NEFS Weekly Market Wrap-Up Presented by the NEFS Research Division
05.11.18
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
20 Major Currencies Minor Currencies Cryptocurrencies
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NEFS MARKET WRAP-UP
.MACRO REVIEW United Kingdom On Monday 29th October, the UK Chancellor, Philip Hammond delivered the final budget prior to the UK's exit from the EU. The chancellor's key points included his plan to end austerity, a further £500 billion to support the UK's exit from the EU, a new 2% tax on digital service companies from 2020, as well as an extra £20 billion for the NHS over the next 5 years, £30 billion for English roads and £1 billion towards defence. Whilst it was expected that more spending would be announced compared to recent budgets, the level of spending was considerably higher than originally thought, boosted by significantly stronger forecasts from the Office for Budget Responsibility (OBR). The OBR forecasted that the UK will borrow £26 billion In this financial year, £10 billion less than originally estimated. Additionally, the forecasts, which run to 2023, show that the UK's economy is £60 billion larger than initially believed. UK growth was also upgraded to 1.6% at present, compared to 1.3% in March 2018, although this still lags behind other G7 economies.
In previous budgets, the government would have been seized upon this financial boost as a chance to continue the austerity drive and reduce the deficit further, yet almost all the extra money was immediately spent, leading to Mr Hammond claiming that, "the era of austerity is finally coming to an end". The budget appeared from the outset to be incredibly positive, with large expenditures and few tax increases and yet some remain sceptical. Some believe many decisions made in the budget were politically, rather than economically, motivated, with large sums going to Northern Ireland, to regain support of the DUP. Furthermore, Departments such as the Home Office and Ministry of Justice face further cuts, as well as £4 billion of welfare cuts by 2020 so potentially the "end of austerity" proclamation is somewhat previous. How different the budget would have been had the OBR forecasts been different is unclear, however the budget plans and latest OBR forecasts leave the UK economy in a strong position to tackle Brexit and the continuing uncertainty which that brings. Joe Houghton
05.11.18
MACRO REVIEW
The US and Canada In New York, investors welcomed a rally of the S&P 500 Index on Friday morning after October finished as the worst performing month for the index since the financial crisis. The S&P 500, Dow Jones Industrial Average and Nasdaq indexes were all in the green at the market opening on Friday following a better than expected US jobs report and signs of progress in US-China trade talks. The US Labor Department announced on Friday that US nonfarm payrolls increased by 250,000 in October, smashing analyst’s estimates of 188,000. This means that the unemployment rate holds steady at 3.7%, the lowest rate since December 1969. Furthermore, wages have advanced by 3.1% from a year earlier making it the best year-on-year gain for average hourly earnings since 2009. This comes as a relief to many American workers who felt that wage growth was not matching the long-run economic expansion seen since President Trump entered office. The strong economic results over the last two weeks puts President Trump’s Republican Party in a stronger position leading up to the mid-term elections on November 6th.
President Donald Trump announced on Thursday that the prospect of a deal on trade with China was becoming more likely following a phone call with Chinese President Xi Jinping. President Trump said on Twitter that talks were “moving along nicely”. This contributed to the market rally on Friday morning but caused the dollar to slide. The dollar has been seen as an investor safe haven throughout the US-China trade conflict because of the closed nature of the US Economy but suffered its biggest fall against the Yuan since January on Friday. Meanwhile in Canada, the economy reportedly added 11,200 jobs in October on higher full-time hiring, and the unemployment rate dipped to 5.8 per cent. That fell just short of market expectations for a 15,000 gain, according to economists at Royal Bank of Canada. Wage growth was reported as sluggish and average wages for permanent workers decelerated for the fifth month in a row down 1.9% year-on-year. A separate trade report continued to show sluggish trade flows in September, with both exports and imports recording back-to-back monthly drops. This suggests the Canadian economy is not performing to its full potential and the Canadian Dollar posted declines on Friday morning as a consequence. Sean O’Hagan
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NEFS MARKET WRAP-UP
Europe This week in Europe we have seen the announcement of quarterly growth figures of the Eurozone alongside the results of the European Central Bank’s (ECB) stress tests and the latest developments in the Brexit process. The currency union is now growing at its lowest level since 2014, with GDP increasing by only 0.2% since June. This low growth is shown in the graph below, with one of the main drivers behind the figures being the 0% growth in the Italian economy. It was also noted that these growth figures were the weakest since the European Central Bank began its quantitative easing (QE) policy – many analysts fear that with QE ending in December slow and low growth could become a feature in the Eurozone. Bank stress tests results have also been released this week. The ECB tested the banks and financial institutions against a ‘doomsday scenario’ whereby a severe recession would produce an 8.3% smaller economy in the trade bloc. The tests showed that among the worst performing banks in the bloc were Barclays and Lloyds.
