NEFS Weekly Market Wrap-Up Presented by the NEFS Research Division
29.10.18
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 Wage growth in the UK economy has reached its highest level since the financial crisis of 2008. Figures released by the Office for National Statistics (ONS) on 25th October 2018, demonstrate strong growth in wages, with an annual growth rate of 3.5% as of April 2018; the median gross weekly earnings for full-time employees also recorded at £569, compared to £550 in April 2017. Coupled with a low unemployment rate of 4%, the statistics appear to show a healthy, robust economy, in spite of growing uncertainty surrounding Brexit.
Whilst the other G7 nations have returned to the pre-crisis rate of growth, the UK still seems to be stuck in a slump and is now the slowest growing of the G7 economies.
The exact reason is difficult to pinpoint, although austerity and Brexit are 2 key reasons. With the autumn budget approaching on the 29th October, it is unclear how Philip Hammond intends to spend the UK’s finances, however it is likely he will warn against a no-deal Brexit, pointing to the clear trade-off between the cost of a no-deal Brexit and Andy Haldane, Chief Economist at the Bank of the cost of ending austerity. The National Institute England, stated that finally there were the signs of a of Economic and Social Research believes that a “new dawn”, with low unemployment figures smoother transition when leaving the European encouraging firms to keep and hire more staff. Union would give the Chancellor more leeway for Furthermore, the Bank of England believe wage borrowing and spending. What is certain is that growth will lead to inflationary pressure, with the recent positive economic data will boost Philip interest rate rises likely in the coming months. Hammond going into the budget on the 29th October. ONS data shows that real Joe Houghton earnings remain 3.7% lower than in 2008. However, the figures hide the fact that the UK is still behind 2008 in terms of real earnings when adjusted for inflation. The sluggish wage growth over the past decade has been a serious concern for the UK government, especially during the last couple of years.
29.10.18
MACRO REVIEW
The US and Canada The sell-off in the US equity markets continued this week as the S&P 500 index posted its worst week of the year; housing market data and weak tech-sector growth reports were the two main drivers behind this week’s sell-off. The US Department of Commerce reported a 5.5% drop in new housing starts in September the lowest level in two years. Tech companies, such as Amazon and Alphabet, reported slowing revenue growth in Q3 resulting in their share price falling 9% and 4.5% respectively at the market opening on Friday morning. Furthermore, new developments about the strength of the Chinese economy and President Trump’s hostile trade manoeuvres against the World Trade Organisation (WTO) spooked investors, escalating this week’s sell-off. A similar story unfolded on the Nasdaq index which also posted its fourth consecutive weekly decline in a month as well as its worst performing day in seven years. Because of the sell-off, both the S&P 500 and Dow Jones Industrial Average indexes wiped out their market gains since the beginning of the year. Consequently, US stock valuations are lower now than when President Trump took office in January last year.
Despite US equity woes, the US Department of Commerce reported uplifting Q3 GDP figures. The US economy grew at a rate of 3.5% through July to September driven by strong consumer spending at a rate of 4%, offsetting a 3.5% decline in export demands and the lowest level of corporate investment since Q4 2016. The Bank of Canada increased the benchmark rate of interest by a quarter point to 1.75% as expected, despite data released on October 19th showing a lower than expected rate of inflation and weakening retail spending. The governing council claimed that they “felt pretty good about the economy now that politicians in Canada, Mexico and the US have agreed on a revised trade agreement”. Sean O’Hagan
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NEFS MARKET WRAP-UP
Europe It has been another eventful week in Europe with announcements from the ECB regarding their monetary policy stance, including the intention to stop bond purchases in December. That was not the only major talking point in Europe this week however. The European Commission has rejected a proposed budget from Italy’s new right wing government, causing huge tension between the Italian government and Europe. Since the financial crisis, the build-up of debt has been a huge burden on the Italian economy and as a result the European Commission have used their right to reject its latest budget plans. There is also much disagreement between the two parties on how to move forward on the issue. Europe is clearly of the opinion that Italy needs to service its debts in order to avoid a Greek style crisis. They also argue paying down the debt will help lead to growth in the future. Currently Italian taxpayers pay as much in interest repayments on debt than they do on education, so removing the debt burden may be very beneficial.
