NEFS Market Wrap Up - Week 10 by Nottingham Economics and Finance Society

NEFS Weekly Market Wrap-Up Presented by the NEFS Research Division

11.02.19

MACRO REVIEW

United Kingdom The US and Canada Europe Japan & South Korea Australia & New Zealand

03 04 05 06 07

EMERGING MARKETS

Africa China Latin America Russia & Eastern Europe South Asia

08 09 10 11 12

EQUITIES, COMMODITIES & DEALS

Financials Energy, Oil & Gas Tech & FinTech Pharmaceuticals Mergers & Acquisitions

13 14 15 16 17

CURRENCIES

Major Currencies Minor Currencies Cryptocurrencies

18 19 20

NEFS MARKET WRAP-UP

.MACRO REVIEW United Kingdom UK financial markets experienced a mixed week with the benchmark FTSE 100 finishing on Friday at 7,071.18, up 0.7% from the opening on Monday (see chart below). However, the mid-cap FTSE 250 index finished the week lower at 18,652.88, down 0.84%. The FTSE 100 experienced strong gains on Tuesday, reaching a two-month high due to BP reporting it doubled its annual profit while miners rallied on higher iron ore prices. But much of these gains were eroded during the Friday session following fresh fears over US-China trade relationships and Brexit nerves. The markets managed to shake off a double-dose of poor construction PMI and services PMI data released on Monday and Tuesday respectively. The IHS Markit/CIPS UK Construction PMI fell to 50.6 in January of 2019 from 52.8 in December. Meanwhile, UK Services PMI fell to 50.1 in January 2019 from 51.2 in the previous month, thus, narrowly avoiding a contraction.

Sterling has been on a downward trend over the past two weeks amid growing fears of a no-deal Brexit creeping below $1.30 on Wednesday. Prime Minister Theresa May met with the European Union’s most senior officials on Thursday in order to find a solution to the Irish backstop arrangement. Theresa May aimed on breaking the deadlock by negotiating one of three solutions to changing the backstop; a unilateral escape clause, a time-limit or replacing it with technological alternatives. All three were rejected by the EU and the meeting adjourned with President of the European Council, Donald Tusk, tweeting that there was “still no breakthrough in sight”. The same day, Bank of England policymakers voted unanimously to hold the Bank Rate at 0.75%. The Bank predicts growth this year to be the slowest since 2009, forecasting growth of 1.2% this year. The Bank put the fall in growth down to a decline in business investment and housebuilding, as well as a halving of growth. Sean O’Hagan

11.02.19

MACRO REVIEW

The US and Canada This week has seen fears of an economic slowdown continue to rise in Canada due to a weakening Canadian dollar amid other factors such as a softening housing market. Furthermore, in the US this week has seen a win for Donald Trump due to the first decline in the United States trade deficit in many months.

The graph below shows the trade deficit decline from October 2018 to November 2018. This decline in the trade deficit will be good for the United states as it will serve to boost their fourth-quarter GDP, which is expected to show a 2.5 percent increase, according to CNBC's Rapid Update tracker.

In the United states this week statistics were revealed which showed the US trade deficit narrow, the first decline after five straight months of increases. Tightening the balance between imports and exports has been a major goal of the Trump government who started levying tariffs last year in an effort to close the gap.

Reports this week has shown that the Canadian dollar has hit a two-week low as oil falls lead to global growth fears. The Canadian dollar touched its weakest level since January the 12th at 1.3317.

A release on Wednesday showed the gap had closed in November, the most recent month for which data was available, to $49.3 billion from $55.7 billion in October, representing an 11.5 percent decline due to the United states shortfall with China and several other countries declining. This has beaten the expectations of many economists who had been looking for a deficit of $54.3 billion.

Canada is a major producer of commodities including oil therefore its economy would be hurt by a global economic slowdown. Furthermore, the Bank of Canada warns that US trade uncertainty is holding back the Canadian dollar. Timothy Lane, deputy governor of Bank of Canada, has said that said the lower business investment, falling oil prices and softer housing market, coupled with U.S. interest rate hikes, were putting downward pressure on the Canadian dollar. However, if a global economic slowdown is due then a fall in the Canadian dollar would help support the Canadian economy through the period of slower growth, by helping to boost their exports. Abigail Davis

NEFS MARKET WRAP-UP

Europe The European commission released new figures this week, forecasting growth for European countries for 2019 at 1.3%. As explained last week, the main reasons include trade tensions with America and China, as well as Brexit uncertainty. Germany, whose exports comprise around a third of its GDP, has been particularly badly hit. Usually seen as the ‘powerhouse’ of Europe, it is predicted to grow by 1.1% in 2019, being surpassed by France at 1.3%. Currently one of the most sluggish European economies, Italy is predicted to grow by only 0.2% over the year. The government plans to undertake measures such as lowering taxes, which would stimulate demand in the economy, and lower the pension age, to free up jobs for young people and decrease the high youth unemployment rate. The effects of these measures on growth will be observed as they are rolled out, but analysts don’t expect growth to take off until the second half of the year. Analysts also fear that Eurozone growth in particular, that is the growth of the 19 countries sharing the common currency, will be even lower than forecast. This is because the extreme monetary stimuli implemented in Europe, such as quantitative easing and low to negative interest rates, are soon to be toned down, taking away their effects on growth.

