Week Ending 24th March 2016
NEFS Research Division Presents:
The Weekly Market Wrap-Up 1
NEFS Market Wrap-Up
Contents Macro Review 3 United Kingdom United States Eurozone Japan South Korea Canada
Emerging Markets 10 China India Russia and Eastern Europe Latin America Africa South East Asia
Equities 18 Financials Technology Oil & Gas
Commodities 21 Energy
Currencies EUR, USD, GBP 23
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Week Ending 24th March 2016
MACRO REVIEW United Kingdom This week has seen numerous noteworthy events in the UK economy. Most significant was Theresa May ending months of speculation surrounding Brexit by announcing that Article 50 of the Lisbon Treaty will be triggered on March 29th. Article 50 is the formal notification of the UK’s intention to leave the European Union, and will launch the two-year countdown until Brexit. Shortly after May’s declaration, the President of the European Council, Donald Tusk, announced that EU leaders would meet to discuss Brexit plans on April 29th. The UK inflation rate has also continued to rise, and is henceforth now lying past the Bank of England’s 2% inflation target. Confirmed to have risen from 1.8% to 2.3% in February, this is the highest inflation rate the UK has seen since September 2013. The Bank of England has said it expects inflation to peak at 2.8% next year, however some economists think the inflation rate could rise above 3%.
below), the greatest concern is the impact this inflation will have in decreasing the UK’s standard of living. Consequently, the Bank of England’s deputy governor, Ben Broadbent, has said that the fall in the pound’s value has brought minimal benefits to the UK economy. In contrast however, Lord Mervyn King, governor of the Bank of England from 2003 to 2013, views the pound’s depreciation as healthy for the UK economy. Lord King believes that the pound was over-valued prior to the EU referendum. Consequently, this depreciation merely reflects a more accurate Sterling exchange rate. Furthermore, the depreciation has enabled a rise in exports, thus compensating any Brexit trade risk. Finally, Lord King states that a weaker pound will improve investment opportunities, by limiting private consumption and rebalancing the economy towards new export industries. Charlotte Alder
There are many causes behind this rising inflation. However, the most notable contributors are increasing fuel and food prices, which are mostly the result of the steep post-Brexit fall in the pound’s value that has made importing goods more expensive. This is especially in regards to transport costs, which account for more than a third of inflation. However, with real wages rising slower than inflation (see 3
NEFS Market Wrap-Up
Eurozone Data from earlier this month shows the aggregate Eurozone unemployment rate to be 9.6% in January, unchanged from the end of 2016. This is the lowest level of unemployment since early 2011, yet it is still well above pre-crisis levels (see below). The figure remains relatively high – compared to other developed economies due to the poorer performance of the southern-European economies, such as Italy, Greece and Spain. Despite a recent ‘Global Health Index’ from Bloomberg, finding Italians to be ‘the world’s healthiest people’, the country is one of the worst performing in the Eurozone, with unemployment at 11.9%, quarterly growth of 0.2%, and government debt at 133% of GDP. Under further scrutiny, data shows youth unemployment to be at 37.9%. Italy is the first target for the Single Supervisory Mechanism – the watchdog arm of the ECB responsible for Eurozone banking. Of the €920bn of nonperforming loans (that is, defaulted or close to default loans) in the Eurozone financial sector, €270bn sits with Italian banks. The combination of high public and private sector debt sets a shaky structural foundation for the Italian economy, something which technocrats in Brussels will wish to see remedied under threat of further disciplinary measure. Similar issues are cropping up in Greece yet again, where
unemployment is at 23.1% and quarterly growth is negative 1.2%, as the Tsipiras government has missed yet another debt repayment deadline this week. These deadlines are leading up to the €7bn in government bond repayments due in July, with the European Union pressuring for unpopular energy and labour-market reforms and cuts to pensions. Incapacitating unemployment rates and government debt create toxic economic environments that, tied with severe EU demands and a growing fear from terrorism – especially in light of Wednesday’s attack in Westminster and Thursday’s attempt in Antwerp - only fuel the growing Euroscepticism on the continent. Perhaps the most promising of the Eurosceptic populists is Italy’s Beppe Grillo, head of the anti-establishment Five Star Movement, or 5SM, who do not fit into the traditional leftright paradigm. Grillo has campaigned for an Italian referendum on the singlecurrency, and has seen support grow to 32.2%, according to an Ipsos poll published by daily newspaper Correa della Sera. Italian national elections do not take place until early 2018 – meaning that there are two other major elections (France, then Germany) before Italians go to the ballot box. Jamie Peake
