NEFS Weekly Market Wrap-Up Presented by the NEFS Research Division
10.12.18
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 Important indicators about the UK economy were published this week. On Monday, the UK manufacturing Purchasing Manager Index (PMI) for November was published by IHS Markit. The index rose by 2 points to 53.1 in November, beating analysts’ forecast of 51.7.
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In the same report, it was also shown that there was a sharp drop in the business expectations indicator to its lowest level since 2009 (apart from the drop suffered instantly after Brexit referendum). Overall, the UK All Sector PMI dropped by 1.2 points to 51.0 in November (see figure below). According to Chris Williamson, Chief Business Economist at IHS Markit, these surveys are consistent with a 0.1% GDP growth in the fourth quarter. He pointed out that growth momentum has been lost since the expansion seen back in October, and that risks are clearly leaned to the downside.
However, conclusions about the survey were mixed. On the one hand, there were gains in output, new orders and employment indices. On the other, there was a decline for the second consecutive month in the new exports’ orders index, which lies in contractionary territory (below 50). In a report, IHS Markit described the pick-up in UK demand as a guard by manufacturers against ongoing Brexit and supply-chain uncertainties. Regarding Brexit discussions ahead of the vote to be held on December 11th, Mark Carney defended On Wednesday the UK services PMI for November the warnings presented by the Bank of England last was published. The index fell by 1.8 points to 50.4, week. He added that UK's ports were not ready for far below analysts’ forecast of 52.2, which had a no-deal Brexit and that prices could rise anticipated an increase of 0.3 points. Apart from the considerably in case of a disorderly Brexit. The post-referendum dip in July 2016, this was the European Court of Justice’s advocate general said lowest reading since December 2012. that the UK has the power to unilaterally revoke the notification of its intention to leave the EU. In the IHS Markit remarked “subdued business and same day, Chancellor Philip Hammond responded consumer spending” and “Brexit uncertainty” as key that the economic cost of betraying Leave voters factors explaining the weakness of the services would be worse than leaving the European Union. sector. Sergio Bravo
10.12.18
MACRO REVIEW
The US and Canada The Fourth National Climate Assessment was released earlier this year in October and November, and outlines the impact that climate change is likely to have on many aspects of the US including health, agriculture, and perhaps most importantly, the economy. This week Donald Trump has come out criticising the report in many comments, however many economists and climate change activists have criticised his denial of climate change. The Assessment outlines how 'rising temperatures are projected to reduce the efficiency of power generation while increasing energy demands' as well as how 'import and export prices and U.S. businesses with overseas operations and supply chains' will be effected. Different parts of America face different types of risks. States such as South Carolina are at high risk of tidal flooding, whereas areas such as the Southern Great Plains are likely to experience extremely high temperatures in the coming years. The new report also predicts that climate change could even cause the US economy to lose over 10% of its GDP by the end of the century in the worst-case scenario.
And the report does not only set out fears for the future. It also outlines how many risks are already being experienced by people and the economy in the US. One topical example of this are the wildfires in California. The frequency of wildfires in western US states has increased by a massive 400% since 1970 and the California fires this year are already estimated to have caused the most destruction in recent years and has cost $10.4 billion worth of damage In claims. Economically, the fires have cost the Forest Service $2.5 billion (compared to $1.4 billion in 2016), as well consuming 52% of the firefighting budget. Similarly, Canadians are also worried about the impacts of climate change. On Thursday, a survey from the Responsible Investment Association (RIA) came out to say that the majority of Canadian Investors are worried. 70% of people surveyed believe climate change will have negative financial impacts on companies in the next 5 years. In addition, the Premier of British Colombia outlined a new climate action plan that will be released on budget day in February. In it, he said that the province's reliance on fossil fuels will need to be curbed and that the levy on carbon will be increased. The rise in the Carbon Tax is expected to be used to fund low-carbon energy.
Abigail Grierson
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NEFS MARKET WRAP-UP
Europe This week we focus on the loss of confidence in Italy, alongside the fall in German industrial production while exploring the French governments backpedalling and nationwide protests.
In contrast, Italy’s overall PMI measure stood at 49.3% in November for the second month. A PMI score below 50 points to a decline in activity, indicating the possibility of Italy slipping into recession.
Italy’s economic recovery has been losing momentum this year, but the financial tensions with the European Central Bank (ECB) has set this in stone. Yields on Italy’s 10 year bonds have only slightly eased in the past month, reaching 3.07% on Wednesday from 3.7% in October, hurting banks who are heavily exposed to the nations, 131% of GDP, national debt. With this, Italy’s gross domestic product fell by an annualized 0.5% in the third quarter, shown by the graph below, due largely to a steep drop in business investment as well as more hesitant spending by consumers.
