NEFS Weekly Market Wrap-Up Presented by the NEFS Research Division
12.11.18
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 Figures released by the Office for National Statistics (ONS) on 9th November show that the UK has recorded the best quarterly growth since late 2016, with 0.6% growth in Gross Domestic Product (GDP) in the third quarter, the 3-month period from July to September. This comes as a boost to the UK economy given sluggish growth rates of only 0.1% and 0.4% in the first 2 quarters of 2018. The predominant causes of this upturn in growth were the unexpectedly good weather over the summer, as well as football fever hitting England during their excellent run to the semi-final of the World Cup. With the UK population in a state of jubilation, household spending increased by 0.5% in the quarter, mainly due to a surge in retail sales, alongside larger revenues for pubs, bars and restaurants. Hot and dry weather also improved construction productivity, with this sector expanding by 2.1% in the quarter, despite a slow start to the year. However, the recent growth is seen by many as an anomaly, with a large consumption rise in July followed by plateauing growth in August and no growth in September. Ruth Gregory, Senior UK Economist at Capital Economics, warned recent improvements would not last and 2018 annual GDP growth is still expected to come in at 1.3%, the lowest since the financial crisis.
Whilst wage growth has been positive, reaching the highest rate in 9 years at 3.1%, inflation is not far behind averaging between 2 and 3%, meaning real wage growth is still relatively low, and real average weekly earnings still behind 2007 levels. Additionally, business investment fell by 1.2%, presumably caused by ongoing Brexit uncertainty which Gregory states “will probably get worse before it gets better.� Whilst Theresa May could finalise a deal with the EU in the coming days, it is unlikely that she will be able to get the deal through parliament any time soon, prolonging uncertainty for both domestic and foreign companies trading in the UK. Overall, whilst external factors such as sun and sport gave the economy a pleasant lift, it appears this is only a temporary improvement. Annual growth is expected to remain sluggish, with the predicted 1.3% annual growth this year the lowest since the financial crisis, showing the detrimental effect of Brexit on our economy, even before we leave the EU. Joe Houghton
12.11.18
MACRO REVIEW
The US and Canada Tuesday’s US midterm elections produced a divided government as expected. The election saw Democrats take control of the House of Representatives, with the final tally of Democratic House gains expected to reach at least 38 and potentially 40. Meanwhile, the Republican Party managed to retain a majority in the Senate. The result potentially threatens President Trump’s legislative agenda and analysts at Goldman Sachs stated that “they couldn’t see further Republican tax-cuts to come in the next two years”. This could mean less inflation in the US economy in the future and consequently less pressure to raise US interest rates in 2019 and 2020.
However, speculators are concerned with the Fed’s plans to raise interest rates next month following recent market turmoil and a string of poor housing data which included reports of US mortgage applications falling to their lowest level since December 2014.
The US markets reacted well to the news of a divided government. On Wednesday morning, the S&P 500 and Dow Jones Industrial Average indexes were both up 2.12% and 2.13% respectively. However, both indexes closed in the red on Friday, (S&P down 0.92% and the Dow down 0.77%) following a mixture of bad sentiment surrounding slowing global economic growth, weak tech sector reports and news of oil prices entering bear market territory.
Investors fear that the news of the oil market entering ‘bear territory’ could have negative long-term implications on the economy, especially as oil exports contribute to 10% of Canadian GDP. Furthermore, any residual support for accelerated interest rate hikes in the future have been fully dissipated by the Bank of Canada.
Meanwhile in Canada, the S&P/TSX index saw strong growth during the week’s early sessions but closed on Friday evening down 0.54% following further reports of slower economic growth and falling oil prices. Similar pessimism was shared in the currency market where the Canadian Dollar Index took a beating on Thursday through to Friday.
Sean O’Hagan
This being said, both indexes finished up 2% and 2.87% respectively across the week, helping repair some of the losses the markets have experienced in previous weeks. The US Federal Reserve decided to keep the US base rate of interest unchanged at 2.25% with the expectation of an increase following December’s meeting. The Fed claimed a strengthening labour market, rising economic activity and on target inflation (currently at 2.3%) were the reasons behind the decision.
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NEFS MARKET WRAP-UP
Europe This week has seen yet more uncertainty in European markets with warnings that the Eurozone’s biggest economy, Germany, is forecast to experience an economic slowdown. We have also seen indications of a wider Eurozone slowdown, as signalled by the release of retail sales data. Additionally, the fallout between the Italian government and Brussels continues to rage on. Germany has long been considered the linchpin of the European economy, however it is likely to experience a sharp slowdown over coming months and into 2019. Growth projections have been downgraded to 1.6% for the remainder of this year while 2019 sees predictions of around 1.5% - a steep decline from the 2.3% initial projection. The reasons behind this downgrade include the difficulty of Germany’s flagship car industry to adjust to new EU emissions standards which have been bought in to prevent future scandals. Germany is also a famously large exporter, therefore increasing concern about future trade tensions have also increased the belief that Germany could experience an economic slowdown.