Moreover, experts are most disappointed that the European economies have been unable to properly repair their budget balances, by cutting spending and debt, during the decade of recovery from 2009 onwards. For most of Europe, especially Italy, debt to GDP ratios have increased, meaning that when government spending automatically increases (i.e. on unemployment benefits) in a future downturn, there is no current budget surplus or ‘buffer’ of funds to prevent debt from spiralling. The outlook for 2020 onwards looks increasingly bleak (see graph). Central and Eastern Europe, an area which saw a 2018 growth rate of 6.4% in the case of Romania, is finally slowing down. The effect of EU reforms to stimulate economic activity, such as making labour markets more flexible to increase labour force participation and average hours worked, are cooling down as little scope remains for further reform. Industrial output is also falling, due to lower demand for exports amid trade tensions.

Megan Jackson

11.02.19

MACRO REVIEW

Japan & South Korea Data released this week in Japan and South Korea shows that economic data remains relatively mixed on the back of protectionist implications and rises in the economic activity of sectors outside of manufacturing. Despite Japan’s faltering manufacturing sector and the looming consumption tax hike set for later this year, its services sector picked up in January. The Nikkei-Markit services purchasing manager’s index rose to 51.6 last month; an increase from 51.0 in December. Joe Hayes, economist at IHS Markit, highlighted that this data was “resilient with their year-ahead forecasts”. Similarly, household spending in Japan gained 0.1% in December, indicating increases in consumer confidence as private consumption increased. This positive increase in expenditure, which was directed mainly towards electrical appliances, is reinforced by the fact that the average income of salaried households increased by 2.3% in real terms compared to the same time last year. However, the protectionist rhetoric and stagnation of trade activity remain common place. For example, Britain and Japan have made little progress on a new trade deal, with tariffs set to revert to WTO levels at the end of March. This would impact Japan’s interest in the UK removing tariffs on the car industry and providing transparent rules on investment protection.

Likewise, there is yet no start date for US-Japan trade talks, with the US remaining pre-occupied with talks with China. Therefore, there will likely be little recovery in falling Japanese exports. For example, Japanese exports shrank at the quickest pace in two years in December. The following graph shows that percentage change in Japanese exports year on year end 2018 dropped by 3.8%.

Elsewhere, in South Korea, protectionist rhetoric has increased on the back of WTO’s approval for South Korea to impose annual trade sanctions of $85 million on the US following Seoul’s complaints surrounding US anti-dumping and anti-subsidy tariffs on consumer goods. This would exacerbate the decline in South Korean exports which was highlighted in last week’s data release, whereby merchandise exports fell 5.8% year-on-year in January compared to a 1.3% fall the month before. Nonetheless, South Korea and the US are nearing a deal on defence costs that would increase South Korea’s defence budget by 8%, easing political tensions between the two countries indicated by the US decision not to station troops in the country. Such deliberation could be a signal for greater economic collaboration between the two countries. George Kennedy

NEFS MARKET WRAP-UP

Australia & New Zealand

At its February meeting, the Reserve Bank of Australia (RBA) kept the interest rate the same as it has remained for the last 29 months (since August 2016), at the low level of 1.5%, matching expectations.

In New Zealand, the unemployment rate increased to 4.3% in the final quarter of 2018, 0.3% above Q3 2018 and above market expectations of 4.1%. There was a rise of 8 thousand unemployed people, making the total 120 thousand.

This policy stagnation stems from uncertainty regarding slow growth in household spending, wages and income predicting weaker GDP growth, as well as ongoing house price falls in some cities caused by tighter credit conditions. The RBA predicts the Australian economy will grow by roughly 3% this year, aided by rising business investment and higher levels of spending on public infrastructure made possible by keeping monetary policy unchanged.

Also, in Q4 2018, employment rose by 2 thousand to 2.66 million, however the rate fell 0.4% from the previous quarter to 67.8%. The labour force participation rate fell to 70.9% from 71% in the prior period. Taking a closer look at these statistics, for women: the unemployment rate calculated was 4.2%, above 4.0% in Q3 2018. For men, the rate grew to 4.4% from 3.9%. The calculated underutilisation rate followed this upward trend to 12.1% from 11.4% the last quarter.