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However, the government has voiced its despair at the stance Europe has adopted and has insisted that economic growth needs to be pursued in order to pick up the lagging economy and improve the living standards of individuals. Italy is currently smaller in economic terms than before the 2008 crisis, which demonstrates how badly many have suffered over the past decade. This adversity is a massively contributing factor in the election of a right wing government who have promised to end the decade of difficulty that has been faced. The rejection is not only significant to the Italian government, as it damages their ability to deliver on their pre-election promises, but it is also momentous for Europe too. This is the first time that the Union has exercised its power to reject national budgets. The problems clearly create a lot of uncertainty within the continent. Italian struggles in financial markets can be highlighted by the 314-point difference between Italian and German 10-year bond yields. Considering all the uncertainty and disagreement, it looks like this conflict may last for a while longer yet. Ashley Brumfield
29.10.18
MACRO REVIEW
Japan & South Korea Despite a booming aerospace industry, with exports growing by 15.8% year-on-year, and an addition of another Korean firm into the Fintech100, there are signs that the South Korean economy could be heading towards trouble. Just this morning, reports that the Korean Auto Industry, the 5th largest in the world measured by export volume, is undergoing an “unprecedented crisis” after 30 years of growth and stability. This comes from recent reports showing a deepening slump in business performance, including Hyundai Motor Co. and Renault Samsung who, in particular, have suffered from negative growth in both domestic demand (-17.1%) and exports (15.5%). But it doesn’t stop there. With the intense vertical integration of this industry, experts are concerned that this slump could weaken the competitiveness of the industry as a whole, leading to a decline in employment, quality and efficiency. This would be of large concern as evidence from the Organisation for Economic Cooperation and Development already suggests low labour productivity to start with. Figures suggest that labour productivity per hour in the US is 190% of South Korea’s and that, out of 36 countries, South Korea only rank 21st for labour productivity per worker. This is even worse for small and medium-sized enterprises (SMEs) which have a labour productivity of just one third of larger companies.
Prior to this, Deputy Prime Minister and Finance Minister, Kim Dong-yeon, announced plans to provide 15 trillion won in low-cost loans to SMEs to rectify these investment concerns. But with the automobile industry now asking for 3 trillion won in financial support and growing government debt figures of 38.6% in 2017, seen below, there are questions about whether South Korea can continue to prop up their economy by just throwing money at it. Across the sea, prospects of inflation seem to be a pleasant surprise for the Japanese economy. Despite being the strongest economy for the past two decades, with the lowest unemployment in a quarter century at 2.4% in August and a rise in their manufacturing Purchasing Managers’ Index from 52.5 in September to 53.1 in October, foreign investors have been reluctant to see its potential. However, with inflation pressures building, shown particularly by accelerating rent rates in Tokyo and other major cities, strategists are anticipating an improvement in Japanese stocks. Coupled with their success in working towards an early ratification of their free trade agreement with the European Union, this suggests that Japan’s dominance is here to stay. Kaythi Aung
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NEFS MARKET WRAP-UP
Australia & New Zealand Australian news this week was focused on the discussion around cooling that the Australian housing market has been experiencing in so far this year in most of its cities. Concerns intensified after Deloitte published a report called ‘Business Outlook Q3 2018’ stating that in the two biggest Australian cities, Sydney and Melbourne, the median home price is falling by over AUD$1000 a week. Deloitte also emphasised that this trend is expected to continue in the following quarters.
One of the main reasons explaining downward pressure on prices is that three of the biggest four banks in Australia have been raising interest rates. Despite this, the Reserve Bank of Australia have kept the official cash rate on hold at its record low of 1.5% for more than two years. Australian banks have felt rising interest rates overseas, driven by the monetary policy normalisation by the Federal Reserve. This has led commercial banks to be more cautious and drive up interest rates locally.
This reduction in house prices arrived after an uninterrupted period of strong annual price growth. In fact, between the second quarter of 2012 and of 2018, house prices expanded by 45.6% (see figure below). This strong growth came to an end in the second quarter of this year, when prices decreased by 0.6% on a year by year basis, meaning we have seen the first annual fall since 2012. Behind this end of the boom is that historically low interest rates after the global financial crisis has led Australians to load up on debt in order to buy houses, leaving Australian families now with the second highest debt to income ratio in the world.