The wider Eurozone also showed signs of a slowdown this week. The release of retail sales data helps to show levels of confidence in the economy and also gives an indication as to possible economic conditions in the near future. Sales figures released on Wednesday show a flat lining in volumes with notable countries such as the UK and Belgium seeing a 0.8% decrease. The data overall indicate a potential economic slowdown is not far away for the currency union. Further issues between Brussels and the Italian government over proposed budget plans have come to light this week. Previously, the European Commission had asked the Italian government to change its budget proposal in a historic first. On Monday, the French Economy Minister, Bruno Le Maire, said “France shares the assessment put on the table by the commission” thus demonstrating the attitude of other Euro economies who want to see Italy change its budget proposals. Brussels itself warned Italy on moving outside of the 3% deficit limit, as Italy is projected to do by 2020. The renewed budget uncertainty pushed 10-year bond yields upwards (as seen in the diagram) with one economist stating “Without substantive GDP growth, Italy remains in a debt trap and increases the likelihood of a fresh debt and banking crisis”. Ashley Brumfield
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12.11.18
MACRO REVIEW
Japan & South Korea This year has been busy for Japanese trade negotiators and their effort seems to be paying off. With a large economic partnership agreement with the European Union (EU) on the horizon, tariffs on Japanese auto products (currently 10%) and on EU wines, cheeses and leather products are to be abolished between the two countries over time. Additionally, the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP) is also well underway and will likely see cheaper prices of meat and fruit for Japanese consumers. On the flip side, Japanese auto industries are, again, likely to prosper with the likes of Vietnam dropping tariffs from 70% to 0% over a 10 year period. According to economic forecasters, these two trade deals are likely to push up economic growth by ¥13 trillion per year and increase Japanese employment by 750,000. However, there are costs. Concerns that Japan’s agricultural sector will suffer, with predictions that loses in agricultural sales can range from ¥31–49 billion a year, look to be heightened by the talks of Prime Minister seeking to increase the sales tax next year in an attempt to encourage consumer spending.
As global trade continues to prosper, South Korea’s current account hits a surplus reaching 12.16 trillion won (US$10.83 billion) in September. This is the highest since September last year where surplus reached 13.78 trillion won (US$12.29 billion) mainly driven by the surplus in the goods account (14.85 trillion won or US$13.24) and drop in imports by 3.2% over the year. In addition, despite weak investor sentiment due to global trade disputes, the cumulative foreign investment in South Korea has also recorded the fifth highest figure ever at 10.28 trillion won (US$9.16 billion). However, other areas of the economy don’t look as hopeful. These results had consequences for Finance Minister, Kim Dong-yeon, and Presidential Chief of Staff for Policy, Jang Ha-sung, who were fired by President Moon this week, because the performance of the economy has “not improved under their stewardship”. With consumer prices on the rise, percentage changes in GDP remaining stagnant at 0.6% and unemployment (4%) still higher than its low of 3%, seen below, it’s hard to disagree that improvement is needed, and needed fast. Kaythi Aung
Despite these concerns, government officials are confident that the savingsfor consumers, as well as other efficiency gains from these two deals, are likely to outweigh the costs.
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NEFS MARKET WRAP-UP
Australia & New Zealand This week, central banks both in Australia and New Zealand announced they will keep cash rates on hold, as analysts widely expected. In the case of Australia, the Reserve Bank of Australia (RBA) left its interest rate unchanged for the 27th consecutive month at the historical lowest level of 1.5%, and it showed fairly optimistic about the ongoing and future state of the economy. In the press statement released on Tuesday, the RBA also announced it revised upward its forecasts for GDP growth from 3.25% to 3.5% for both 2018 and 2019, remarking that the continued global economic expansion and the positive internal business conditions remain supporting growth. As for inflation, despite it has stayed below the target band of 2-3% for the last three years, the RBA expects it to pick up gradually in the next couple of years to 2.25% in 2019 and a bit higher in 2020. The RBA’s outlook for the labour market was also optimistic. It expects a further reduction in the unemployment rate from 5% in Q3 2018 to 4.75% in Q4 2020. Moreover, after a longawaited pick-up in wages, some improvement is projected to occur as well, but increases will be a gradual process. In this regard, a key figure for the RBA will be the wage price index to be published next week. On Thursday it was the turn of the Reserve Bank of New Zealand (RBNZ), when it kept its cash rate at 1.75% for the 14th consecutive meeting. In the official statement, the bank displayed a balanced outlook between upside and downside risks to growth and inflation.