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Week Ending 24th March 2016
United States Thursday the 23rd marked the seventh anniversary of the Affordable Care Act (ACA). Though the bill expanded the number of Americans on healthcare insurance by 20 million, President Trump hoped this anniversary would be its last. President Trump ran on the promise of repealing and replacing the ACA and sought to fulfil this promise by passing a new healthcare bill, dubbed the American Health Care Act (AHCA). Though the bill was originally scheduled to take place on Thursday, it was pushed to Friday afternoon due to lack of support from Republican House Representatives. The AHCA ultimately failed to reach the required number of votes. When announced, the AHCA aimed to reduce the U.S. deficit by $337 billion over 10 years, but in an attempt to sure up more conservative votes in the House, the bill was revised and would have only reduced the deficit by $150 billion over the next 10 years. The AHCA was wildly unpopular as polls showed that only 27% of Americans favoured the bill. This was mainly due to the removal of "10 Essential Benefits" which are the list of things that all health insurance policies taking part in the ACA marketplaces must cover. Benefits such as in-hospital care, mental health care,
substance abuse disorder services, and maternity and new-born care. A report by Goldman Sachs warned that by repealing the ACA, a "substantial decline in insurance coverage would also likely be associated with a sharp decline in healthcare employment and health-care consumption" as roughly 500,000 jobs were added to the health-care sector since 2012. As an essential part of the bill put into place that all citizens are required to purchase healthcare insurance. The 5.4% increase in the number of insured, lead to the estimated 40% healthcare job growth. The markets too paid close attention to the status of the AHCA as the Dow fell 60 basis points and S&P 500 ended slightly lower by 8 basis points. This is because investors viewed this as a medium through which to measure the ability for Republicans, who now control both the Senate and White House, to pass reform. As noted by Charles Ripley, investment strategist for Allianz Investment Management, the market's reaction on Friday "inclines us to believe that [investors] feel future Trump agendas like tax reform and fiscal stimulus are less likely to occur‌ [because] the repeal and replace of the Affordable Care Act [did] not pass." Disun Holloway
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NEFS Market Wrap-Up
Japan Further evidence was demonstrated last week that the Japanese economy is closely tied to the actions and perceptions of the charismatic or theatrical leaders of the world. Markets in Tokyo weighed risk as allegations of a cut-rate real estate deal were aimed at Japanese Prime Minister Shinzo Abe. The sale in question, which took place at a suspiciously low price, has attracted controversy and is under investigation. The PM has denied any involvement, and avowed that he would resign if any connection was made with his office. While it seems unlikely that condemning evidence will arise, with memories of the South Korean scandal still fresh, global investors scrambled to assess the risks involved should the PM be forced out. As the FT reports, the immediate aftermath could see a 20% decline in Japanese equities, reiterating the importance of Mr Abe as the face of Abenomics, the economic recovery plan that has stirred hopes for an economic resurgence. Hypothesised stock market movements aside, there was also a dramatic response in the Tokyo Stock Exchange to the histrionics of the US President. As Mr Trump faced opposition to his proposed health care plan (and consequently a delay in tax reforms), investor confidence lost some of its vigour. The Nikkei index