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There is no true pass or fail level for the tests, but Barclays ranked as the bank with the lowest ratio of Common Equity Tier 1 (CET1) which measures the ability of banks to deal with large losses. The overall results of the tests did also show that “participating banks are more resilient to macroeconomic shocks than two years ago” according to Daniele Nouy, chair of the ECB supervisory board. The results help provide hope for stronger growth post Brexit and also show that banks are well prepared for all the upcoming market uncertainty. Finally, agreements in the Brexit process have been few and far between. However, the pound rose sharply on Thursday in reaction to a possible “equivalence” deal for UK financial services. An equivalence deal would provide UK firms with access to European markets, which would hugely benefit UK based entities. However, almost as soon as the story broke Michel Barnier condemned the report as ‘misleading’; showing there is still a way to go in the Brexit process as deadline day looms. Ashley Brumfield
05.11.18
MACRO REVIEW
Japan & South Korea Last week, South Korea had been suffering from a deep slump in their Auto Industry causing serious concerns to four major banks who have invested just under 40 trillion won (£27.6 billion) into the industry. However, the increase in the domestic sale of the top 5 Korean automakers has meant a 23.60% increase from a year earlier and is exactly the news all parties have been waiting for. The good news continues as Korea’s total annual exports are expected to surpass the US$600 billion milestone for the first time. However, the month of November has also brought woes. Korea’s composite index of coincident indicators has fallen for a consecutive six months in September, indicating that the economy has entered a downturn. After the sharpest drop (1.3%) in industrial production for over five years and a drop in consumption and manufacturing trends, seen below, it’s hard to deny that the current economic situation is bad. And, even though the automobile industry and export prospects look to be on the up, trade conflicts between the US and China and the normalisation of interest rates by the US, means that this might not be enough for South Korea to rely on.
Similar to South Korea, the BoJ is cautious over the status of the global economy. Not only are the previous risks ones to consider, but also the geopolitical instability of Europe and increased volatility in the financial stability of developing markets. With this in mind, the monetary board voted to keep monetary policy unchanged however some critics suggest that the bank may be “growing weary” of the domestic economy risks after over five years of loose monetary policy. Despite these worries, announcements that Canada will be the fifth country to ratify Japan-led Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP), with Australia close behind, has been a massive step forward. Previously called the Trans-Pacific Partnership (TPP), the deal is open to 11 countries, making up 14% of the global gross domestic product and aims to “expand the status quo view of free trade”. Supporters of the deal’s enactment claim it would be a “victory for the global trading system” bemoaned by Trump and his US counterparts. Kaythi Aung
The bad news continues to spread through to Japan as the Bank of Japan (BoJ) downgrades its economic growth and inflation forecast, putting its 2% inflation target well out of reach for the foreseeable future.
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NEFS MARKET WRAP-UP
Australia & New Zealand The Reserve Bank of Australia (RBA) continues to struggling to keep the inflation rate in its target band of 2-3%, as CPI official data for Q3 published this week shows. CPI inflation rose by 1.9% on a year over year basis in Q3, in line with market expectations. This figure implies a slightly drop in annual inflation rate compared to 2.1% Q2 this year. Despite a stronger than expected GDP growth and a lower than expected unemployment rate in Q2, inflation hasn't lifted yet in Australia, and it continues without consolidating above 2% since Q3 2015. Indeed, the RBA expects for its preferred inflation measure, the trimmed mean of the underlying inflation, to slow this year to 1.75% by Q4 from 1.8% in Q3. Markets expect the RBA will keep its cash rate unchanged at 1.5% in the meeting taking place next week, as inflation is projected to slowly pick-up in the following quarters. There is less certainty about the announcement on the cash rate that the Reserve Bank of New Zealand (RBNZ) will set next week. New Zealand’s outlook has become more troubled in the last months, and business confidence and activity expectations both have fallen to the lowest
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levels since the global financial crisis, suggesting a real risk of a downturn. Still, recent data on GDP and CPI have been better than RBNZ had expected, and there are a series of positive fundamentals that should continue to support growth including high commodity prices, a significant pipeline of building work to be done and a strong fiscal position in case a stimulus is required. Although future doesn’t seem catastrophic for the economy, the RBNZ cannot abandon the possibility that the lack of confidence may cause a downturn in the following months. Considering its next meeting will be in February, some analysts have considered the possibility of a cut next week to give a boost to the economy, especially if Q3 labour market data released a day before shows weak. Nevertheless, most of them believes the RBNZ will keep the cash rate unchanged and will wait for more economic data to avoid making a hasty decision. Sergio
Bravo
05.11.18