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Although the day before figures for unemployment rate showed a decline from 4.4% in Q2 to 3.9% in 2018 (the lowest figure in ten years), business surveys suggests growth will be moderate in the near future. According to the RBNZ, monetary stimulus, government spending and population growth should continue supporting domestic demand, and GDP growth is expected to pick up in 2019. At the same time, as capacity pressures build, inflation should rise to the 2% target. Nevertheless, there is still the possibility that a continued weak business sentiment can weigh on growth for longer. Considering this balance of risks, the RBNZ emphasized it will keep the interest rate at an expansionary level for a considerable period of time. Sergio Bravo
12.11.18
. EMERGING MARKETS Africa This week, the Seychelles government issued the world’s first ever blue bond, highlighting the emergence of the ‘Blue Economy’ in Africa. Nigeria’s debt servicing difficulties have also become an increasing concern. Africa’s smallest albeit most developed country, the Seychelles, announced on Monday that it had raised $15m through the issue of a 10-year `blue bond’. Similar to green bonds, capital raised from a blue bond is ringfenced for sustainable development of maritime resources. Proceeds of the Seychelles blue bond will be allocated for low-interest loans and grants to local fishermen communities and to finance research on sustainable fisheries projects. The World Bank, who pioneered the world’s first green bond a decade ago, helped to design the bond and backed it with a USD$5m guarantee. It hopes that the Seychelle’s blue bond can become a blueprint for other nations, particularly in Africa where over half of the countries are coastal and island states. The `Blue Economy’ refers to the sustainable use of ocean resources as a source of economic growth such as fishing, tourism and offshore oil and gas drilling. Currently, Africa’s maritime industry is estimated to be worth USD$1 trillion per year but this could potentially triple by 2020.
However challenges to the Blue Economy - such as over-fishing (which costs Africa $1.3bn annually), pollution and climate change - have forced the continent to consider how to ensure an environmentally sustainable future. Later this month, Kenya will host the world’s first Blue Economy conference with solutions to be discussed including increased coastal protection and issuing more blue bonds. Elsewhere in Africa, the IMF has projected the Nigerian economy to grow by 1.9% in 2018, an increase from 0.8% in 2017. This higher predicted growth is mainly due to fewer disruptions in oil production but also to stronger growth in Nigeria’s trading partners. Yet despite enjoying a low GDP-to-debt ratio of 21%, the Nigerian government spends 66% of revenue on debt interest payments. In comparison to Nigeria, the rest of sub-Saharan Africa dedicate about 10% of revenue to debt servicing. Nevertheless, the IMF has stressed that in order to repay and service public debt profitably, the region needs to significantly increase its government revenues by adding about 20million jobs annually. Not only will this be difficult as sub-Saharan African unemployment is already 7.3% but the uncertainty regarding the extent to which technology replaces labour has increasingly complicated job creation. Hannah Cousins
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NEFS MARKET WRAP-UP
China After another week of tension around China, attention has shifted from the trade war to more chronic problems with the economy. A mixture of different threats to economic health have created an unsettled atmosphere in China. Asian stock markets fell largely last Friday, the biggest drop being in Hong Kong’s Hang Seng Index, where stocks were down by more than 2%. The chief concern this week is debt, with a recent report on consumer inflation also contributing to investors’ anxieties. Since the financial crisis, China has regularly used debt binges to fuel economic growth. This happens when China’s local governments and state-owned companies borrow heavily to invest in key infrastructure and businesses and has been largely ignored as a cost for economic growth. But this attitude towards borrowing has nurtured a reliance on cheap credit, which in turn has produced a large and growing amount of national debt. Earlier this year, Moody’s downgraded China’s debt rating for the first time since 1989, explaining that they expect China’s financial health to, “erode somewhat over the coming years, with economywide debt continuing to rise as potential growth slows”. While it is expected that Chinese debt reforms will eventually address the debt problem, it is unlikely to be possible to prevent substantial debt growth before then.