In the North, signs of weakness are also starting to show in Germany’s economy as global trade worries have hit its large manufacturing sector and new rules on vehicle emissions have stalled car production. Improvement in German manufacturing orders has yet to feed through to production, with the latest industrial production data indicating an unexpected month-on-month decline. Output declined in October from September, after edging 0.1% higher in each of the previous two months. This can be attributed to a 3.2% fall in consumer goods production and in energy production. However, even stripping out energy and construction, production in industry was 0.4% lower, pointing to widespread weakness — though capital goods production and the production of components for other goods held up.
Broadly, growth of the eurozone seems to have slowed down due to global trade tensions, higher oil prices and a downturn in the car industry. However, most other eurozone economies show signs of expansion, such as an increase in the Purchasing Managers Index (PMI), a leading indicator of economic performance.
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With Climate Change talks in the UN being the hot topic for this week, French President Emmanuel Macron has taken a step in the opposite direction – abandoning a proposed fuel-tax hike amid fears of more unrest after weeks of nationwide protests. These protests come as many workers in France are angry over the combination of low wages, high taxes and high unemployment (above 9%) that have left many people struggling financially.
Kaythi Aung
10.12.18
MACRO REVIEW
Japan & South Korea According to an industry gauge, growth in Japan’s services sector remained steady throughout November after rebounding sharply to a six month high in October, which came after a string of natural disasters in the previous months. A survey revealed that business confidence was at its highest in the last 10 months, despite only mild export growth, according to the Information Handling Service Japan (IHS). The data shows a level of resilience in Japanese economy, and suggests a stronger case for a rebound in Q4 GDP growth. New data has shown that the unemployment rate in Japan rose to 2.4% in October, up from a fourmonth low of 2.3% from the previous month. This is an increase of 80,000 jobless, to a total of 1.68m. Youth unemployment remained steady at 3.4%. The Bank of Korea (BoK) has raised its benchmark interest rate for the first time in a year, by 0.25% to 1.75%. However, in the third quarter, the South Korean economy had only grown by 2 percentage points from the previous year, the slowest pace in nine years. Inflation was below the Bank of Koreas target, at 1.6%.
It seems that the South Korean economy would not benefit from a higher interest rate, so economists had not expected an interest rate hike until the latter half of the next year. In a statement released by the BoK, the decision to increase rates was due to concerns over climbing levels of consumer debt and financial imbalances. South Korea’s household debt level remains one of the greatest in the world, at over $1.3tn - over 95% of GDP (see graph). The rate of increase also expanded in October. The BoK has expressed its concern over financial imbalances created by the housing boom in Seoul, which has slowed down after government measures to stabilize the market were put into place. In summary, the move is a precaution taken for financial stability, while the BoK still aims to stabilize consumer price inflation over the medium-long term. Rudai Wang
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NEFS MARKET WRAP-UP
Australia & New Zealand This week has seen Australia’s central bank meet to determine the future of the interest rate amid of the housing market fears; in New Zealand, Air Zealand’s workers plan a strike on the busiest travel day of the year. On Tuesday the Reserve Bank of Australia (RBA) left the cash rate unchanged at its all-time low of 1.5%, which it has been for 28 months (see graph below). The decision has come amid of moderate inflation, falling house prices and subdued consumer spending. The inflation rate has slowed from 2.1% to 1.9% and therefore moved below the central banks 23% target. The maintenance of the low interest rate is to encourage borrowing and therefore consumption in the Australian economy. This is aimed to encourage more people to buy houses especially when regarding the threats of a failing housing market and also to help push the inflation rate back to between 2-3%. Historically the RBA has helped to encourage investment by cutting rates, yet on Tuesday after its monetary meeting, the central bank noted that that "credit conditions for some borrowers are tighter than they have been for some time, with some lenders having a reduced appetite to lend". This may imply that the maintenance of a low interest rate could have a smaller effect on the house prices than believed due to borrowers not having enough stability or money to attain a loan nor banks having the confidence to loan to those who want to buy houses.
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Furthermore, this week has seen Air New Zealand engineers outline plans to strike on the 21st December; it is set to involve almost 1000 staff members and could affect the travel plans of 42,000 customers. The strike action is due to a pay dispute in regard to annual increases in staff pay. Some critics of the government argue that this is a symptom of a union-friendly labour government that is in place. Yet the combination of historically low wage growth and unemployment being extremely low may be fuelling the increased worker unrest; the workers may believe they are overdue a wage rise alongside the fact that they have the most job security than ever.