dropped 2.1% on Wednesday, the largest decline since the US election. Largely, investors fear that a narrowing of the interest rate spread between the US and Japan will drive up the yen and curtail export demand. On Thursday, the Bank of Japan (BoJ) was forced to address a shortage of Japanese government bonds. The benchmark oneweek repurchase rate dived 68.8 basis points to a record low on the day as investors struggled to obtain government securities. The BoJ announced that it would supply about 1 trillion yen in government bonds in a large scale reverse repo operation to be conducted this Monday. It also pledged to suspend purchases of short-term bonds for the rest of March. This returned some calm to the financial market, and rates rose to just 4.3 basis points below Wednesday’s rate, according to the Japan Security Dealers Association. While this sale is certainly necessary, it is mandated only by a selfinflicted shortage. As a part of the BoJ’s aggressive quantitative easing policy, it has purchased nearly all newly-issued longterm government bonds and large amounts of short-term securities, effectively depriving the market of the financial instrument. Daniel Blaugher
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Week Ending 24th March 2016
South Korea This week we will look into a recent development in the struggling South Korean shipbuilding industry. Next, we interpret the recently released consumer confidence data. Finally, we discuss the reasons behind recent the Kospi stock market rally. Last Thursday, the government of South Korea announced it would provide Daewoo Shipbuilding with 2.9tn won in relief funds. The country’s third largest shipbuilder, behind the heavy industry branches of Hyundai and Samsung, is far off its annual revenue target and is in desperate need of cash to repay 940bn won in bonds maturing this year. South Korea is the fifth largest exporting economy in the world whose exports account for roughly 45% of GDP. It’s troubling for the South Korean economy that its top three shipbuilders reported 2015 losses of 6.4tn won ($5.5bn) just with its offshore plants. In other news, consumer confidence data for March was released last Thursday coming in at 96.7 on the index. This marks the second straight monthly increase after three previous declines. An index reading above 100 indicates an improving outlook and below 100 indicates a declining outlook. Recent trends indicate that consumer sentiment toward their current living standards, household income and prospective spending is deteriorating but at a slowing rate. Perhaps the pandemonium
surrounding the president’s impeachment has been a contributing factor to reduced consumer sentiment.
Since Park Geun-hye’s official impeachment two weeks ago and the indictment of Samsung’s Lee Jae-yong, foreign investors have been pouring money into South Korean markets, breaking the record of foreign held Kospi shares, currently 36%. According to Financial Times, “With the president’s impeachment, one uncertainty has been cleared for Korea’s path toward reform,” says Paul Choi, analyst at CLSA. “We expect the event to be a catalyst for sweeping reforms.” The Kospi Index is currently at 2,170, near its two-year high. On Monday of this week, South Korea releases fourth quarter GDP data that is currently forecasted at 2.3%, down from 2.6% in the third quarter. If GDP growth comes in at 2.3% that would mark a full percentage point decrease from the second quarter of 2016. On Tuesday, March’s business confidence index is released, which is expected to improve three points to 79. Thursday there are a handful of key indicators released, such as construction output, industrial production, manufacturing, and retail sales. Dan Minicucci
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NEFS Market Wrap-Up
Canada Finance minister Bill Morneau unveiled a modest new spending programme on Wednesday in Canada’s 2017 budget plan, affirming the success of the previous year’s stimulus in enhancing growth. The budget was outlined as a long-term overture for ‘job growth’ and to offer Canadians ‘confidence and optimism’ to ‘adapt and prosper in the face of change’, projecting a deficit of $28.6 billion this coming fiscal year (see below). Despite claims by Morneau that the proposal is ‘ambitious’, it has been noted that new investment is far from it, amounting to a mere $1.2 billion. Essentially a ‘sequel’ to supplement last year’s budget, a more resolute budget is expected in the fall, when economists have ascertained a multitude of interspersed factors generating uncertainty, namely Donald Trump’s insular rhetoric regarding trade policy, oil prices and levels of household debt. Furthermore, the document predicts prolonged stagnation in growth rates until 2022, although a $3 billion contingency fund was created to allow for stimulation if rates veer into negative territory.