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We are already seeing the consequences of Beijing’s efforts to control debt, which began in earnest late last year. The debt restraint slashes investment, which has stalled growth. It is estimated that 2000 projects have been rejected so far this year. With the pressure from the trade war, Chinese authorities must choose whether to continue to crack down on debt, or go deeper in debt to support strained businesses. The country’s banking and insurance regulator has announced new credit support for the private sector, so at least for now, businesses have been put first. In addition to the debt problem, a report last week showed that China’s consumer inflation remained at the second highest level so far this year, with an acceleration in non-food prices. The key inflation reading was higher than the median 2.4% gain forecast by economists polled earlier by The Wall Street Journal. Rudai Wang
12.11.18
EMERGING MARKETS
Latin America This week, the first China International Import Expo (CIIE) was held In Shanghai, and it represents the growing links between China and Latin America. Many governmental delegations and fruit producers travelled to China to forge stronger ties with Chinese Buyers. At the exhibition, over 3,600 firms including many South and Central America were trying to attract sales from the growing markets In China. One company which was especially prolific was Chile, who sent 30 companies to the fair in the hopes of signing agreements with China. Similarly, the Panamanian President, Juan Carlos Varela, made a speech at the Expo on Thursday and praised the Chinese for opening up the market. He said, 'China's open market had brought great opportunities' for Panama and that he 'hoped to see over 100' companies at next year's expo. China is currently Panama's second largest trading partner after the US, and there are hopes that the relationship can be strengthened not only for Panama, but for all Latin American countries, in the future.
This is not the first example of China using currency deals to expand its influence In Latin America. A managing partner at the Investment Firm, Magma Partners, has said that China is investing in these regions due to the 'US looking inward' and with Trump's policies set to continue in this way, China may be able to successfully exploit this opportunity. Just last week during the China-LAC Business Summit in Zhuhai, the Belt and Road Initiative (BRI) was announced to facilitate infrastructure in Latin America. A main focus of this Initiative is Uruguay. China is currently Uruguay's largest trading partner with $2.5 billion in bilateral trade in 2017. As a whole, China's trade with Latin American countries totalled $260 billion in 2017 and there was also $387 billion worth of direct Investment. With initiatives such as the BRI and the recent currency swap, it looks as though this relationship between China and Latin America is not slowing down any time soon. Abigail Grierson
In addition to this, on Thursday it was announced that Argentina's central bank would almost double Its currency swap deal with China, which brings the total to $18.7 billion. This is another example of China improving relationships with Latin America. This deal was first agreed to boost Argentina's reserves in 2009 and last year it was agreed that the program would be extended.
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NEFS MARKET WRAP-UP
Russia & Eastern Europe This week has seen economic data released across Eastern Europe, whilst Russia continue to sustain a healthy trade balance.
can be negated as the country continues to become adaptable, through the creation of new economic mechanisms and integration.
With the impending threat of US sanctions, Russia have maintained a focus on corporation with other countries. Russian Prime Minister Dmitry Medvedev has highlighted that Russian-Chinese trade turnover may reach $200bn, as Russian exports to China increased by 43% in the first half of the year to $26 billion compared with the same period last year. The positive integration between these two countries have come to fruition due to joint participation in several investment projects in energy, oil, gas and others, linking the Eurasian Economic Union (an economic union of countries in northern Eurasia) and Silk Road Economic Belt (a development strategy across Europe, Asia and Africa).
Furthermore, there have been positive monetary developments surrounding industry and services across Eastern Europe. For example, Hungary’s HALPIN Manufacturing PMI rose to 57.3 in October 2018 on the back of increased production and falling unemployment; Hungary’s rolling average three month-jobless rate fell to 3.8% in September, compared to 4.1% the previous year.
Likewise, Russia have suggested partnerships with Germany in areas such as the production of rare earth metals, whilst trade turnover between Russia and Turkey are reaching $30bn. These factors have helped precipitate a widening trade surplus of $18.49bn in September 2018, as Russian exports to other countries continue to grow. Consequently, the likelihood of US sanctions leading to fundamental weaknesses within Russia’s economy
FocusEconomics Consensus Forecasts an upward trend in Hungarian industrial production in 2019, expecting to expand by 5.1%. This graph shows year-on-year changes and annual average variation of industrial production (%) in Hungary. Similarly, data released this week showed Russian services PMI rising to its 11-month high. However, positive performances in the industrial and services sectors may have contributed to demand-pull and supply-side inflationary pressures. Inflation rates reached its highest in nearly six years to 3.8% and a 11-month high of 3.5% in Hungary and Russia respectively. This highlights that the trade-off between rising GDP and inflationary pressures remain commonplace. George Kennedy
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12.11.18
EMERGING MARKETS
South Asia South Korea’s slowing economic growth is likely to cause discomfort for its Small and Medium enterprises (SMEs). In the Q4 2017, South Korean GDP growth was -0.2% according to the Bank of Korea; although growth has bounced back in 2018, it has failed to reach more than 1%. This is not the first time South Korean SMEs have struggled to compete. In 2014, a survey conducted by the Korean Financial Supervisory Service revealed that 125 of the 1609 SMEs sampled required some form of restructuring. This was an increase of 12% from the previous year. Even though SMEs only make up a small percentage of GDP, they provide only 90% of jobs according to The Financial Times, creating uncertainty in the South Korean Job market. The Ministry of SMEs and Startups states that SMEs are responsible for 87.9% of South Korean employment and 37.5% of exports. In order to rectify their situation, many SMEs have taken production into foreign markets in order to diversify amidst unfavourable market conditions. President Moon Jae-in has reintroduced subsidies and implemented tax rebates to try and improve SME output but is yet to prevail.