. EMERGING MARKETS Africa This week a report was released which described how Africa is failing to create enough jobs for its booming youth population. Zambia also announced plans to become the latest African country to rebase the size of its economy. A study by the Mo Ibrahim Foundation has found that despite a 40% rise in Africa’s GDP over the last decade, the continent's average score for sustainable economic opportunity has increased by just a fraction of 1 percent. It warned that strong economic growth doesn’t necessarily lead to more opportunities with the likes of Nigeria, Angola, Sudan and Algeria posting some of the highest GDP growth figures as well as some of the lowest figures for job creation in Africa. In particular, the lack of job creation among the youth population of Africa has become an increasingly worrying problem. Africa has the largest youth population in the world with some 200 million people aged between 15 and 24, of whom also account for 60% of the continent’s overall unemployment. This ticking time-bomb of youth unemployment has begun to mobilise young Africans to challenge the long-standing regimes which have plagued the continent.
This is an opportunity that outgoing German chancellor Angel Merkel has been keen to promote as Europe is attempting to curb illegal migration by boosting Africa’s economic development and living standards. On Tuesday, Germany pledged €1bn to promote private investment in Africa, targeting the growth of small and medium-sized companies. Zambia’s government have announced that next year it will rebase the size of their GDP. This is part of a growing trend of African nations rebasing their economic statistics such as Zimbabwe in October which thus enabled them to boost nominal GDP by 40%. Nigeria also doubled their GDP in 2014 by rebasing the size of their economy, allowing them to overtake South Africa as the continent’s largest economy. By inflating GDP statistics, rebasing the size of GDP not only helps governments to hide their struggling economies but also gives them more room to borrow as it reduces their debt-to-GDP ratio. Hannah Cousins
However, the study also highlights that this resource of young, potential workers represents an opportunity for Africa to transform itself for the better.
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NEFS MARKET WRAP-UP
China Last week, the Chinese currency, the Yuan, slid to its lowest point since the financial crisis in 2008 and analysts expect the Yuan to continue to weaken for the next 6 months. The currency has slumped by more than 9% against the dollar since January, a result of pressure from Chinese growth slowdown and interest rate hikes by the US Federal Reserve. The most recent dip follows a report that the White house is considering pursuing further tariffs on Chinese goods if upcoming negotiations are not successful- an indicator that the dispute is set to escalate. The exchange rate of Yuan to US Dollar is edging closer to 7, which is an important psychological threshold for investors. If the currency falls beyond that point traders may begin to sell more aggressively, which would likely cause the market to panic. A steep fall in the value of the Yuan could send money pouring out of China as investors seek to replace their devalued Yuan-denominated investments. This has happened in previous periods of major volatility in 2015/16. The currency slide is especially important ahead of talks between Chinese leader Xi Jinping and US President Trump later this month at the G20 summit. In the past, Trump has regularly accused China of currency manipulation by deliberately devaluing the yuan to strengthen their exports. The US-China trade war has already hurt Chinese growth and threatens more severe long term consequences if progress is not made towards a resolution. China will not want to open itself to allegations of currency manipulation ahead of talks, so it will likely fight the devaluation with its stock of US Dollars. It is worth noting that economists following China find it unlikely that the currency is being driven down deliberately.
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A rapid trade dispute conclusion is vital for China's dreams of becoming a technology superpower. Among its targets is the desire to become the world leader in Artificial Intelligence by 2030, which is proving difficult to achieve with the current trade war pressure. Crucial strategic growth plans to support this, like MIC 2025, are held too dearly by the government to risk. Neither a trade war nor a currency war fit in China's long term plans. Rudai Wang
05.11.18
EMERGING MARKETS
Latin America Last week on the 28th October, Brazil elected a new president; the former army captain and controversial far-right congressman, Jair Messias Bolsonaro. The new president beat Fernando Haddad, of the left-wing Workers' Party (PT), gaining 55% of the vote. Bolsonaro's election win is part of the far-right populist movement and he has even been dubbed 'The Brazilian Donald Trump' due to his extreme views about women, gays and blacks. This election was the first Brazilian election that utilised the power of the internet and digital advertising and Bolsonaro used this to his advantage. In contrast to previous elections in Brazil, disinformation and misinformation played a substantial role in the outcome, however it was not the defining feature. Like many recent far-right election wins, this outcome could not have been predicted a few months ago. To many, the election of Bolsonaro seemed ridiculous, however many Brazilians voted for him in order to rid their country of the PT party which had been in power for 13 years since 2003. Many Brazilians have become recently frustrated and angry with rising crime and terrible economic state.