affordable housing is expected to persist. A further $3 billion was committed to support innovation over the next 5 years, by developing an ‘innovation and skills plan’ targeting 6 sectors the government see as poised to spur economic growth and produce well-paying jobs. The government has deduced a need to attract private investors to finance larger infrastructure projects, such as affordable housing, given constraints from the governments taut fiscal position and swelling deficit. Ergo, an infrastructure bank is to open later this year, using public funds to leverage investment in trade corridors, public transit, and green infrastructure. Morneau is hopeful that the bank will be able to attract five or six times as much private money as federal in projects. The government has assigned $15 billion for the bank, with projects expected to begin by the start of the next fiscal year. Usman Marghoob
Commitments to affordable housing were commended by many, after fears many cities are experiencing ‘asset bubbles’ following spiralling housing costs, particularly in Toronto. To be spent over 11 years, the $11.2 billion pledge is dedicated to creating new & affordable housing, with an enhanced focus on reducing homelessness. The funding however falls short of the $12.6 billion the mayors of Canada’s largest cities previously requested in 2016, and given that most the pledge is to be spent after 2022, the lack of
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Week Ending 24th March 2016
EMERGING MARKETS
India India’s balance of trade statistics were published this week and these figures demonstrated that India’s trade deficit has widened for February 2017. Moreover, the Indian government faced more disappointing news as it was determined that India ranks a lowly 131 out of a total of 188 countries on the Human Development Index. Firstly, India’s monthly trade deficit increased to USD 8.9 billion which is substantially larger compared to the figures recorded at the same time last year where the deficit stood at USD 6.5 billion. Also, the actual figure was slightly higher than market expectations which predicted a deficit of USD 8.8 billion. The diagram below illustrates the trend for India’s balance of trade statistics over the past year. Import volumes to India surged by 21.8% during February which was the largest gain since November 2014. This rise in imports was mainly due to a 147.6% increase in gold and a 60% rise in oil volumes arriving from other nations. However, despite the increased emphasis on imports, India had a very successful month in exporting goods and services abroad. Exports rose by 17.5% which was the largest upsurge since October 2011. The growth of exports can largely be attributed to sales of jewellery and other luxury items.
In other news, India showed no improvement in the Human Development Index rankings regardless of the very successful growth statistics recorded over the past year. The Human Development Index is a mechanism used to compare development rates of nations based on per capita growth rates, life expectancy and literacy rates. The Indian government will be disappointed by the results provided by the United Nations which revealed that India remains ranked at 131 out of 188 countries, the same position as last year. India’s HDI ranking places them within the same development bracket as Asian neighbours like Pakistan and Nepal. The results will be deemed very disappointing for the Indian government, especially since the sustained improvements in GDP growth statistics have not been reflected in the HDI. The HDI statistics will act as a warning to Indian leaders that they must implement the required reforms to ensure that growth is sustainable and the benefits are distributed and experienced by more of India’s extensive population. Isher Hehar
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NEFS Market Wrap-Up
China The Asia Competitiveness Report 2017 that was released at the Baoa Forum for Asia on Thursday ranked China as the best performing and strongest economy in the world. The report, which analyses the 37 Asian economies based on social and human capital development, infrastructure and innovation levels and general economic strength, stated that in 2016, China’s contribution to global economic growth was a massive 30% while the country’s own growth rate was 6.7%. For the fourth year in a row China ranked 9th for overall competitiveness while the report also detailed China’s increased investment in the fields of science and technology and national financial education. This equalled over 4% of GDP, following the government’s focus for China to become a more innovation-driven economy. Wang Jun, an analyst at the China Centre for International Economic Exchanges that drew up the report, said that global trade has been a strong driver for economic growth not just in China but globally, and is an inevitable result of technology innovation. The graph below reinforces the report as it shows how China’s Competitiveness Index, as published by the World Economic Forum, has reached its highest point in 2017 at 4.95 through improvements in the twelve pillars which include institutions,
infrastructure and education. Due to this increased investment spending, for the fifth consecutive year China was ranked first globally for the number of its international patent applications. Despite these successes, the Asia Competitiveness Report also noted that the rapid pace of China’s urbanisation means that social development needs to similarly improve. At the same forum, the 2017 Report for Internet Finance was also released, stating that China has made vast improvements in the field of internet financial services and is in a strong position for exporting its knowledge and experience in online fund raising and mobile payments. The report encouraged this, saying that “other economies can learn from China's experience in leveraging cutting-edge technologies to boost financial efficiency and strengthen risk control. The move will help boost the integration of global financial sources.” Although the report encouraged the expansion of Chinese business and technologies abroad, it also continued by saying that “only by respecting local culture and policies can Chinese players thrive in foreign countries” and reinforcing the importance of financial regulation. Nikou Asgari
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Week Ending 24th March 2016
Russia and Eastern Europe It has been a busy week for the Russian economy, with many significant announcements being made regarding their macroeconomic status, including the unemployment rate which stood its ground at 5.6% and real wage growth which dropped by 2.8% to 1.3%. However, the most anticipated of these announcements was the review on interest rates which ended up as the Bank of Russia cutting its key interest rate, thanks to fast falling inflation expectations which may stimulate potential further rate cuts in coming months. The central bank said its board of directors cut the key rate on Friday to 9.75% from 10%, noting that inflation was slowing, inflation expectations were falling and economic activity was recovering following a two-year recession.