SMEs are facing added pressure from conglomerates to achieve price targets. These conglomerates are using their monopsony power to block SMEs from selling to competitors and are bullying them into unfavourable positions. India will likely overtake China as the leader for oil demand by 2020 according to The Financial Times. This is due to a growing middle class, manufacturing sector and urban population. Indian prime minister Narendra Modi has initiated plans to expand infrastructure, promoting greater access to energy and higher economic growth. India’s demand for oil is forecasted to grow to 10 million barrels per day by 2035 which will leave more people susceptible to the fluctuating nature of the hard commodity. To future proof itself, the government is investing large amounts into electric cars to curb India’s high air pollution levels and reduce future dependency on oil. As mentioned last week, India needs to curb its imports to prevent a continued current account deficit, as an increase in the demand for oil will only make this worse Usmaan Jamil
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. EQUITIES, COMMODITIES & DEALS Financials The S&P (Standard and Poor) 500 saw mixed results this week. American chip maker Qualcomm saw a 7.2% fall in share prices as it reported disappointing revenues and profits, due to lower sales to buyer Apple Inc. This contributed to a 0.4% loss for the S&P technology index this Thursday. Meanwhile, its banking index was up 0.8%, with the most notable increases in the stock prices of JP Morgan (1.1%) and the Bank of America (1.7%). This is largely attributed to the Federal Reserve choosing this Thursday to maintain interest rates in a range of 2-2.25%. Previous to the announcement, investors predicted the Fed would increase rates as it has been doing gradually since 2015. This would have given greater scope for retail banks such as the Bank of America to increase profit, as higher interest rates would be charged on mortgages. The prospect of higher returns for the company on such loans may have helped to boost share prices. Additionally, the realisation after the announcement that returns on gilts and common bank accounts would not change meant that there was no incentive to sell off shares, another factor responsible for the increases. On the other hand, the announcement had downsides elsewhere. Housebuilders D.R Horton saw their share prices drop by 5.4%, as the high interest rate established by the Fed is starting to take its toll on demand for mortgages, and subsequently housing.
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The PHLX Housing index fell by 1.4% this week, and further decreases could make it harder for homebuilding companies to make enough profit to stay in the market. The prospective lack of housing supply as a result would be a disastrous consequence for America, whose housing and mortgages markets have already been responsible for one financial crash. Following on from the American mid-term elections and the increase in the power of the Democratic party, drug and pharmaceutical producer Perrigo Co experienced a 14.7% decrease in share prices. The company has revised down its profit and sales expectations, and the shift in political power in the US will most likely cause more doubt over how lucrative the company will continue to be. Meanwhile, the FTSE (Financial Times Stock Exchange) 100 was boosted by AstraZeneca, a Cambridgeshire-based drugs company, who saw demand for its new cancer and diabetes drugs soar, and a promising return to positive growth in sales, with share prices up by 4%. Megan Jackson
12.11.18
EQUITIES, COMMODITIES & DEALS
Energy, Oil & Gas For the fifth week running, the price of oil has fallen; crude oil futures have dropped this week from $63.02 to around just $60.00. Brent oil futures have seen a fall from $72.72 at week’s start to the area of $69.90 at weeks end. The force behind this drop in price is most likely the expectation that oil supply will remain abundant for the immediate future. Such expectations are strengthened by Iraq’s intention to restart oil exports from Kirkuk - a region which has seen no oil exports in over a year due to disputes over the territory between Baghdad and Kurdish governments – which could see produce of 400,000 barrels a day. The UK government’s introduction of a new price cap on energy bills not only damaged energy company Scottish and Southern Energy’s (SSE) share price by 3% but has also been blamed for a delay in SSE’s planned merger with fellow British energy company Npower. The addition of regulations is speculated to knock back the merger by at least 5 months. US giant General Electric has completed the $3.25bn sale of its gas power subsidiary Current to US private equity group Advent International.