Regarding possible negative effects for the Australian economy, analysts agree there is nothing to worry about for now. The biggest concern is that falling housing prices could have a negative wealth effect on consumer spending, but there is little evidence of this happening yet. A key driver of the strong GDP growth over the past year was growth in the household consumption and consumer sentiment in October was still above average. Chris Richardson, the main author of Deloitte’s report, summarised this view, explaining:
“this is not a house price collapse, we are returning to more sensible house prices in a reasonably orderly fashion. It’s not causing a particular damage to the Australian economy”. Sergio Bravo
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29.10.18
. EMERGING MARKETS Africa This week, South Africa’s budget failed to address the country’s economic woes while Zimbabwe is once again facing fears of hyperinflation. South Africa, the continent’s most industrialised country, continues to be plagued by low growth and high debt. With a stubbornly high unemployment rate of 27% and sovereign debt downgraded to junk by all major credit rating agencies except Moody’s, the economy slipped into recession in the second quarter of this year. Any expectations of a recovery were pinned on the government’s medium-term budget, announced on Wednesday. However, rather than tackling debt, the budget has simply reallocated the existing budget’s funding and hopes to spur agriculture growth and job creation by reallocating over 1.67trn rand (£890m) to support mainly black commercial farmers and small entrepreneurs. More worryingly the Treasury also warned that sovereign debt will peak two years later and higher than previously forecasted and more than halved its forecast for 2018 economic growth to 0.7%. Following the budget’s lack of fiscal prudence, the South African rand tumbled another 3%, bringing its fall throughout 2018 to nearly 20%. Markets are now awaiting whether Moody’s will downgrade South African sovereign debt to junk in its October review.
Mark Bohlund, from Bloomberg Economics, predicts that this downgrade would cause the government’s apparent priority of voters for the 2019 elections over reassuring investors to backfire since the downgrade is likely to cause a sell-off of the rand and consequently put an end to the low inflation which is currently appeasing the electorate. Zimbabwe is also spiralling deeper into an economic crisis with inflation climbing to 5.4% in September from 4.8% in August, the fastest pace in eight years. Although the immediate cause results from inflamed foreign exchange and commodity shortages, the root of the crisis stems from the reckless legacy of former President Mugabe, overthrown last year, and his government’s `Ponzi Scheme` of seizing hard currency and creating electronic money and `bond notes`. Unforgiving memories of the country’s default on debt two decades ago as well as arrears of over $6bn have effectively blocked Zimbabwe’s access to international credit. However on Monday, the government announced plans to clear its $2bn arrears with the World Bank and the African Development Bank by October 2019, paving the way to start making the loans needed to stabilize the country’s finances. Hannah Cousins
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NEFS MARKET WRAP-UP
China Following the end of the third quarter, Chinese authorities have reported a slowdown of GDP growth rate to 6.6% (year on year), down from 6.7% in the previous period. Despite only being a small decrease, this is the lowest growth rate reported by China since 2009. This slowdown is the product of pressure placed on the Chinese economy by US tariffs, which have now been in effect for almost four months. Chinese policy has been effective in targeting industries particularly hard by the tariffs. Relief has been provided by adding liquidity to the market, and by encouraging banks to maintain credit lines with In terms of growth, however, it is unlikely that this trade dispute will further affect the trajectories of either economy in a noticeable way. For the rest of this year, Chinese growth rates are expected to remain between 6.58% and 6.64%. It’s unsurprising that Trump’s trade war has been viewed mostly as a nuisance so far. New tariffs currently impact $250b USD worth of Chinese goods, which equates to an extra tariff revenue for the US of around $60b (by January). This represents only a small percentage of each economy, roughly 0.3% of the US GDP (or for numerical reference, 0.5% of Chinese GDP).