Inflation has also been tamed by a stunning recovery for the rouble, which hit a 20-month high against the dollar last month. The currency has gained nearly 11% since the election of Donald Trump last November. Russia’s economy is recovering from a recession brought about by Western sanctions over its military interventions in Ukraine and a fall in the price for crude oil, Moscow’s main export. The bank said that gross domestic product would grow in a range from 1% to 1.5% this year and from 1% to 2% in the two following years which means that there is still “significant scope for rate cuts”, said Timothy Ash, at Bluebay Asset Management, who notes Russia has some of the highest real interest rates of the world’s major emerging markets. William Bunnis
The bank had stated last month that the likelihood of a rate cut in the first half had decreased. But it noted on Friday that inflation in the first 20 days of March fell rapidly to 4.3% from 5%. “The risks that inflation won’t reach the target level of 4% by the end of 2017 have fallen somewhat,” the bank said. As well as stating that this risk had seemingly abated, the rate setters believed that further rate cuts were a “possibility” over the coming quarters.
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NEFS Market Wrap-Up
Latin America This week, Chile received poor macro data, with the possibility of entering recession. The latest GDP data for Argentina added to the economic woes of Latin America. However, on a positive note, the Mexican Peso has begun to make a strong recovery against the dollar. First to Chile, previously the economic posterboy of the region. The Chilean central bank (BCC) announced this week that in the last quarter of 2016, GDP growth fell to just 0.5% (see graph), slowing from an upwardly revised figure of 1.8% in the previous period. It is the lowest growth rate since the 2009 recession; public spending slowed rapidly and both exports and investment slumped. The trend in Chilean GDP growth figures is clear: 2015 yielded strong growth of 2.3%, whilst this decreased to just 1.6%. If the trend continues, Chile looks set to experience its first recession since 2009. At the beginning of this year, Mexico’s peso broke through the 22 mark against the dollar. Many analysts believed there was no chance of the currency falling below 22 against the dollar in the short or medium term. However, here we stand just 3 months later, with the peso valued at just below 19 against the dollar. The peso has rallied more than 9% this
year, making it the second-best major currency, only outperformed by the South African rand. The peso’s recovery should assist the central bank in curbing the inflationary pressure in the Mexican economy, according to central bank governor Agustin Carstens. Moody’s highlighted the already hawkish policy of the Central Bank in a report published earlier this week, and it’s seeming lack of effect in taming the countries inflation which hit 5.29% in the first half of March (close to an 8-year high). The countries key interest rate is already at its highest level since March 2009. The high value of the peso should decrease the competitiveness of Mexican exports, thus reducing demand for goods and inflationary pressure. Economic woes continue for the rest of the Latin American region, as Argentina recorded a GDP contraction of 2.1% yoy in the fourth quarter of 2016, slightly worse than the 2% market expectation. Although the data for Q4 is more positive than the contraction recorded in the previous quarter of 3.7%, it is also the 3rd consecutive quarter of negative economic growth. Whether the rest of Latin America will suffer the same fate remains to be seen. Alistair Grant
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Week Ending 24th March 2016
Africa Africa’s two economic behemoths – South Africa and Nigeria – have been trying to sew up what has in recent times appeared to be a schism. The sandpaper like friction between the two countries has had a pernicious effect on economic growth in Africa as a whole. Perhaps, a key caveat of the fractious relationship was Nigeria’s suspect decision to impose a $3.9 billion fine against South African cell phone company MTN, still be resolved. President Muhammadu Bahari of Nigeria recently accused MTN of making it ‘easier for Boko Haram to kill people’ the insurgency who remain at large, by failing to disconnect millions of unregistered SIM cards, that terrorists were using to avoid detection. However, South African High Commissioner to Nigeria, Lulu Louis Mnguni has given reason for optimism. Last Thursday, an investment and trade seminar was held in Lagos – ex-capital of Nigeria – was home to tentative whispers about a consolidation of economic ties between the economic giants. Mguni stressed ‘working together and learning from each other’ would directly benefit the citizens of the two countries, but also have a coruscating effect on Africa as a whole. Both countries’ economies are