However, the election has also enabled offshore drilling restrictions in Florida and an increase in Californian petrol tax to be set in motion. Wins for renewable friendly Democrat governors in Maine, New Mexico and Nevada are also noteworthy. Further optimism for the US gas industry can be garnered from Poland’s state owned PGNiG striking a second long-term deal for US liquified natural gas. In a different corner of the industry, the price of uranium has hit a two and a half year high, reaching $29 per pound at the end of this week. Such growth represents a staggering leap of 40% in value since April this year. This increase is likely due in part to a string of mine closures, which naturally has decreased supply, as well as China’s recent determination to be involved in the construction of nuclear plants across the globe. Kazakhstani stateowned company Kazatomprom, the world’s largest producer of uranium, has secured investors for a London hosted IPO. 15% of the company will be listed, with hopes to raise an additional $600m in order to bring its total valuation to around $4bn. Sebastian Hodge
This week also saw US mid-term elections set an optimistic precedence for both the superpower’s oil and gas, and renewables industries. The election results have seen proposals for a carbon tax in Washington and heightened regulations on Colorado oil production squashed.
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NEFS MARKET WRAP-UP
Tech and FinTech The heavily tech weighted S&P 500 index was down 7.86 points at market opening on Thursday, after strong gains the day before. The index which is comprised of 26% tech stocks closed 0.25% lower on Thursday, after investors responded to a recent monetary policy decision from the Federal Reserve which hinted at incremental interest rate increases.
This brings into question whether strong results over the course of the year are sustainable as interest rates rise and debt becomes more expensive. As newer entrants like Hulu and Amazon Prime Video strengthen their foothold in the market, it seems that Netflix’s ongoing growth and monopolisation of the streaming industry is starting to waver.
Shares in Netflix jumped on Wednesday in line with a 2.6% rise in the Nasdaq Composite after a volatile October for tech stocks. The Scotts Valley based movie giant saw its share price rise 5.7% on Wednesday, closing the day’s trading up 5.4%. The rise comes after markets reacted to a divided congress, with democrats gaining a Majority in the House of Representatives, potentially reducing the likelihood of turbulent economic policy.
Lloyds Bank have invested in East London based FinTech company Thought Machine, investing £11 million for a 10% stake in the company. This will see Lloyds contributing 61.2% of the funds for the series A investment round, indicating the bank’s faith in the start-up. Lloyds says it has been working with the firm since 2017 and is developing a new core banking platform as part of a ‘strategic partnership’.
However poor results on Thursday have cast doubts over the future of Netflix. Shares fell 2.93% on Thursday to 317.92 USD, falling from its 329.79 USD peak earlier that day. The company has recently announced another $2 billion bond offering, which will see its total debt rise to $10 billion. This paired with streaming content obligations of $19 billion will see its long-term liabilities rise to nearly $30 billion.
The platform known as ‘Vault’ aims to take of advantage of Thought Machine’s innovative technology which will revitalise the banking sector, casting off inefficient legacy banking platforms. Instead, the retail and commercial bank will implement new platforms to provide tailored and faster services to customers which are expected to be rolled out in 2019. The investment highlights a FinTech driven shift in the banking sector towards simplicity, with customers being drawn towards clear and uncomplex platforms like Loot and Starling. Oscar Miller
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12.11.18
EQUITIES, COMMODITIES & DEALS
Pharmaceuticals This week has been significant for AstraZeneca within the pharmaceutical industry. Not only has it experienced sales growth for the first time since 2014, but it has also made an important deal in which it will begin to divest parts of their portfolio in a strategic move.
Additionally, AstraZeneca sold the rights for Alvesco (ciclesonide), Omnaris and Zetonna (ciclesonide) to Covis Pharma for $371m. Covis Pharma currently commercialises the drugs in the US, but after the completion of the transaction they will now own the products.
AstraZeneca’s Q3 results showed a 9% increase in product sales to $5.27 billion, derived from a demand for its newest products, especially its cancer treatments. This is the company’s first sales growth since 2014 which has now led AstraZeneca to anticipate years of sustained improvement and rising profit margins.
This divestment will enable AstraZeneca to focus on the development of new innovative drugs to fulfil the unmet needs of patients. It will also allow the company to focus on the drugs which are pushing their sales growth, namely cancer treatments like Lynparza.