This extra cost is being absorbed by American manufacturers and consumers, as tariffs on imports fundamentally do. This is exacerbated by dependency on Chinese products. For example, giants like Boeing rely on components that can only be manufactured in specialised plants in China, because these are the only parts that are designed to fit their aircraft. When a 25% tariff is imposed on these components, in the short run a company Boeing can only take on these costs. This shows that US trade tariffs cannot be described as particularly significant. The consequences on the Chinese economy so far have been minimal, but a prolonged dispute could have more severe implications. If the tariffs persist, American firms may choose to move production outside of China. However, the greatest threat is political. So far, the government has retaliated by matching US tariffs, but in doing so they have exhausted their options. The trade war is an existential conflict, which the US has pursued with unexpected perseverance, but unpredictability makes it hard to foresee the severity of the dispute. The next most important indicator of China’s long run economic health could very well be a presidential tweet. Rudai Wang
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29.10.18
EMERGING MARKETS
Latin America In less than three decades, the city of Medellín in Colombia, has gone from being know as ‘the most dangerous city in the world’ to now being dubbed ‘The Silicon Valley of South America’. This week the city hosted the Smart Capital Conference; the conference brought together over 600 entrepreneurs and investors on Monday 22nd and Tuesday 23rd October and was opened by the Mayor of Medellín, Federico Gutiérrez. For several years now, Latin America has had a growing role in the Technology industry. Countries who were previously known for danger and poor infrastructure are now catching up with the leading technology producing countries. For example, Argentina is the eight largest exporter of computer services in the world, according to the World Trade Organization. Similarly, Brazil could be the next hub for the space technology industry due to its research into orbits, spacecraft and space tourism. Deloitte recently found that Latin American countries are becoming technological hubs of innovation and production at an increasing rate and Citibank previously named Medellín the world’s most innovative city in the world, out-ranking cities such as New York and Tel Aviv.
Governments have realised the potential that a growing tech industry could have for their countries and are keen to push it. The cost-benefit investment that tech training represents, because of the way in which it can side-step the lack of infrastructure, could provide Latin American countries with an excellent opportunity for growth. In Medellín, the evolution is showing no signs of slowing due to the growing start-up scene. The Government Organization in Colombia for boosting Entrepreneurism conducted a study in 2017 that showed there are over 2,500 start-ups in Colombia with a high change of success as well as almost 8,000 jobs that have already been created. One such start-up is VivaAir, a short-haul aircraft company, based in Peru and Colombia. VivaAir has a lab dedicated to advancing technology through partnering with Universities and local tech companies. This work is reminiscent of companies in Silicon Valley, such as JetBlue, and is just one example of a South American Start-up proving to be extremely innovative. Abigail Grierson
One reason for the rise in the Technology industry in Latin America is the low prices it can provide to customers. Compared to North America, countries such as Colombia and Argentina charge considerably lower prices.
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NEFS MARKET WRAP-UP
Russia & Eastern Europe The current factor driving market sentiment in Russia is the looming threat of additional sanctions from the US and Europe. The US sanctions bill involves restrictions on investment in new Russian sovereign debt and bank operations; this impacted the rouble and Russian banking stocks which dropped by 10% and 20% respectively. These sanctions were the product of a series of geopolitical tensions between the US and Russia including the distaste towards the Russian government’s trouble-making beyond borders and online. However, Reuters mentioned that analysts believe Russia is unlikely to face any major headwind through US’s protectionist rhetoric due to relatively strong self-sufficiency and economic fundamentals. For example, Russia’s oil production continues to recover with a near record high of 11.2 million barrels per day produced in July, helping to sustain a healthy trade surplus of $15.80 billion in August. Additionally, Russian unemployment rate fell to a new record low of 4.5% in September 2018, down from 5.2% from the start of the year and real wages increased, negating any negative impact from higher than expected inflation, which tend to be the product of higher food prices.
Considering oil and gas account for 58% of Russian exports, factors affecting Russia’s economy will depend on oil price fluctuations. Brent crude’s retreat from $80 to August levels is weighing negatively on the rouble. Alan Knuckman of Agora Financial predicts a lower US dollar post Federal Reserve rate-hikes, driving oil prices down and thus, negatively affecting Russia’s exports. FocusEconomics has downgraded Eastern Europe’s growth outlook for next year, expecting growth to moderate towards 3.4% with top performers from Slovakia, Romania and Poland and a lower rate of growth from Croatia and Lithuania. However, Erste Group Bank AG predicts that fewer arrivals will choose the UK following Brexit, which will provide a boost to countries like Poland as this would increase their supply of workers. Additionally, this could resolve their tight labour markets where rising wages are starting to threaten economic growth. Nonetheless, inflows into the UK from Romania and Bulgaria remain steady and so the impact of Brexit on labour markets in Eastern Europe can be disputed. George Kennedy
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29.10.18
EMERGING MARKETS
South Asia The abolition of the Goods and Services Tax (GST) in Malaysia earlier this year, coupled with the reintroduction of fuel subsidies has helped improve consumer confidence and spending in the economy - illustrated by a growth in household spending of 8%. In replacement of the GST, the Malaysian government have implemented the Sales and Services Tax (SST) which covers far fewer goods than the GST. Though this would be a benefit for the population who will experience a reduction in their indirect tax bill, the policy change will also result in a fall in government tax revenue. As of this week, the Department of Statistics in Malaysia have stated that economic growth is expected to ease between December 2018 and February 2019 whilst inflation remains stable as result of slower domestic demand offsetting the effects of the SST introduction. In Pakistan, foreign reserves have been declining since December 2017 and have reached a low of $8.4m in September 2018. This has caused significant issues for Pakistani trade due to an inability to source foreign currency to pay for imports. Theoretically, the lack of reserves should reduce the quantity of imports consumed and help produce a balance of payments surplus, however this has not materialised.