indelibly linked to commodity exports, so the bidirectional transfer of information can only be of benefit. Particularly to the 120 South American owned companies operating in Nigeria. South Africa can gain a deeper understanding of just where the crux of the infamous Nigerian entrepreneurial spirit lies, whilst Nigeria can learn from their counterparts in the areas of mining, tourism and beneficiation. In other news, East Africa’s most renowned chain of coffee shops is being sized up by international private equity groups. Java House, valued at near $100 million, is being actively watched by businesses and advisors, but the two biggest hitters are perhaps TPG and Carlyle, regularly referred to as a couple of the world’s largest buy-out groups. Java Company boasts more than 50 outlets in Kenya, Uganda and Rwanda and a host of other food related enterprises. East Africa’s private equity sector has recently been growing at an exponential rate. Deals previously unthinkable are now realistic possibilities and this could be great news for Africa. Vincent Egunlae
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NEFS Market Wrap-Up
Southeast Asia This week we assess Malaysia’s economic outlook for 2017. On Thursday, Bank Negara Malaysia (BNM) – the country’s central bank – published its annual economic report. The release, which outlines BNM’s economic forecasts for 2017, was optimistic in terms of its growth and fiscal deficit projections. Indeed, the bank projected the economy to grow 4.3-4.8% this year, above the 4.2% figure in 2015 and in line with OECD expectations of 4.5%. The report cited “the gradual improvement in global growth, recovery in global commodity prices and the continued growth of domestic demand” as key factors in supporting the country’s growth performance. Partly as a result of this, the report is forecasting a narrowing in the federal government’s budget deficit to 3% from 3.1% in 2016. Of course, with trade forming 134% of GDP, the accuracy of these forecasts relies heavily on the continued strength of the global economy. The report outlined a number of downside risks for Malaysia, including uncertainty surrounding the UK and EU negotiations, a decline in globalization, and also a monetary policy divergence between the US and other major economies. In particular, the latter could result in currency
market volatility as seen in the aftermath of the 2016 US Presidential elections, during which the BNM was forced to intervene in foreign exchange markets. In related news, Malaysian CPI inflation reached an 8-year high in February 2017. Consumer prices rose 4.5% on a yearly basis, exceeding the previous month’s figure of 3.2% and market expectations of 4.1%. As in previous months, rising food and transport costs were the key drivers of price growth, with the latter surging 17.9% on a yearly basis. The BNM appears to have pre-empted this price rise, as it upwardly revised its inflation outlook to 3-4% for 2017 in the annual report. Whether the bank will change its benchmark rate is less clear. The RHB Research Institute states that “while inflationary pressure and volatility in financial markets may warrant a rate hike, sluggish domestic demand and uncertainty on the external front would likely limit BNM’s ability to increase interest rates.” Next week Vietnam is releasing growth figures for the first quarter of 2017. Thailand is also releasing balance of trade and current account data on Monday and Friday respectively. Daniel Pettman
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Week Ending 24th March 2016
EQUITIES Financials This latest week can simply be summarized as a turbulent one. Whilst RBS still struggles to shake off its demons, facing nine years of straight annual losses after requiring the world's largest bank bailout at the height of the 2007-2009 financial crisis, Dutch bank ING Groep has been embroiled in numerous international corruption scandals in the last week alone. Such rampant volatility has caused both the S&P Bank Exchange Traded Fund (ETF) and the Financials Sector ETF to fall 6.5% and nearly 5%, respectively, this week alone. Despite the fact Royal Bank of Scotland were last week amongst the top blue-chip gainers, up 1.4 % after Natixis upgraded its view on the bank, the tides have well and truly turned against the bank. Contrastingly, this week, lawyers representing tens of thousands of Royal Bank of Scotland (RBS) shareholders have held talks to settle a £1.2 billion of damages claim over the lender's 2008 rights issue that was launched shortly before a state bailout. A settlement would end one of the most complex and costly litigation battles in English legal history. Alongside such a disruptive legal case, RBS has also announced plans to directly cut about 690 jobs and close 180 U.K. and Irish branches,
although it is estimated more than 1,050 employees will be affected by the branch closures. Thus, the Bank’s share price came into the week at a 244.40 but by Wednesday, its price had fallen 5% to 232, and wouldn’t recover these losses by the end of the week. Similarly, ING Groep, the largest Dutch bank, said it may face “significant” penalties stemming from a criminal investigation in the Netherlands related to corruption and money laundering. ING fell as much as 6.1% across the week, with shares falling 3.7% to €13.87 on Wednesday the 22nd alone. To make matters worse, in the last week the bank has also been implicated in a vast moneylaundering network involving many major banks such as RBS. Mikun Olupona
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NEFS Market Wrap-Up