However, if you were only to look at the stock markets, you may be led to believe that Brazil was in a particularly good way with the Brazilian stock market and currency are up 13% since September whilst many other global markets have suffered. Analysts have called this the 'Bullsonaro wave', which is credited to the election of Jair Bolsonaro. Whilst many people disapprove of Bolsonaro, due to his controversial views, most business leaders and financial experts support him because of his policies. Brazil's previous president, Dilma Rousseff, sent Brazil into a huge fiscal deficit that has since crippled growth and job prospects in the country with 12 million people out of work (13.1% of the population). Bolsonaro has appointed Paulo Guedes, a promarket economist, to lead the economy, and his expected policies include privatisations, tax reductions, formal independence of the Central Bank and perhaps most importantly reform the pension system. However, Bolsonaro lacks a majority in Congress, so we cannot be sure how many of his policies will actually get through. It is uncertain whether Bolsonaro can carry out his bold promises to 'make Brazil great again', but critics say that his governmental plan is too vague and that perhaps he will not be able to give voters the radical change they voted for. Abigail Grierson
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NEFS MARKET WRAP-UP
Russia & Eastern Europe Markets in Russia and Eastern Europe have been characterised by factors surrounding politics, as well as changes in the monetary sector. Counter-measures were initiated after Ukraine made retaliatory sanctions on Russia earlier this year, and wee designed to hinder Ukrainian exports including metals and poultry. However, the extent to which these sanctions have a meaningful impact on Ukrainian’s economy can be negated. Mark McNamee, from Frontier Strategy Group, highlights that Ukraine has re-orientated itself towards the West as exports towards Russia have already collapsed, which means that any negative economic outcome between the two former soviet neighbours will have limited structural impacts. Overall, tensions surrounding politics have driven the regions narrative recently. In particular, the European Union (EU) investment into the area could be scaled back, as it negotiates its upcoming 202127 budget, due to dispute around democracy, immigration and law.
Meanwhile, further inflationary risks are likely to subside as Russian oil output increased, moving closer to a previous all-time high of 11.416m barrels a day and the Bank of Russia is forecasting a normalisation towards 4%. Likewise, weaker inflationary pressures were recorded in the Czech Republic, Romania and Poland, with the Czech National Bank delivering its fourth straight rate hike to manage pressures from the EU’s tight labour market. In addition to this, Russia has decided to hold $200 billion in its National Wealth Fund, increasing its gold and foreign exchange reserves whilst acting as buffer against geopolitical tensions such as US sanctions. This will maintain Russia’s financial stability and contribute to the goal of running a budget surplus of 2 trillion roubles in 2019, but signifies the government’s lack of focus towards spending money on economic development, highlighting a trade-off between security and economic growth. George Kennedy
Furthermore, data released this week, including strong Russian Manufacturing PMI, showed encouraging signs as business confidence, output and foreign demand increased in Russia in October. This positive sentiment has occurred despite fuelling inflation and lower disposable income on the back of higher gasoline prices, although the Bank of Russia has attempted to combat high inflation through its decision to hold Russia’s key interest rate at 7.5% last Friday.
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05.11.18
EMERGING MARKETS
South Asia India are looking to impose anti-dumping tariffs on the chemical Zeolite 4A, imported from China. The government have fears that Chinese Zeolite imported into India at a price below the market price will have a detrimental effect on domestic producer revenue. The size of the suggested duty could be as large as $207 per tonne, acting as an incentive for consumers and producers to steer consumption away from China and back towards the domestic market. The consumption of these imports has risen from 25,000 tonnes to 32,000 tonnes, an increase large enough to warrant government intervention. The government have already imposed tariffs on other dumped goods, mainly from China, and are hoping that the combination of these will help reduce India’s trade deficit which has grown by $12.2bn between 2017-2018 and the previous fiscal year, hampering economic growth. We can see from the graph below that India have been successful in recent months in reducing its trade deficit. A continued effort and successful tariffs on Zeolite 4A could further improve this. Indonesian state-owned firm, Pertamina, will issue $750 million worth of bonds in order gain funding for its future projects.