Abigail Davis
10.12.18
. EMERGING MARKETS Africa The South African economy received a wellneeded boost this week after the announcement by Statistics South Africa (SSA), that the economy had grown 2.2% In the third quarter of the year. This follows a poor second quarter where their economy shrank by 0.4%. Given negative growth in the first 2 quarters of 2018, the country entered their first period of recession since the financial crisis in 2009. Risenga Maluleke, Statistician General of South Africa attributed the growth to the expansion of the manufacturing, finance and transport industries, as shown in the chart. The secondary sector increased by 5.4% due to the production of basic metals, machinery, motor vehicles as well as petroleum, wood and paper. However, the primary sector continued to struggle, dropping 5.4%, predominantly caused by the decline in mining. Whilst the agricultural sector contracted 29.2% in the second quarter it fought back to grow by 6.5% in Q3. The South African Rand also performed well finishing 0.5% up against the dollar, at R13.69 per dollar on Tuesday evening. This is in part due to the good performance of the South African economy, but also the temporary truce in the trade war between the United States and China which has helped all developing economies' currencies.
Energy supplier Eskom Holdings SOC Limited has causes big problems domestically for South Africa though. The firm which supplies most of the nation's electricity has been implementing daily blackouts since 29 November in order to avoid complete collapse of the system. These blackouts are set to continue for the foreseeable future as the new management team attempt to deal with a backlog of maintenance issues, coal shortages and construction delays. The energy company is heavily dependent on government funding to survive, and despite having monopoly power in the energy market, the firm is currently operating at a big loss, estimated at 11.2 million rand in the period through to March. Eskom have also amounted debts of 419 billion rand ($30.6 billion) which unsurprisingly the company is struggling to service. Mamello Matikinca, chief economist at First National Bank (FNB), explains that FNB predicted the bullish 2.3% growth in Q3, although he warns that the full-year economic model still predicts low overall GDP growth of only 0.7% due to year-onyear numbers remaining "exceptionally weak." The recent data show the economy has recovered from immediate danger, but serious underlying issues still persist.
Joseph Houghton
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NEFS MARKET WRAP-UP
China The Caixin Manufacturing Purchasing Managers Index (PMI) for November, an indicator of the strength of the manufacturing and services sector of an economy, was announced to have slightly grown from 50.1 in October to 50.2.
This agreement to ease tensions, although not to remove tariffs, was responded with a jump in the SSE Composite Index (Shanghai Stock Exchange index) by 2.57% on Monday and closed at 2654.8 (see graph).
This type of indicator gives greater focus on how smaller and medium sized firms are behaving as they are given a higher weighting compared to the official National Bureau of Statistics data set. Although beating market expectations slightly by 0.1 index points and showing that output is stable, it reveals that export sales have fallen for the eighth consecutive month in this sector.
It is clear that markets expect a gradual improvement in the international trading environment, however many are waiting to see if the ongoing talks between the two nations will result in any concrete cutting back of tariffs which have been implemented during this trade war.
The pressure on export sales is indicative of the impact of the deterioration in trade relations between the United States and China. This has specifically hurt small to medium sized businesses which make up key parts of the supply chain. These firms have also faced further pressure with the government’s ongoing focus towards cutting the amount of corporate leverage in China. However, following the G20 summit, potential signs of the end of the trade war are appearing between the two countries. A 90-day tariff truce has been agreed on by Chinese President Xi Jinping and US President Trump.
Meanwhile, Foreign Exchange Reserves held by China rose by $9 billion in November to a total of $3.062 trillion. This was against the market consensus of a fall in reserves by $16 billion due to the gains in the Chinese Yuan over the month, driven by the expectations of the ease in trade tensions. Overall this cements China’s position as the largest owner of US Treasuries at 22% of all US Treasuries held by non-Americans. Over the weekend, key information about the Balance of Trade shall be announced as well as the Inflation rate in China. This information shall reflect the current state of the economy in this turbulent trading environment.