Having already secured a $6bn aid package from Saudi Arabia this week and with plans to meet with Chinese officials next week, the Pakistani prime minister is clearly determined to rectify this issue. India and China have further improved their relationship through signing a security pact which will involve the sharing of classified information and intelligence between the two countries. The main goal is to create an alliance against international threat and terror. Zhao Kezhi, the minister of public security in China is due to liaise with India’s home minister Rajnath Singh next Monday to finalise proceedings. This is positive news after rough relations in 2017 led to military tensions on the countries’ borders and a general air of distrust between the two. An alliance between both China and India could prove unstoppable and it will be interesting to see how this relationship develops over the coming weeks and months. Usmaan Jamil
Instead, as of this month, Prime Minister Imran Khan has approached the International Monetary Fund (IMF) for financial support to help resolve its $16bn deficit.
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29.10.18
. EQUITIES, COMMODITIES & DEALS Financials This week has seen different financial markets performing very differently. Shares in Twitter Inc rose by 22% on Thursday, the largest one-off gain they have ever seen. Considering that Wall Street estimates of profits and ad revenue were fairly pessimistic due to the recent deletion of a flurry of fake accounts, it seems that Twitter has beaten the stock market. However, some analysts believe that actually, this surge was to be expected - getting rid of fake accounts and bots encourages a higher quality user base. This makes advertising more worthwhile for companies, as it means that their ads are more likely to be noticed, as in the case of bots, for example, there is no one actually viewing the ads. Boosted by Twitter’s success, the Dow Jones was up 364.94 points, or 1.48%, at 24,948.36, on Thursday afternoon. Ford Motor also contributed to this welcome rise in the index, despite struggling to maintain sales in the Chinese market, with share prices rising by 8.2%.
The London Stock Exchange (LSE) is also performing well, with confidence in the ability of British financial markets to hold their own after Brexit restored in the last week. The LSE’s chief executive, David Schwimmer, has bought around half a billion euros worth of shares in the London Clearing House (LCH), which serves most international financial exchanges. The LCH deals with many transactions denominated in euros, and hence there were fears that the House may have to choose to trade solely in Europe in a no-deal Brexit. However, with higher volumes of its shares held in the UK, London has more power over this highly important financial institution. LSE share prices rose by 0.9% to reflect this gradual but growing confidence. Meanwhile, the story in Europe is completely different. The continent is faced with increasing fiscal defiance from Italy. Increasing deficits as means of eradicating poverty have worried investors as the government must take on more debt to finance itself - yet Italy’s debt to GDP ratio is already 131%. The credit agency Moody’s downgraded Italy’s rating to just one level above ‘junk’, and concerns have seen Italy’s bond prices plummet. The ‘yield on Italian bonds has subsequently risen, making government borrowing more unsustainable. Megan Jackson
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29.10.18
EQUITIES, COMMODITIES & DEALS
Energy, Oil & Gas This week marks the third consecutive loss in the price of oil, with crude oil futures falling from $69.50 and hovering around $67.55, whilst WTI grade crude oil is down 1.6%. Major oil and gas companies have dipped in share price across the board; Total SA down 4.6%, Novatek down 4.1%, ExxonMobil down 5.4%, Sinopec Group down 0.6%. This largely comes as no surprise after the US experienced a major equity self-off earlier in the week that, naturally, has had a knock-on effect upon virtually all markets and asset classes across the globe. Adeem Al-Aama, Saudi Arabia’s governor for The Organization of the Petroleum Exporting Countries (OPEC), stated on Thursday that the oil market could soon be facing an oversupply situation “as evidenced by rising inventories over these past few weeks”. The possibility of oversupply continues in the face of ongoing US sanctions on Iran’s oil exports. ExxonMobil has also felt the wrath of US jurisdiction, as the New York state’s attorneygeneral sues the company for allegedly misleading its investors over the risks that climate change regulations pose to the oil and gas giant. Exxon is accused of failing to incorporate regulatory costs into its investment strategy, all whilst declaring to its shareholders that it’s doing just the opposite.