Included in the wave of new medicines includes Imfinzi and Tagrisso for lung cancer, Lynparza for ovarian cancer and Fasenra for severe asthma – all surpassing analysts’ predicted sales. As a result, the sale of the cancer treatments grew 57% to $1.6 billion. After it was announced on Thursday that the Pharmaceutical giant had returned to sales growth, AstraZeneca stock buoyantly broke out with shares hitting their highest point in four years and rising more than 5% to hit a record high of £61.85.
Overall, we can begin to see the start of a new innovative period for AstraZeneca, with greater sales growth and pushing new strategic objectives such as developing new unmet demanded drugs. The combination of sales growth and freed up resources, will encourage confidence within AstraZeneca and continue to lead to changes which are benefiting the Pharmaceutical giant. Abigail Davis
"Today marks an important day for the future of AstraZeneca, with the performance in the quarter and year to date showing what we expect will be the start of a period of sustained growth for years to come." - Chief Executive Pascal Soriot.
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NEFS MARKET WRAP-UP
Mergers & Acquisitions This week has seen the approval of Walt Disney Company’s $71.3 billion acquisition of 21st Century Fox by the EU competition commission as well as the announcement that energy firms SSE and Npower will renegotiate the terms of their merger deal. The Disney and Fox deal has been at the foreground of merger news ever since Disney first announced its acquisition intentions last December; the latest update on the deal occurred on Tuesday when the EU competition commission revealed findings from its investigation into the acquisition. The commission concluded that the combination of both firms’ activities would raise no general competition concerns given that the merged company would continue to face significant competition from other market players - notably Sony, Warner Bros and Universal. However, as both Disney and Fox are leading providers of ‘factual channels’ (TV channels that principally broadcast documentaries) the commission did find some competition worries here. To remedy these worries, the commission agreed only to approve the acquisition on the condition that Disney committed to divest its interest in its History, H2, Crime & Investigation, Blaze and Lifetime channels in Europe. This comes several months after the U.S. Department of Justice also approved the deal under strict conditions involving Disney selling Fox’s 22 regional sports networks.
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Secondly, the planned merger between SSE and Npower, two of the ‘big six’ energy firms, will see the creation of the second largest energy supplier in Britain, just behind the market leader, British Gas. However, we will have to wait longer than expected to see this deal completed due to announcements on Thursday evening that the commercial terms of the agreement are under reconsideration. This reconsideration is needed after the market regulator, the Office of Gas and Electricity Markets (OFGEM), unveiled plans for a price cap of £1137 on gas and electricity bills which is estimated to reduce energy firms’ profits by 5%. These plans and estimations have negatively impacted the outlook of both firms and led to SSE issuing a profit warning in September. Whilst SSE must ensure that these negotiations run smoothly, the firm will likely also need to employ other strategies to ensure that markets do not continue to lose confidence regarding the acquisition given that share prices plummeted from 1182.50p at market close on Thursday to a low of 1128.50p on Friday. Matthew Copeland
12.11.18
.CURRENCIES Major Currencies The Republican party grew their pre-existing majority power in the US Senate on Tuesday’s US mid-term votes, allowing for President Trump to pass his legislative agenda with greater ease. This caused a fluctuation in the DXY, a US Dollar index priced against a weighted basket of currencies, between 95.91 and 96.42.
This was because business investment in the UK shrank by 1.2%, showing that Brexit uncertainty is constraining the willingness to invest. This was made clear by Samuel Tombs’ statement, the chief UK economist at Pantheon Macroeconomics, “the risk of a no-deal Brexit is a clear driver of the downturn”.
Following the mid-term volatility in the US Dollar, the Federal Reserve (Fed) announced that rates would stay unchanged at 2.25% on Thursday. This move was forecasted due to the recent instability in the US equity markets, however the Fed confirmed “further gradual” planned rate hikes as “economic activity has been rising at a strong rate” shall go ahead. This anticipation of future interest rate increases pushed the US dollar upwards, leading to an overall 0.74% growth in the DXY over the week, closing at 96.96.
Italian Finance Minister Giovanni Tria, stood by the proposed expansionary budget, a continuation of the budget disputes with the European Commission (EC). The EC forecasted Italy’s budget deficit widening to 2.9% of GDP next year, as opposed to 2.4% forecasted by the Italian government. This EC forecast edges closer to the 3% of GDP limit set out in the Stability and Growth Pact agreed by EU members, sending the Euro downwards over the week by -0.61% against the dollar at $1.133. Italy’s resubmission of the budget by next Tuesday to the EC will UK economic growth in Q3 was announced at 0.6% determine the outlook of Italy’s debt levels and by the Office for National Statistics, higher than will be priced into the Euro. the Q2 growth rate of 0.4%. On the surface this Amar Toor may seem like a positive shift, however decomposing the drivers of this growth does not provide a positive outlook for the economy and therefore the Pound. Great British Pound to US Dollar Most of the boost was due to consumer spending during summer, which Philip Hammond the Chancellor stated was “proof of the underlying strength in our economy” however, this sentiment was not shared by the market, as reflected in the downward movements of -0.23% in the Pound against the Dollar, closing at £1 to $1.298 on Friday.