The oil giant’s performance in the first half of 2018 in its upstream sectors (raw material extraction) has been disappointing with its Upstream Oil and Gas Regulatory Special Task Force falling an estimated 7.6% short of its target of 85,869 barrels of oil per day. The firm’s finance director, Pahala Mansury is hoping to strike a deal with five unnamed banks and channel the immediate revenue into its lagging upstream sectors. It plans to expand its exploration rights and technological abilities in the Middle East and Asia to help rejuvenate growth in the sector. The bond issuance is likely to provide some financial relief following a loss of Rp3.9tn in March 2018 due to a spike in oil prices and the loss making premium gasoline sold by the firm below market price due to price controls by the government. Considering mineral fuels (including crude oil) production make up approximately 22% of total exports and the fact that Pertamina is the biggest state owned enterprise in the country, there is significant pressure from the government for the firm’s growth to recover. Usmaan Jamil
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29.10.18
. EQUITIES, COMMODITIES & DEALS Financials With mid-term elections fast approaching in the US, investors are bracing themselves for big changes. Many are assuming that the democratic party are going to gain more power in Congress, meaning that tighter regulation of the market for guns and healthcare are likely. American healthcare has been one of the S&P 500 top performing sectors this year, but this could soon turn around if the democrats’ push for lower prescription drug prices gains traction. Conversely, in the case of the firearms market, the stock prices of American Outdoor Brands are remaining stable – perhaps because investors know there is likely to be a rush of people buying guns before regulation is potentially enforced. As a definitive Brexit deal comes closer to fruition, confidence in the UK economy is increasing, reflected by a 1.4% rise against the euro in the value of the pound this week. However, this has had repercussions for the FTSE 100, which ended Thursday down 0.5%. This is because significant exchange rate changes tend to create ‘drags’ on the accounting operations of companies which operate abroad, as the new relative prices in different divisions of the business have to be taken into account. Other factors pulling down the index included below-consensus profits for Royal Dutch Shell, who disappointed investors sufficiently to cause a 2.3% fall in its share prices.
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On the other hand, intercom company BT’s drastic cost-saving plans, which will see thousands of jobs cut over time, caused their profits to soar, and propelled them to the top of the FTSE 100 with increases of 9% in share prices. There is news on the M&A (mergers and acquisitions) front, with Canadian natural gas producer Encana buying Newfield Exploration Co for $5.5 billion. The deal will give the company greater leverage in the US industry, such as in the state of Oklahoma. Shares in Newfield have been stagnating for years, as investors see a lack of prosperity in the company’s mid-Western operations sites, and a more lucrative sector of the market in Texas. So, the takeover meant good news for current investors, as Newfield’s shares shot up by 10% this week. With Encana planning to exploit economies of scale and increase output, other competitors in the American shale industry will have to step up their game, especially considering that Canadian prices are some of the lowest globally already. Megan Jackson
05.11.18
EQUITIES, COMMODITIES & DEALS
Energy, Oil & Gas Continuing the trend for the fourth week running, crude oil futures have fallen from $67.68 to the region of $63.00 this week. Brent oil futures have seen a similar decline this week, falling from $77.78 to around $72.75. Such falls in the price of oil are likely due to the confidence that there will more be than enough supply, despite US sanctions on Iran, for the immediate future. ExxonMobil and Chevron, the two largest US oil groups, have reported staggering increases in earnings for Q3 of this year. Chevron over doubled their earnings from Q3 of 2017 to Q3 of 2018, with CEO Michael Wirth declaring the growth is reflective of “higher production and crude oil prices coupled with a continued focus on efficiency and productivity”. Chevron have stated they will use $750m of this increased revenue to carry out a modest share buyback scheme of around 0.3% of outstanding shares. ExxonMobil increased their Q3 earnings by 57% compared to Q3 of last year – all whilst production has decreased by 2% across the same period. Anglo-Dutch energy giant, Royal Dutch Shell has also reported an impressive growth in Q3 earnings of over 35%, which is undoubtedly in part thanks to higher oil and gas prices.