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The US, continuing to be at the forefront of this week’s news cycle, has issued a stern warning to British Prime Minister Theresa May over collaboration with China General Nuclear (CGN), China’s leading nuclear company. CGN is a partner of the Hinkley Point C nuclear project, which sees CGN team up with French owned giant EDF Energy to construct a new nuclear power station in Somerset, England. US assistant secretary for international security, Christopher Ashley Ford, stated “it’s quite clear now that essentially the entirety of the Chinese nuclear industry is lashed up with military-civil fusion”, indicating an obvious geopolitical unease. This US pressure could see a reconsideration of CGN’s current involvement in three further UK-based nuclear projects. In turn, how this affects May’s vision of the UK having the lowest energy costs in Europe, remains to be seen. Sebastian Hodge
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NEFS MARKET WRAP-UP
Tech and FinTech Tech stocks were at the forefront of a market sell off in the US this week, with the Nasdaq Composite (which is heavily tech weighted) ending 4.4% lower at 7,108.4. This is the biggest one day drop in the index since August 2011. US telecommunications and tech giant AT&T opened Wednesday trading in free fall, down nearly 10% below where it closed the previous night. This comes off the back of a boost in earnings, with earnings per share increasing 21.6% during the third quarter compared to the same period last year. Management have also recently increased 2018 guidance for free cash flow and earnings and confirmed that debt reduction and cost cutting measures are going according to plan. This should be more ground for investor confidence, and hints at a potential value trap, with earnings sharply contradicting negative price movements. Microsoft’s recent shift in their business focus towards internet-based services is starting to pay dividends, with cloud growth driving up the share price, rising 5.84% between Wednesday and Thursday. Sales and revenue growth exceeded analyst’s expectations for the period ending 30th September, with revenue from Azure cloud computing services up 76%. Sales in Office 365 and internet-based productivity apps also increased by 36%, with rising demand from corporate clients responsible for the revenue spike.
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It is believed that Microsoft have overhauled their sales team, selling software combinations that work well together rather than individual products. Even customers have noted an increase in sales talent. Microsoft have landed large and long-term deals that utilise hybrid-cloud services, where some data and applications stay in the client’s database and some with Microsoft’s. London based fintech company, Yoyo, which specialises in mobile payments has secured $30m in funding. The app was founded by university students in London, initially made for a more effective way to make payments for goods in student unions. Investors, Hard Yaka, invest heavily in highly rated fintech firms including Coinbase, GlobalID and Gatehub. The company who already process over 2 million transactions per month will use the funds to increase its global footprint with financial institutions and individual users. London remains the European centre for fintech, even amidst a period of Brexit uncertainty which hovers over the financial sector. The British capital boasts a plethora of successful fintech companies, including mobile bank Monzo, loan platform Funding Circle and analytics solution company OpenGamma. Oscar Miller
29.10.18
EQUITIES, COMMODITIES & DEALS
Pharmaceuticals One of the most important occurrences this week is that the first flu drug in 20 years has been approved by the Food and Drug Administration (FDA). Genentech, one of the leading biotechnology corporations in the United States, has produced a breakthrough antiviral flu treatment called Xofluza. The impact of this drug is immense, as not only will it help to save thousands of lives, it will also help to prevent a decline in the workforce and productivity of workers in and around flu season. It is worth mentioning that while Xofluza may help to improve standard of living for individuals in the colder months, it will certainly not have a significant impact on aggregate productivity as its intended recipients represent a rather specific demographic.