Amar Toor
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10.12.18
EMERGING MARKETS
Latin America This week, Brazil continues its economic comeback while Colombia remains plagued by protests. Following the negative impact of May’s widespread strikes on second quarter growth, Brazil restored global confidence in its economic recovery as GDP rose 0.8% from Q2 2018 (see graph) and 1.4% from Q3 2017. A nationwide 10-day strike by truckers against the spike in diesel prices had pushed GDP annual growth rate to 0.9% but the Central Bank’s decision to hold interest rates at their record-low of 6.5% and a one-off government measure allowing workers to withdraw funds from inactive severance accounts helped the country bounce back. In particular, the government windfall boosted consumer spending by 0.6% and is expected to inject 15bn Brazilian reals (the local currency) into the economy this year. However, despite investment soaring 6.6% from the previous quarter which was its largest increase in almost 9 years, much of the expansion can be credited to companies resuming operations after May’s road blockages cut off key supplies across the country, forcing factories to halt production. The expected slowdown of next quarter’s growth to only 0.2% as a result of `comparison base effects` also emphasizes this temporary economic boost.
Nevertheless, after finally climbing out of its twoyear recession in early 2017, an improving labour market and continued low interests are expected to fuel the economy’s momentum next year with the IMF forecasting 2019 GDP growth to double 2018’s expected rate of 1.2%. Many economists also widely agree that Brazil’s long-term growth prospects hinges on whether President-elect Jair Bolsonaro will deliver on pro-market campaign promises which include speeding up privatizations and deregulation as well as cutting government spending in order to combat Brazil’s 7.8% budget deficit. So far, his election in October and recent appointments of reform-orientated ministers have been well received with business confidence recording the largest month-on-month gain on record in November. Elsewhere, Colombia President Ivan Duque’s first 100 days in office were marred by further protests against proposed 2019 general spending cuts of nearly 10% as the government tries to reduce the current 3.1% budget deficit to 2.4% next year and thus obey its budget deficit fiscal rule limit. However although the government claims the cuts are necessary to uphold Colombia’s sound credit rating, its extension of food to a lower rate of VAT and education funding gap have incited mass protests which don’t seem to be ending anytime soon. Hannah Cousins
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NEFS MARKET WRAP-UP
Russia & Eastern Europe Across the developing economies of Eastern Europe and Russia this week there has been a mixture of strong economic performance and disappointment. In Russia we have seen record low unemployment figures announced according to the International Labour Organisation (ILO). Furthermore, strong Macedonian growth figures were also announced. Additionally, Moody’s credit ratings agency has decided not to upgrade the rating of the Hungarian government due to concerns about the state debt ratio.
The Macedonian economy this week released strong economic growth figures for quarter three. The year on year growth rate of 3% mirrored the gains experienced in the second quarter of the year. Exports of goods and services were a key driver behind these solid growth figures and these grew by 16.4%. However, there are also some caveats to Macedonian growth. Capital formation fell by 8.5% in the third quarter year on year and this decrease could undermine potential economic growth in the future.
Firstly, we can see by the graph below that Russian unemployment has fallen to its lowest level ever at 4.7%. This reflects the strong performance of the economy despite continued political challenges. There is also strong wage growth occurring to match the low unemployment rates. Real disposable income has increased by 1.6% across this year, while real wages have grown by 7.6%. The fact real wages are back in growing territory is clearly positive news for the Russian leadership, who had seen real wages fall in previous years due to wide ranging economic sanctions.
Last week it was reported that Moody’s would upgrade the credit rating of the Hungarian government on the back of strong economic performance in recent times. However, this week Moody’s has decided not to proceed with the upgrade. The high level of government debts were cited by Moody’s as one reason an upgrade did not occur. The report did however maintain a positive outlook for the economy with growth expected to be 4.3% for 2018 and 3.4% in 2019 owing to foreign direct investment inflows which have allowed increased exports by Hungary, particularly in the automobiles sector.
Ashley Brumfield
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10.12.18
EMERGING MARKETS
South Asia Equity markets across South Asia witnessed significant sell-offs during the latter part of the week. This was following the arrest of Huawei CFO, Meng Wanzhou, by US authorities, as investors across South Asia felt the move could dampen the ongoing US-China trade talks which drastically effect trade patterns across the AsiaPacific area. As a result, the Amundi MSCI Emerging Markets Asia ETF was down 3.7% upon the news (shown in the chart below) while Taiwan’s TAIEX index was down more than 2%. Furthermore, Singapore’s STI index (a particularly trade sensitive index) finished the week down 1.78%.