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These results have enabled Shell to accelerate their $25bn share buyback programme. Increased earnings have also come back from fellow energy giants BP, Total and Equinor. Share prices across the sector have also stabilised after last week’s huge market sell off; Novatek seeing a weekly gain of 4.3%, whilst Sinopec remains constant at 6.32CNY per share. All in all, with tremendous Q3 reports, optimistic share price changes and continued willingness to engage in long term buyback schemes, this week has proven to be healthy for most of the biggest players within the industry. On a smaller scale, Danish company Orsted has outperformed analyst predictions on Q3 earnings. This takes place after the company heavily committed to servicing renewable energy, when it sold all its oil and gas assets last year. The company reported Q3 EBITDA of $336m, representing an increase of $76m from last year’s Q3. This goes in partnership with increased energy generation, which now accounts for 71% of their overall energy output, compared to last year’s 60%. Company CEO Henrik Poulsen has said that efforts to sell off its energy grid assets in order to further invest into offshore wind, were progressing well. Sebastian Hodge
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NEFS MARKET WRAP-UP
Tech and FinTech Tech stocks continue to fade this week amidst fears that strong runs on revenues could be starting to diminish. Shares in Apple fell as much as 5% on Thursday just hours after opening, after its projected revenue for the first quarter fell short of analysts’ expectations. This saw it fall below its headline $1 trillion-dollar market cap. The California based tech giant has projected revenues between $89m and $93m falling slightly below the initially projected $93.02m. Sales in iPhone handsets have been flat over the year, following the trend of limited sales growth. They have announced that they are committed to their new pricing strategy, as handsets become increasingly more expensive to offset sluggish sales. The base model iPhone XS retails at $999, with the larger XS Max starting at $1,099. The newly announced iPhone XR will replace the iPhone 8, yet will retail at $749, higher than the 8 which started at $699 when released. This brings into question whether Apple’s dedication to an increasingly steep pricing curve is doing more harm than good, as consumers feel less need to upgrade to new models. Twitter shares stood out amongst others this week, performing well at the end of a brutal month which saw tech stocks suffer the most since the 2008 recession.
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Shares in the social networking platform closed at $34.62 on Thursday after a strong earnings report, up from $31.16 last Friday. The company have recently cracked down on spam accounts, removing 9 million monthly users in the process. Despite a reduction in users, Twitter have been able to advertise more effectively, targeting legitimate accounts rather than automated ‘bots’. Improving the concentration of genuine users has led to a 29% surge in ad revenues, and third quarter earnings estimates have been beaten by 7%. These results show that Twitter’s commitment to improving the health of the platform are paying off, both in terms of revenue and user experience. London based fintech start-up, Monzo, has secured an £85m funding round that sees the online bank reach a £1 billion valuation. Monzo recently hit 1 million customers, and says it comprises 15% of all bank accounts opened in the UK each month. The funding round signifies a shift in the banking sector, as new fintech entrants capitalise off the movement towards smartphone banking. Millennials have found new ways to monitor spending habits, marking the start of the ‘smartphone saving revolution’. Oscar Miller
05.11.18
EQUITIES, COMMODITIES & DEALS
Pharmaceuticals This week has seen Alkermes stocks plunge following the US Food and Drug Administration (FDA) committee vote against the ALKS 5461 depression drug. The drug was aimed to help an estimated 18.1 million Americans with major depressive order yet was voted against by a 21 to 2 vote on Thursday. Following the disapproval of the drug Alkermes shares dropped about 9% in post market trading on Thursday evening; not only will the uncertainty of shares be a worry but the disapproval of ALKS 5461 will be a disappointment for Alkermes when considering that pharmaceutical companies spend on average about 17% of revenues on research and development(R&D). Furthermore, it has been a week of mixed results for Pharmaceutical companies following the release or upcoming release of the third-quarter 2018 results. Merck & Co.’s Gardasil/Gardasil 9 vaccine has resulted in shockingly high revenues in the third quarter of 2018 generating revenues of $1 billion compared to $675 million in the third quarter of 2017. Additionally, Merck & Co.’s third -quarter pharmaceutical sales also increased 5% to $9.7