Technology Stocks suffered their worst day of the year earlier last week. On Tuesday, each of the major indices fell more than 1% for the first time since October due to a market correction owing to a 14% rally that followed the US presidential election, and the tech-heavy Nasdaq was the hit hardest with a decline of 1.8%. In September 2016, Yahoo, which has agreed to sell its core business to Verizon Communications Inc., said hackers penetrated its network in late 2014 and stole personal data on more than 500 million users. The stolen data included names, email addresses, dates of birth, telephone numbers and encrypted passwords, Yahoo said. On Wednesday, Yahoo Inc. revealed that its senior executives failed to properly investigate the security breach, according to a review by its board. The review found fault at several levels- there was a breakdown in internal reporting, management and communication around the breach. Yahoo’s lawyers also took blame for not sufficiently investigating. Following the review, conducted by an independent board committee, Yahoo’s board decided not to award Chief Executive Officer Marissa Mayer her 2016 cash bonus. Additionally, Yahoo’s top lawyer resigned, effective March 1, and the board has asked
Yahoo to level up its cyber security measures. Mayer also offered to forgo her equity award in 2017, which the board accepted. Although the stock was heavily sold on Wednesday, it has since made a recovery. Amazon.com Inc has agreed in principle to buy Dubai-based internet retailer Souq.com, one of the best-known names in the Middle East's online shopping market. Souq.com, which sells consumer electronics, fashion, household items and other goods, claims that its website is the largest e-commerce site in the Arab world. For Amazon, Souq.com offers expertise and a foothold in a region where ecommerce is expanding quickly thanks to a young and tech-savvy population. Although the price of the deal was disclosed, Souq.com has raised $425 million since its founding in 2005, according to CrunchBase. It was reported to be valued at $1 billion at the time of its latest funding round last year, but the deal is expected to be worth less than that. Amazon’s stock price has been on a fairly significant uptrend since the news came out on Wednesday as can be seen in the figure below. Angelo Perera
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Week Ending 24th March 2016
Oil & Gas The oil and gas stocks struggled toward the end of the week to recover from an earlier sharp dip in international oil prices, which went below $50 per barrel and to their lowest in four months. However, the recovery was limited by persistent concerns over US supply growths. Global oil stockpiles rose despite output cuts led by the Organization of PetroleumExporting Countries (OPEC). Data released on Wednesday by the US Energy Information Administration showed US inventories jumped by 5 million barrels to 533.1 million barrels. The NYSE Energy Sector Index was at 15,675.98 midday on Friday, down 1.1% from the close of the previous week. Exxon Mobil (XOM), at $81.52, lost 0.59% over the week. Chevron (CVX), however, was up 0.63% over the week at $108.36, recovering from losses during the previous week due to negative comments on its financial forecasts. Oil and gas shares listed in Europe lost more. British Petroleum (BP: LSE) closed 1.07% lower at 451.73 pounds on Friday, losing 2.43% over the week. Royal Dutch Shell (RDSA: LSE) closed down 0.69% at 2,082.95 pounds on Friday, losing 1.88% over the week. Total (EPA: FP) lost 2.43%
over the week to close at 46.21 euros on Friday. US shale players also lost over the week as oil prices dipped. EOG Resources (EOG), a shale leader, was $94.78 on Friday, down 1.71% from the closing price of the previous week. But it was slightly higher on Friday as Saudi Arabia indicated it might reduce supply to US. Ole Hansen, head of commodity strategy at Saxo Bank, said that “headwinds from rising production and compliance will keep the upside limited for now,� tipping for downside risks. The market is watching for clues from Kuwait, where oil ministers from both OPEC and non-OPEC states meet on Sunday to discuss compliance with their agreement on output cuts. While the oil prices fluctuations should give Saudi Arabia more leverage to call for stricter compliance and an extension of the agreement, there are also signs that some OPEC members may feel that non-OPEC countries are not doing enough, in addition to exemption of some OPEC members, including Nigeria and Iran, from the agreement. Michael Chen
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NEFS Market Wrap-Up
COMMODITIES Energy Natural gas prices on Tuesday settled at its strongest level since February, however, this was reversed on Wednesday as warm to mild weather conditions were expected to dominate for the rest of the week. On Thursday, the US Energy Information Administration (EIA) reports showed that there was a storage draw of 150 billion cubic feet (bcf) for the week ending March 17 which was roughly in line with expectations. US natural gas futures for April delivery fell by 1.8 cents to $2.992 per million British thermal units (mmBtu) after the reports, however, it recovered slightly and closed the day at $3.050 mmBtu. The story in the oil markets have not changed. Remember that back in November, OPEC came to an agreement to curb output by 1.2 million barrels per day starting from January 1, and Russia along with 10 other non-OPEC nations agreed to cut half as much. The unintentional consequence of this was to cause one of the greatest increases in US shale oil production history.