In New Delhi, the Reserve Bank of India kept the economy’s base rate of interest unchanged at 6.5% on Wednesday. The bank has kept rates constant for two consecutive meetings as policymakers aim to achieve a 4% inflation target and support growth. The Government of India also announced that India’s current account deficit widened sharply by 2.9% of GDP from July through to September. This all had a negative impact on India’s benchmark S&P BSE SENSEX Index which closed on Friday down 1.84% for the week. The Philippines and Indonesia were two major South Asian countries to release inflation figures this week. The Consumer Price Index in the Philippines decreased 0.20% in November of 2018 over the previous month. This takes the Philippines' annual inflation rate to a much welcomed 4-month low of 6.0% following the 9year high of 6.7 % in the previous two months. The latest figure was below the market consensus of 6.2%, mainly driven by a slowdown in the cost of food and housing.
Trade data from Taiwan on Friday showed that exports had fallen 3.4% year-on-year in November 2018. But more significantly, exports to Taiwan’s number-one trading partner, China, were down 3.4% due to falling sales in electrical equipment, machinery and plastics. This news, along with the recent growing uncertainty over trade flows in the region due to US-China trade talks, spooked investors and resulted in Taiwan’s benchmark TAIEX closing the week down a staggering 3.7%.
Meanwhile in Indonesia, the government announced that the CPI had increased 0.27% in November from the previous month. This takes Indonesia’s CPI to an annual 6-month high of 3.23% and beating market expectations of 3.15%. Price increases in housing and utilities, transportation, communication and financial services were to blame for the more than expected change.
Sean O’Hagan
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. EQUITIES, COMMODITIES & DEALS Financials The FTSE 100 index saw its highest percentage fall since the Brexit vote this week, closing nearly 218 points lower at 6,704. £56bn of value was wiped off after a global market sell off as US-trade trade war fears heighten. Shares in boutique investment bank and asset manager Lazard (LAZ) have suffered this week falling 8.1% during trading on Tuesday alone. Stock traded at a low of $37.01 after previously closing at $40.41. Shares closed at $37.05 on Thursday, a $3.78 fall since opening on Monday. The company which has a relatively high equity-to-debt ratio standing at 1.28 reported earnings last week. Earnings per share (EPS) came in at $0.86, slightly lower than the $0.93 projected by analysts. However, despite a considerable downwards trend, analysts and institutional investors still remain confident in the US based financial advisory firm. Goldman Sachs analysts have recently upgraded the company to a ‘neutral’ rating despite being down over $15 per share in the last 6 months. BNP Paribas Asset Management recently purchased a new stake in the boutique bank worth $208,000. Institutional investors now own 71.37% of the company, a sign there is faith in a recovery in light of consistent negative results.
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Barclays saw a recovery during trading on Friday morning, seeing a 2% rise on Thursdays closing price. The share price stood at £155.92 by midday during the session, £1.70 up from opening that day. Stock in the bank is down overall for the week, from a high of £166.72 a share on Monday to £153.00 on Thursday (see graph). Despite a slight recovery on Friday, the long run consensus for the bank, which has suffered a £22 per share price drop over the last month, looks worrying. A downturn in revenues within its retail banking division may see the 4% earnings rise forecast by city analysts slashed. Analysts have also forecast dividend projections of 8p per share for 2019, a figure also at risk at of being cut. There are also growing concerns about Barclays balance sheet. Recent tests by the Bank of England have shown that the FTSE firm has a capital ratio of 6.9%, making it one of the worst capitalised banks in Europe. A weak outlook for the firm will likely see poor results continue into early 2019, with investors staying clear of a banking stock with significant risk. Oscar Miller
10.12.18
EQUITIES, COMMODITIES & DEALS
Energy, Oil & Gas After meeting on Thursday, OPEC (Organisation of Petroleum Exporting Countries) and other major exporters including Russia failed to reach a consensus on the level of oil production cuts. As a result, the price of Brent crude oil dropped to $59.49 on Friday morning (see graph), as uncertainty among traders and investors grew.
The fallout of this is reflected in disappointing profits for US producers. The combined profits of the 30 largest producers fell to only $1.7 billion this year. Schlumberger, the largest oilfield services company worldwide, said that the US could expect the company’s output to fall by 15% in the coming quarter as a result.
Other factors driving down the price of oil include the termination of sanction waivers on Iranian oil, which will drive up the price of Iranian oil for importers such as China and Japan, dampening demand. Moreover, Qatar has announced that it is leaving OPEC as of January 2019, in order to pursue independent oil production plans. This step away from a cartel which encourages price stability is likely to concern traders, as well as creating fears that OPEC’s second largest exporter, Iraq, could follow suit.