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NEFS MARKET WRAP-UP
Minor Currencies The Indian Rupee has had a terrible year so far; rising oil prices, a domestic financial sector crisis and weaker economic conditions have led to a worsening current account deficit. The most significant problem is the rise in oil prices over the past several months as India is a large importer of oil, and a higher oil price is a big negative for its current account. The worsening current account deficit has led to the rupee selling off strongly. These problems are all obstructing the Reserve Bank of India from raising interest rates, which is further hurting the Rupee. Usually when the domestic currency of a country is sliding, the central bank usually raises interest rates to attract capital inflows to the nation, and thereby support the currency. However in its latest monetary policy meeting, the Reserve Bank of India kept rates on hold at 6.5%, putting further downward pressure on the Rupee. China's foreign currency reserves declined in October, a sign that Beijing might be intervening in the market to keep its Yuan from falling too far against the US dollar – potentially triggering a U.S. backlash amid a tariff battle. China’s reserves, the world's largest, declined by about $34 billion to just over $3 trillion this week.
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The New Israeli Shekel (NIS) is strengthening against the US Dollar and weakening against the Euro. In the week, the Bank of Israel set the ShekelDollar representative rate up 0.244% at NIS 3.700/$ from Monday's rate and set the Shekel-Euro rate down 0.410% at 4.206/€. The NIS is gaining against the US Dollar, which is weak worldwide after the US midterm election results brought a split Congress. The Australian Dollar struggled to find sustained support last week as a widened trade surplus was contrasted by a weakening of Q3 CPI. As the headline inflation rate slipped back below the Reserve Bank of Australia’s 2% target, this encouraged bets that the central bank will remain on hold throughout 2019. The New Zealand Dollar, meanwhile, came under renewed pressure as October’s ANZ consumer confidence index slumped markedly on the month. With the New Zealand economy continuing to show signs of struggling, NZD exchange rates remained on the back foot. Freddie Serfaty
Indian Rupee Performance
12.11.18
Currencies
Cryptocurrencies Recent start-up Kaleido has helped organisations implement this by creating over 1000 blockchain networks. On Thursday, Kaleido (in collaboration with Amazon Web Services - AWS) launched a new platform which will enable organisations to implement blockchain into their businesses. It is the first full-stack enterprise platform available and will help companies break through the barrier that might be holding them back from implementing blockchain technology. Early users have stated it eliminates around 80% of the custom code required to build their blockchain projects. Enterprise blockchain has huge potential84% of 600 executives stated their companies were “actively involved” with blockchain when surveyed by PwC last August. Now, with Kaleido building the first full stack of blockchain capabilities to build a complete solution, it seems that enterprise blockchain has more potential than ever before. For the first time in months, Bitcoin Cash rose significantly in price from $463 to $631 (a price movement of over 35%), though the price has since fallen back to $561. The reason behind the price rise was the speculation around the incoming hard fork. Bitcoin Cash (BCH), a cryptocurrency which forked from Bitcoin in mid-2017, is facing a hard fork of its own. This is due to figures attached to BCH disagreeing over the coin’s future.
nChain, a blockchain group led by Craig Wright, did not agree with the upgrades proposed by Bitcoin ABC. Consequently, nChain have decided to run its own upgrade to BCH which will result in the creation of the 2 independent blockchains on the 15th of November. This will see BCH split into two rival chains: Bitcoin cash ABC and Bitcoin Cash SV. While most platforms are still neutral, some have made their positions known. Binance and Coinbase have said they are going to pause trading of BCH before the hardfork, protecting their users’ funds. The crypto market capitalisation started off relatively bullish this week. Currently at $212bn falling from just under $221bn on Wednesday due to a BCH inspired rally. Bitcoin also saw 18 day highs on Wednesday. Mid-week gains have since been almost entirely eroded. It is very difficult to predict whether prices will fall or rise this week with the BCH hard fork on the verge but most BCH holders shouldn’t worry as they can expect a onefor-one distribution of the new BCH token relative to their holdings 1-2 hours before the hard fork takes place. Rhys Dil
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