovery. Ethereum (ETH) is currently trading at $113, below the key $120 level and so is still relatively weak in investors eyes. Ripple (XRP) has failed to demonstrate the strength that it displayed earlier on in this bear market, trading at around $0.36, struggling to enter the long-term $0.42-$0.46 support area. Bitcoin SV was the only currency in the top 10 cryptocurrencies to avoid Friday’s market correction, with prices residing around the $94 mark.

The crypto market capitalisation recovered $27bn this week, showing slightly promising signs for bulls. Over the weekend, it set new 14-month lows of $115bn but has since recovered and peaked at $142bn on Thursday. At the time of writing, the market capitalisation is at $130.7bn (see graph). With currencies such as Bitcoin, Ethereum and Ripple still in a bear market, this is unlikely to change in the coming week. The main question this week will be whether we can expect fresh new lows or whether the bottoming process has reached its end. However, long term investors should be encouraged. The fact that the recent increase in selling pressure isn’t deterring major institutions from entering the market is a good sign. VanEck confirmed on Thursday that the Nasdaq stock exchange will begin offering Bitcoin futures contracts early next year, perhaps displaying Bitcoin’s, and crypto’s, increasing presence in the overall market. 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

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