Despite Donald Trump’s move to make coal a more profitable resource, it seems that the industry is in decline in America. According to the Energy Information Administration, more than 20 coal plants per year are shutting down in the US, implying that most coal plants will be closed by 2035. Power generated from coal is also down from 50% of power plant output to 29%.
Upon the announcement, the Russian rouble fell sharply against major currencies such as the dollar. This is because Russia’s main export is oil, so its currency is very sensitive to changes in demand and supply for the commodity. Meanwhile, WTI (West Texas Intermediate) oil is also trading at a modest price. As a slightly less desirable substitute for Brent crude, decreases in the price of Brent crude have been exacerbated for WTI, which is still trading below $50 per barrel.
Many factors have made coal an excessively expensive source of energy, such as the rise of renewable energy resources, and a glut in the supply of natural gas due to fracking. The scientific method for refining coal is also far more expensive, and lengthier, than for natural gas. It seems that rather than politicians, market forces will have the final say on the future of coal. Megan Jackson
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NEFS MARKET WRAP-UP
Tech and FinTech US stocks incurred a drastic sell-off on Thursday with technology shares bearing the worst of this retreat as the Trump administration pressed its trade war with China, creating further uncertainty. Netflix, Amazon and Alphabet slipped 2.5% leading to losses among Mega Cap tech shares, which helped facilitate a fall in S&P 500 and Nasdaq by 2.1% and 2.7% respectively. Amazon’s value has decreased by $24 billion compared to last week whilst Apple’s plunge lowered its value by $45 billion. The trend in Netflix’s share price on a daily chart is shown below. This was a reversal of the rally incurred earlier in the week following US president Trump and China’s President Xi’s agreement to halt the imposition of new tariffs for 90 days to negotiate an agreement. The negative rhetoric surrounding tech stocks was exacerbated by the US’s decision to arrest the CFO of Huawei Technologies, a Chinese multinational telecommunications provider, on the allegations the CFO lied to US banks about the relationship between the Chinese telecoms group and a company called Skycom to circumvent sanctions on Iran. This indicates broader efforts by the US government to minimise security threats from Chinese equipment, creating more uncertainty surrounding technology’s future for China and the US.
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Elsewhere, financial services companies, including Fidelity International and HSBC are weighing up the launches of robo-advice services in order to appeal to a wider range of customers amid growing competition. For example, Fidelity is hoping to bring its service to the UK for investors on its Fidelity Personal Investing Platform, as well as to financial advisers using Fidelity FundsNetwork. Likewise, HSBC’s launched its online investment app marketed at novice investors to offer a low cost investment solution. These initiatives will help mitigate the increased risk of competition from high-street banks and fintech companies, as competitors are finding it increasingly difficult to turn a profit due to the small size of their customer’s portfolio; Nutmeg, the UK’s largest robo-adviser, suffered a loss of £12.4 million in its most recent financial year. However, this does not represent a complete picture of institutional adoption of robo-advice services. For example, banks without complete legacy infrastructure including UBS, have withdrawn their digital investment service due to lack of traction. Meanwhile, regulators such as the Financial Conduct Authority (FCA) have criticized online wealth managers for not offering personalised advice. Thus, regulatory concerns for larger institutions remain commonplace. George Kennedy
10.12.18
EQUITIES, COMMODITIES & DEALS
Pharmaceuticals VanEck Vectors Pharmaceutical ETF (PPH) and SPDR S&P Pharmaceuticals ETF (XPH), the largest international and US-specific exchange-traded funds respectively, have both struggled this week. PPH fell from a week’s open of $62.72 to week’s close of $59.51. Whilst XPH fell from $43.98 to $41.09 across the same period. Whilst ETFs are never directly reflective of an industry’s health, this dip is very likely a result of the stresses experienced this week by major companies such as AztraZeneca and GSK, as explained below. AztraZeneca is continuing its plan of phasing out lesser-earning drugs in order to allow more innovative drugs to boost the company’s growth. This week it announced the sale of prescription medicine rights of stomach acid drug Nexium (in Europe), as well as the global rights (excluding US and Japan) of another stomach acid drug Vimovo to German pharmaceutical company Grünenthal. Whilst this strategy follows a strong Q3 earnings report, investors seem less than optimistic for AztraZeneca – as displayed in its share price falling from Monday morning’s price of £6,176 to £5,927 at market’s close on Friday.