It is likely that this recent development will not only help those who become affected by influenza but also serve as motivation for many other pharmaceutical companies to expand research and developments (R&D) efforts. Though Xofluza will be protected by its patent, the innovation’s performance in markets over the next few years will encourage firms to replicate the product once the patent ends and hopefully conduct their own testing to produce further medications from the same formula. Adopting production of these hugely demanded drugs will help to increase the performance and popularity of firms. Abigail Davis
However, while the treatment is safe and effective, the availability of Xofluza can be questioned; the single dose treatment will be available in the United States in the next few weeks but at a price of $150, but only $30 for patients with commercial insurance. As such, we cannot be sure whether this drug will actually make an impact on the poorer American citizens who cannot afford this treatment. This may lead to more pressure on Donald Trump’s plan to drive down the Medicare pays for some drugs. Furthermore, there may be a risk that consumers will instead believe that there is no need for the flu vaccine due to Xofluza, however the FDA reminds people that it is not a replacement to the vaccine.
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NEFS MARKET WRAP-UP
Mergers & Acquisitions This week has seen Lyft’s acquisition of tech startup Blue Vision Labs. Its deal with the UK-based Blue Vision Labs marks the US ride-hailing service provider’s 10th acquisition since its creation in 2012, but also its biggest move into the self-driving vehicle market. The acquisition price is reportedly $72 million, with $30 million relying upon meeting key performance goals. As a latecomer into the market, Lyft hopes to use Blue Vision Labs’ augmented reality expertise to develop maps of the cities in which its driverless cars will operate. Specifically, Lyft are intrigued in the technology that enables detailed 3D maps to be created using a smartphone camera mounted to a vehicle’s dashboard. These maps will be needed to inform the intelligence system in a driverless car of its location and surroundings to a centimetre-level accuracy. Whilst this deal is promising for Lyft, it’s merely a footstep in the race led by the likes of Ford, Waymo, Uber and various other traditional carmakers to develop a fully-functioning autonomous vehicle. When asked about further acquisitions in the future, Luc Vincent, a lead engineer at Lyft, highlighted the magnitude of this race, claiming that there are over 100 competitive companies currently operating in the market and suggesting that other deals may be required in the future to strengthen Lyft’s market share further.
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As well as providing Lyft with the technology necessary to advance in the driverless vehicle market, this acquisition should provide a certain degree of security, which will be of great importance given the significant levels of market concentration. Equally, in a market in which data quality corresponds directly to system reliability and in which system reliability is crucial, Lyft’s fears of takeover should lower following the deal, providing that Blue Vision Labs’ data collection technology can be successfully integrated. With a multibillion dollar Initial Public Offering (IPO) planned for spring 2019, Lyft could largely impress potential investors if it manages to improve its establishment in the autonomous technology industry, but whether its acquisition of Blue Vision Labs will be enough to accomplish this remains to be seen. Matthew Copeland
29.10.18
.CURRENCIES Major Currencies Mario Draghi, the President of the European Central Bank (ECB), avoided commenting on his thoughts on the looming Italian budget crisis at the ECB press conference this Thursday. Focusing on monetary policy, he stated that the underlying strength of the economy “continues to support” the target of converging the inflation rate to meet the ECB goal of 2%.
economy is remaining strong. However, current conditions of the US economy are beginning to become increasingly uncertain with growing global trade frictions with China, but overall the dollar felt an upswing of 0.79% in the DXY across the week, as the UK and Euro area is beginning to show weaknesses.
The ongoing Brexit negotiations are continuing to Nonetheless, the President announced that the put pressure on the British Pound, which took a central bank’s policy will remain unchanged, further steady 1.87% fall over the week against the US extending the period of 0% interest rates in the Dollar. This comes following Theresa May’s Euro area since March 2016. The markets reacted statement on Monday that 95% of the withdrawal to this news by selling the Euro, pushing it from arrangement had been agreed upon, however the 1.142 USD to 1.138 USD, ending the week with an issue of the Irish border remained a “sticking point” overall downward movement of 1.09% against the in negotiations. US Dollar. This slowdown in talks increases the uncertainty of Meanwhile, amongst these bearish movements in whether a final deal will be made before the 11th the currency markets, the US Dollar reached an all March 2019, forcing the Pound downwards. year high on Friday, with the US Dollar index (DXY) Nevertheless, next Monday the Autumn Budget is climbing to 96.86 (see graph below). This occurred expected to be delivered by the Chancellor of the amongst the news that the US GDP third quarter Exchequer, Philip Hammond, with policy changes to growth rate had slowed down this Friday from 4.2% the personal allowance levels and NHS funding to 3.5% but reflected the market sentiment that the levels expected.