benchmark, West Texas Intermediate (WTI) closed at $47.34, down by 88 cents. The drop continued on Wednesday as the EIA reports showed that US crude stockpiles rose by 4.95 million, more than the expected 2.8 million, to 533.1 million barrels last week. This represented a tenth weekly build in US crude inventories in the last eleven weeks, following last weeks unexpected drop. As a key cost for both firms and consumers around the world, oil plays a key role when it comes to global inflation expectations. Therefore, it is seen as an important factor in keeping up the Trump reflation trade, which has seen US equities surge 11% since the election. Oil prices and stocks have generally moved in the same direction over the past year, however, over the past few weeks there has been a divergence as seen from the chart below, which is putting the post-Trump reflation at risk. Bunyamin Bardak
Oil prices fell on Tuesday as concerns started to mount on the US crude supplies, overshadowing the latest talks by OPEC who are looking to extend their production cuts beyond June. Brent Crude futures for May delivery decreased by 66 cents to end the session at $50.96 per barrel, whilst US
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Week Ending 24th March 2016
CURRENCIES Major Currencies The pound finally starts performing well again and the euro reaps some gains all at the expense of the poor dollar. Solid data allowed the pound to rise above the $1.25 mark in nearly a month and closed this week just short of that mark. Signs of higher inflation in the UK can be seen as a driver for this, as it rose nearly 1% (a relatively large daily gain) on Tuesday after official figures revealed that UK inflation was above the Bank of England’s target, leading to speculation that interest rates could rise sooner than expected. This is conflicted by some commentators suggesting that Brexit will ultimately play a key role in the Bank’s decision regarding rate hikes. Even with all the doom and gloom in the country (weather included), data from the ONS suggested UK consumers are still happy to spend. Sales jumped by 3.7% in February, compared to the same month last year, and by 1.4% from January. Analysts polled by Bloomberg had expected to see a 2.6%rise on the year, and 0.4% on the month.
president’s administration will be able to steer tax reform and fiscal stimulus through a Congress which rejected Mr Trump’s plan to replace the healthcare scheme introduced by his predecessor, Barack Obama. Also adding to appetite for the single currency is investors’ increasing attention on the prospect of the European Central Bank pulling away from monetary easing. The dollar has not fared well this week closing down at 0.803 against the sterling. Mainly politically driven as Mr Trump has talked an expansionary game, but so far lacked the political muscle, or competence, to push it through. Euro-Dollar parity discussion also gain interest as Barclays are the latest bank to come out and say they do not see this happening this year. Overall, the euro makes gains at the expense of the dollar, as we wait and see what happens across the pond and the British continue to shop away expectations. Robert Tse
In the euro space, it peaked against the dollar for the first time in nearly 4 months as investors waited nervously ahead of Donald Trump’s first key legislative test over the repeal of Obamacare. It gained 0.8% against the greenback, up this month to 2.6% and at $1.0825 late on Wednesday. Euro strength is, in part, down to investors’ uncertainty about when the US
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NEFS Market Wrap-Up
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