American generic drug maker Akorn suffered a brutal fall of 21% for its share price this week (see chart). Akorn was in the process of being purchased by German health care giant Fresenius, a deal which was announced in April 2017. However, Akron’s revenues fell sharply after a whistle-blower leaked the news that Akron was not meeting drug development standards. On Friday it was declared by the Delaware Supreme Court that Fresenius would be allowed to walk away from the acquisition due to Akron’s malpractice, and thus its share price has suffered appropriately. British pharmaceutical front-runner GlaxoSmithKline (GSK) announced on Monday that it is to acquire TESARO, a US based cancer treatment developer, at a near 200% premium of TESARO’s share price. Naturally this has pushed TESARO’s share price to soar from November’s peak of around $42 to $73.89. Contrastingly, the announcement has wiped £5bn off GSK’s market value, with shares falling from £1,621 to £1,418. With her first major acquisition setting off to a rocky start, GSK CEO Emma Walmsley will be hoping that the recent agreement to sell the company’s south Asian health, food and drinks portfolio to Unilever to the tune of £2.9bn will help plug the aforementioned losses. Sebastian Hodge
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NEFS MARKET WRAP-UP
Mergers & Acquisitions This week’s article will review Anta’s offer to buy Amer Sports, developments in Paypal’s takeover of iZettle, and Japan’s largest cooperate takeover. Chinese sports retailer, ‘Anta’, have proposed an offer to purchase the Finnish sports brand ‘Amer Sports’ for a reported £5.6bn making the deal the largest Chinese purchase of a European company this year.
The announcement of the deal has resulted in a spike in Amer Sports’ share price as shown in the diagram above, demonstrating the positive outlook on the merger. The share price is up by three percentage points. Anta is hoping to diversify its product range by bringing Amer brands such as Salomon mountain gear and Atomic skis, two major brands in their respective fields, to the Chinese market. The move symbolises a change in Chinese culture; the result of a rising middle class and changing tastes towards branded equipment.
Amer’s board have backed Anta’s offer of €40 per share, a 39 per cent increase from their market rate, giving Anta a 58 per cent share of Amer Sports. Anta will respect the leadership of Amer and will allow the firm’s managerial team to continue working to avoid unnecessary disruption. Online payment giant PayPal’s takeover of Swedish start up iZettle has been referred to the competition authorities after PayPal decided to ignore concerns. The concerns have come from the UK competition and markets authority who believe the merger could lead to a lack of competition in the online payments industry, since iZettle is PayPal’s largest competitor. Upon announcement, PayPal’s share price fell by 3 percentage points but has since recovered, outlining shareholder confidence in the firm. The CMA have found evidence to suggest that had the merger not taken place, consumers could have experienced lower prices through an increase in competition and innovation. Valued at $2.2bn, the merger is no small affair, The CMA may seek to reverse the move as a result. Their outcome will be presented on May 21st this year. Japanese pharmaceutical firm Takeda has received approval for a £46bn acquisition of Dublin-based pharmaceutical firm Shire. The deal comes as Takeda look to re-think their international focus to expand into the global markets and branch away from their regional reputation. Takada plan to finance the acquisition through the issuance of new shares for Shire bonds and bank loans. Usmaan Jamil
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10.12.18
.CURRENCIES Major Currencies Pound Sterling is seen under heavy selling pressure ahead of the 11th December Brexit deal vote in the House of Commons. "Brexit uncertainty continues to weigh on the Pound ahead of a crucial Commons vote next week," says Robert Howard, an analyst on the Thomson Reuters currency desk. "With a political storm approaching and year-end notorious for illiquid conditions and fragile risk appetite, Sterling may be the worst currency to hold.� The Pound-to-Euro exchange rate is quoted at 1.1217 as seen in the graph. Robin Wilkin, a foreign exchange strategist with Lloyds Bank says a move through support located at 1.1190 "would open the potential for further" declines towards range lows in the 1.11-1.0980 region. The U.S dollar started the week with losses, after the dramatic announcement that President Trump had agreed to suspend new tariffs against China for 90 days. However, investor optimism over the truce quickly dissipated, enabling the dollar to recover. Another concern for investors is an inverted yield curve in U.S Treasuries, which in the past has been a reliable indicator that a recession is coming.
The EU Commission aims to reduce the dollar's dominance of the global economy and to strengthen the role of the euro, particularly for energy transactions. European capitals are increasingly frustrated with the global dominance of the dollar as a reserve currency. This hands the US unparalleled diplomatic and economic power in a globalised world. The share of the euro in global holdings of foreign exchange reserves currently stands at around 20%, according to the commission. The US dollar, by comparison, is over 60%. While no other currency exceeds 5%, the EU is also worried about the rise of the Chinese yuan, which Beijing hopes will one day become a reserve currency on par with the dollar. After a strong start, the international stature of the euro suffered greatly during the euro zone debt crisis as the financial markets lost faith in the single currency.