The impact this causes to the budget deficit and future growth levels shall subsequently be priced into the British Pound. Amar Toor
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NEFS MARKET WRAP-UP
Minor Currencies The New Israeli Shekel (NIS) is weakening this week against both the US dollar and the euro. The shekeldollar exchange rate is up 0.43% against the dollar at NIS 3.667/$ and up 0.20% against the euro at 4.211/â‚Ź. The U.S. dollar is strengthening worldwide and against the shekel as investors seek a safe haven currency on concerns about the Italian budget and lack of progress in Brexit talks. The Bank of Israel Monetary Committee meeting on the November interest rate revealed that two of the six members wanted to raise the interest rate by 15 basis points to 0.25%. The rate has been anchored at its historic low of 0.1% since March 2015. Despite the uncertainty from the Bank of Israel on if and when there will be a rate hike, the Israeli currency has been stable for the past six months, trading in the NIS 3.60-70/$ range. One of the strongest fiat currencies, the Swiss franc is providing a safe haven in turbulent times. While financial markets worldwide suffer volatility and uncertainty, the Swiss franc has held steady against other currencies during the past 12 months. Ultimately, a strong franc will threaten Swiss exports which are central to the economy. The Swiss National Bank (SNB) appears to have been more cautious about raising rates than anticipated, with the SNB chairman having recently stated, “We have negative interest rates and remain willing to intervene in the foreign currency marketsâ€?.
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The Australian dollar fell to a one-week low against the greenback on Monday, weighed down by broad-based U.S. dollar strength. Traders paid scant attention to the massive surge in Chinese stocks seen during the session, choosing instead to focus on political woes in Europe. The Canadian dollar weakened to its lowest level in more than six weeks against the U.S. dollar, as oil and stock prices declined and data showing stronger-thanexpected growth in the U.S. economy boosted the greenback. World stocks slid lower and were set to post their biggest weekly losing streak in more than five years, as anxiety over corporate profits added to fears about global trade and economic growth. Canada runs a current account deficit and exports many commodities, including oil, so its economy could suffer if the flow of trade or capital slows. Freddie Serfaty
29.10.18
Currencies
Cryptocurrencies It has been a relatively quiet week in the crypto markets but certainly not in the news. Europe could very soon have its first crypto IPO listing worth over $3 billion and Japan has made serious changes regarding the regulation of their crypto industry. Bitfury, established in 2011 as a bitcoin mining company and a maker of crypto-mining gear, is now considering strategic options to launch an IPO (Initial Public Offering). If listed in Europe, it will be its first major listing in this industry. Bitfury has reached out to global investment banks in London, Amsterdam and Hong Kong, looking to make its trade debut in early 2019. Sources have informed Bloomberg that the company will seek a valuation of somewhere between $3 billion to $5 billion USD if they decide to go public within the next two years - however these figures are only early estimates. This news follows after Bitmain (Bitfury’s main rivals) filled for an IPO in Hong Kong last month which could be worth up to $3 billion. In other news, Japan’s Financial Services Agency (FSA) has issued the cryptocurrency industry selfregulatory status. This gives the Japan Virtual Currency Exchange Association (JVCEA) authority to set rules to safeguard consumer assets, prevent money laundering and give operational guidelines. The JVCEA is an association of 16 licensed cryptocurrency exchanges who combined their efforts in order to try and safeguard the exchange of investors’ assets.
This is a good move as it allows experts in the industry to set regulations in a fast-paced manner rather than waiting for government officials. It might also pressure other countries to try and set regulations in the industry, something which is much needed. In market news, cryptocurrency prices have remained relatively stable despite the collapse of US stocks. The S&P 500 has reached new lows not seen since the beginning of 2018 but all major cryptocurrencies remained stable, showing that cryptocurrencies are not affected by the forces dragging down equity prices. This month is considered to have been the least volatile month for the last 18 months. The crypto market capitalisation has fluctuated between $207 billion and $212 billion this week, with trade volumes falling over 15%. Looking at the coming week, if trade volumes remain low and the upside remains capped, this could lead to a dip in prices. Therefore, investors should be on the lookout for bearish indicators this week. Rhys Dil
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