billion, which may be due to their success in advancing their broad pipeline in response to consumer demand for drugs including oncology and vaccines. This increase in sales will continue to fill Merck & Co’s investors with confidence for the upcoming fourth quarter, and also drive further innovations within the company to consistently put more drugs in the pipeline. British drug firm GlaxoSmithKline’s (GSK’S) thirdquarter earnings were lifted by demand for its new shingles vaccine on Wednesday, consequently GSK’s announced that it would be revising its guidance for the full year “towards the upper end of previous expectations”. Chief Executive Emma Walmsley is trying to reinvigorate GSK by producing new blockbuster drugs, stronger commercial execution, new launches such as the shingles vaccine, and better cost control all which is aimed to drive GSK’s growth. Another strategy GSK is pursuing is investing where it sees results and ending research when data disappoints, this is to focus their pipeline behind priority assets and reduce the costs of extensive R&D. This week has differentiated between the pharmaceutical companies which are thriving and improving to meet quarterly targets and produce high revenues; compared to those such as Mylan N.V whose stock has lost 19.2% in the year so far and third-quarter results may lead to further frustration. Abigail Davis
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NEFS MARKET WRAP-UP
Mergers & Acquisitions This week has seen the acquisition of Newfield Exploration Company by Canadian oil and gas producer Encana as well as Network Rail’s request to the EU to stop the proposed Siemens and Alstom merger. It was announced on Thursday that Encana and Newfield have entered into a definitive agreement that will see an all-stock transaction valued at around $5.5 billion. Predictions show that with Newfield’s assets, Encana’s oil production could reach 577,000 barrels a day, representing an increase in output of over 50% for the Canadian firm. The newly formed company will also see the creation of the second largest North American shale producer, just behind EOG resources. However, markets treated the acquisition negatively for Encana with the firm’s share price falling from $10.24 at market close on Wednesday to a low of $8.44 on Thursday. This collapse is likely due to the confusion that the deal has created amongst investors who were expecting Encana to acquire assets in the Permian oil play, but through acquiring Newfield, Encana has actually branched out to a different oil play, the SCOOP/STACK located in the Anadarko Basin. Despite this, the diversification of Encana’s resource base coupled with increasing oil prices over the past year has driven the firm’s confidence, highlighted by an announcement of plans to enlarge the share buyback programme to $1.5 billion and to raise dividends by 25% following the deal.
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The latest revelation in the proposed merger between the German automation firm, Siemens, and French rail transport company, Alstom, arose earlier this week when a letter was submitted to the EU competition commissioner by the chief executive of Network Rail, asking for intervention to stop the deal. Whilst French and German officials argue that this deal must be assessed on global terms and that a European firm is needed to compete with China’s CRRC, the world’s largest train maker, The Office of Rail and Road warn that the deal would cost Network Rail tens of millions of pounds due to the restriction of competition in the UK that would arise, notably with the provision of signalling products. In the coming days, the EU competition commissioner will send both companies a statement of objections highlighting the EU’s fears of the deal and over the next few months, EU officials will have a significant decision to make as the commission is set to rule on the merger by 28th January. Matthew Copeland
05.11.18
.CURRENCIES Major Currencies The Chancellor of the Exchequer, Philip Hammond, began the week by announcing increases in spending in this autumn budget; the budget was described as “no bonanza” by Paul Johnson the director of the Institute For Fiscal Studies, whose sentiment was shared by the market, leaving the Pound relatively unchanged, trading around £1 to $1.281 on Monday. Mark Carney the Governor of the Bank of England stated on Thursday that UK interest rates will be unchanged and held at 0.75%. Although this unanimous vote by all nine Monetary Policy Committee (MPC) members met forecasts, the pound appreciated 1.01% against the US dollar. This is because, during Carney’s speech he expressed that the MPC is prepared to adjust interest rates “in either direction”, hinting that they may tighten monetary policy in the future depending on the nature of disruption caused by Brexit.
The future of Europe’s largest country shall depend on who succeeds in the leadership campaign for the CDU. Friedrich Merz, a contender, holds a probusiness agenda which involves cutting tax rates, deepening European integration as well as improving US relations. This evolution in policy focus shall greatly impact the Euro’s future. US unemployment has remained at 3.7%, staying at the 48 year-low, fuelling an upswing of 0.4% for the US dollar index (DXY) on Friday. This was also driven by growth in US average hourly earnings by 3.1% relative to last year and the creation of 250,000 jobs in October, up from the 134,000 jobs created in September.
These “incredible numbers” as put by President Trump, may provide crucial support for the President to boost Republican power in Congress during next week’s midterm elections. This shall influence the difficulty for the President to pass his legislative agenda, such as tax cuts for medium Stepping down from the Christian Democrat Union income workers, potentially leading to another (CDU) party after 18 years, German Chancellor “Trump bump” for the US economy which shall be Angela Merkel has made way for a potential reflected in the strength of the dollar. successor in the next 2021 election. This led to fluctuations in trading of the Euro against the US Amar Toor Dollar on Monday, between $1.138 and $1.134.