Freddie Serfaty
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NEFS MARKET WRAP-UP
Minor Currencies Minor currency movements this week were largely motivated by the outcome of President Trump’s meeting with Chinese President Xi Jinping last weekend in which the two agreed to a ceasefire in their aggressive trade war.
These factors all contributed to the Aussie’s slump against the greenback in the latter stages of the week, with the AUD/USD falling from 0.7369 at market open on Monday to a low of 0.7192 recorded Thursday.
The Australian dollar, often considered as a barometer of Chinese growth, saw gains early on in the week, with the Aussie trading 0.7% higher against the greenback at market close on Monday. However, as the week progressed, the Aussie began to struggle (see chart below), notably after poor GDP figures were released on Wednesday. Compared to last year’s 0.9% growth in Q3, the Australian economy grew by only 0.3% in Q3 of 2018, missing the forecasted print of 0.6% by a significant margin.
Surprisingly, the other antipodean currency, the New Zealand dollar, appears to be one of the least fundamentally-driven currencies at present, having seen little volatility over the past week despite the major events which are fuelling market movements elsewhere. Additionally, with very little scheduled over the coming week regarding the nation’s economic docket, major movements are not expected.
The annualized growth rate also fell to 2.8% from the previous quarter’s reading of 3.4%. Considering that the Reserve Bank of Australia, the nation’s central bank, has predicted that GDP would grow by an average of 3.5% over both this year and the next, the data released Wednesday has raised expectations of a lower interest rate in the near future. Conditions then worsened for the Aussie on Thursday after geopolitical risk flared up following the arrest of Huawei’s Chief Financial Officer, Sabrina Meng Wanzhou, and a tweet by Donald Trump in which he refers to himself as the ‘Tariff Man’, implied that his tariff truce is not as sincere as it seems.
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Earlier this week, the Bank of Canada (BOC) released a dovish statement which led to the probability that the BOC raises interest rates in January 2019 falling to below 30% from 70% just two weeks ago. This, coupled with a predicted rebound in the price of domestic oil following production cuts in Alberta, caused the Canadian dollar to end Wednesday close to its weakest since June 2017. However, the Loonie strengthened rapidly on Friday after November’s labour market report demonstrated the economy creating jobs at a rate fast enough to push unemployment to a record low. Matthew Copeland
10.12.18
Currencies
Cryptocurrencies The forces affecting the cryptocurrency market the past month have strengthened this week. A lot of people have taken to panic selling, the market is down by close to 50%, and many of the top 20 coins plunged to new yearly lows. According to CoinMarketCap, the collective value of all cryptocurrencies declined to a new yearly low of $104.9bn on Friday. This means that, over the past 4 weeks, the market capitalisation has lost over $100bn, as shown in the graph. The Bitcoin price reached a session low of $3,368 on Bitfinex, a new year low. This was also nearly a 9% drop in just 24 hours. With the recent breach of the $3,600 support, the bulls are nowhere to be seen. However, soon after Bitcoin reaches the $2,800-$3,200 high demand area, the bulls are expected to show up in great force. On top of this, the weekly and daily RSI (relative strength index) both indicate that Bitcoin is oversold. Furthermore, there has also been a decline in trade volume which indicates seller exhaustion. With all these conditions, it is very likely there will be a big bounce in the market soon after the price reaches bull territory. Although, this does not necessarily mean an instant bull run will occur. More likely, Bitcoin’s price will fluctuate a lot between $3,000-$6,000 within the coming months before the bull run happens.
On Thursday, Ethereum hit a new 18-month low of $97.73, not seen since May 2017. This was the result of a 9.3% decline from Wednesday, a loss rate only matched by 2 other altcoins (Bitcoin Cash and Stellar) in the top 10. Bitcoin Cash has seen new all-time lows ever since it crossed the $200 mark in late November. The price on Friday was $105.41, resulting in a 39.15% weekly loss, and trade volumes have doubled to $120m, indicating no stop to this carnage. Bitcoin SV and Tether’s USDT Stablecoin were the only two coins in the top 20 to avoid a weekly loss. This led Bitcoin SV to briefly overtake Bitcoin Cash as the world’s fifth largest blockchain. In the coming week, investors should be on the lookout for upward trends in the market. Long term investors should also remember that the fundamental picture of Bitcoin, and other cryptocurrencies, has not changed as radically as the price.
Rhys Dil
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