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NEFS MARKET WRAP-UP
Minor Currencies Argentina’s peso, the world’s worst-performing currency this year, finally had a break through this week. Amid weeks of emerging-market tumult stretching from Shanghai to Sao Paulo, the peso jumped more than 14% against the U.S. dollar in October, the most since 2003. Argentina’s central bank can claim most of the credit. Since late September, when authorities unveiled a 34-44 per dollar trading band and promised not to intervene as long as the range is respected. Fortunately the peso hasn’t ventured close to either side, giving policymakers less of a reason to step in. The Indian rupee appreciated 31 paise to 73.14 against the dollar at the interbank foreign exchange on Friday after crude prices fell to seven-month lows in the global market amid fresh foreign fund inflows. The rise was also supported by dollar-selling from exporters and banks as well as the US dollar weakness against some currencies overseas. Traders also expressed that a higher opening in the domestic equity market supported the rupee further.
The New Zealand Dollar rose on Thursday as traders responded to a duo of supportive developments in China overnight, and after a White House official hinted that a possible de-escalation of President Donald Trump's "trade war" against China could be in the pipeline. This is important for New Zealand because its currency is underwritten by its agricultural commodity trade with China, which means whenever the Asia Pacific economy gets hurt, so does the Kiwi Dollar. The flurry of supportive developments in the U.S. and China have buoyed the New Zealand Dollar, which has shed around 7% of its value against the U.S. Dollar in 2018, this week but analysts are skeptical of how much longer the improved mood within markets will last. The domestic economic environment has also become hostile toward the Kiwi currency. Freddie Serfaty
China’s currency is on the slide, hitting its lowest level against the US dollar in a decade. The reason the yuan is being dumped now is that investors are concerned about a trade war between America and China rather than manipulation of the currency by the People’s Bank of China.
US Dollar against NZ dollar
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05.11.18
Currencies
Cryptocurrencies This week marks 10 years since Bitcoin was proposed in a ‘Bitcoin: A Peer-to-Peer Electronic Cash System.’ This paper was the start of the cryptocurrency and came in the midst of the financial crisis. Although the goals outlined in this paper are far from having been achieved, Bitcoin has become very well-known since the publishing of this paper 10 years ago. In other news, Binance’s launch in Uganda has been a success. It came as a surprise to many when Binance, a cryptocurrency exchange, announced they were going to launch their services in Uganda. However after launching last week, it has seen over 40,000 new sign-ups. It is popular in the Ugandan community because liquidity is currently a major problem in Uganda and most of Africa. Cryptocurrency can be moved around the continent with ease and so this is seen as a potential answer to the liquidity problem. Changpeng Zhao, CEO of Binance, stated “Uganda is pivotal to reach out to other African markets.” Binance’s African subsidiary stated that emerging markets, such as Uganda, could play a key role in the adoption of cryptocurrencies. This news is not to be ignored, as it could be an indicator that the African crypto sector is soon to explode.
The crypto market this week saw more volatile activity than last week, although still relatively very low activity compared to this time last year. On Monday, the crypto market capitalisation dropped from $209.4bn to $203.1bn in less than 3 hours and reached lows of $201.8bn on Monday. This wasn’t a result of any major news in the crypto industry but might be due to the fact that trading volumes have been low in this bearish market for a while and a dip was expected. Prices have since recovered and are at $205.5bn at the time of writing. Yet, this is still lower than what they have been for the past month and is a continuation of the steady decline in crypto prices since mid-February. Unless there is a major development in the crypto industry, prices look to continue to decline in the foreseeable future. For the coming week, if the low trade volume and low volatility continues, investors should be on the lookout for more sudden dips in the market. Rhys Dil
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The Research Division was formed in early 2011 and is a part of the Nottingham Economics and Finance Society (NEFS). It consists of teams of analysts closely monitoring particular markets and providing insights into their developments, digested in our NEFS Weekly Market Wrap-Up. The goal of the division is both the development of the analysts’ writing skills and market knowledge, as well as providing NEFS members with quality analysis, keeping them up to date with the most important financial news. We would appreciate any feedback you may have as we strive to grow the quality and usefulness of weekly market wrap-ups. For any queries, please contact Amelia Hacon at ahacon@nefs.org.uk. Sincerely Yours, Amelia Hacon Director of the Nottingham Economics & Finance Society Research Division
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