The Australian Trade surplus is at its largest in two years, climbing to AUD 3.68 billion in December 2018 from AUD 2.26 billion the previous quarter (see graph below), surpassing general market expectations of an AUD 2.3 billion surplus. Exports declined by 2% to AUD 37.92 billion, mainly due to falling sales in non-monetary gold and merchant goods, whilst imports declined faster at 6% to AUD 34.24 billion, largely due to lower purchases of consumption goods. For the whole year 2018, the trade surplus calculated more than doubled to AUD 22.15 billion from AUD 9.87 billion in the same period in 2017.

Annual wage inflation in New Zealand was 1.9% in the final quarter of 2018, up from 1.8% previously, slightly below expectations. Private sector wage growth climbed to 2% from 1.9%. In comparison, public sector wages increased by 1.7% in the final quarter, faster than a 1.5% rise in Q3 2018. On this quarterly basis, wages increased 0.5% overall, at the same pace as in the past two quarters.

Amy Chai

11.02.19

. EMERGING MARKETS Africa This week we will be considering the upcoming elections in several of the continent's largest economies. The political environment in much of Africa is generally quite turbulent and the continent is expected to have at least 20 general elections this year alone as well as other parliamentary and council polls. Political uncertainty can cause huge problems for an economy, but many African politicians are setting out plans to revive and boost economies. One particularly important election this year is the Presidential and Parliamentary elections in South Africa. This week, the current President, Ramaphosa, laid out his plans for the country. The vote will be held on 8th May later this year will be the first since the resignation of Jacob Zuma last February. South African President, Cyril Ramaphosa, spoke of his plans to revive the South African economy on Thursday morning. He outlined plans to reduce barriers to entry for business, increasing the tourism industry as well as creating jobs. The country wants to improve its economic growth because it is currently at a sluggish rate of 1.4% (2018). The country also has over 65% of the population living below the poverty line.

Another important election coming up this year is In Nigeria on February 16th. Nigeria is the largest economy within Africa, producing 17.17% of the Continent's GDP. The country is also the most populous at almost 200 million people. The current President, Muhammadu Buhari, will be looking to be re-elected and is up against another former president, Atiku Abubakar. The country is hoping to tackle high unemployment, poverty and crime and terrorism within the country. One particularly animating topic is that of the Boko Haram attacks. When Buhari came to power in 2015, he promised to end the attacks, but has struggled to achieve this. Finally, another important election taking place is in Algeria in April. Their current president, Abdelaziz Bouteflika, is running in the election for his fifth consecutive term in office. Algeria is the fourth largest economy in Africa and produces 8.13% of GDP. Algeria Is a key exporter of natural gas to Europe. The country could face further political paralysis at a time where it should be transforming from an oil dependent economy to creating jobs for the unemployed depending on the outcome of this election. Abigail Grierson

NEFS MARKET WRAP-UP

China At the end of the last week, the China Caixin Services Purchasing Manager Index (PMI) for January was released by Markit. The index eased slightly to 53.6 in January from 53.9 in December, above market expectations (53.4), indicating that the Chinese services sector keeps expanding but at a lower rate. Despite this slower growth, the sub-indexes that compose the broader index suggested that services activity is likely to remain resilient, as only the outstanding business sub-index is below 50 (the threshold that separates expansions from contractions). Moreover, employment and new business sub-indexes, which reflect the strength of the domestic demand, are still above 50 and expanded at a faster pace than in December.

Overall, this reading is in some way consistent with the official reading for the Non-Manufacturing PMI released by the National Bureau of Statistics last week, which even showed an improvement compared to the figure of December.

In the same day, Markit also released the Caixin China Composite PMI index for January, which covers both manufacturing and services. This index confirmed that Chinese business activity continued expanding for the thirty-fifth consecutive month, although the index fell to 50.9 in January from 52.2 in December (see figure below). As the manufacturing sector weakened in January compared to December (Caixin Manufacturing PMI fell from 49.7 to 48.3 as shown in the previous report) and remains in contractionary area, growth continued to be highly driven by the services sector. New data thus suggests that the strength of the domestic demand persists despite the slowdown in global growth, trade tensions between the country and the U.S. and the financial de-leveraging process that the government has been promoting. Chinese firms expect this strength to continue, as they were optimistic that activity will be higher than current levels in one year ahead. Still, the general level of positive sentiment (which considers both sectors) expanded to a five-month high. Regarding expectations for the Chinese economy in near term, in a report HSBC indicated that is expected that “policymakers roll out promised easing measures, which should ensure that growth remains well supported”. In contrast, CEBM Group was less optimistic, and stated that “given that the government has refrained from taking policies of strong stimulus, the downward trend of the economy may be hard to turn around for the time being”. Sergio Bravo

11.02.19

EMERGING MARKETS

Latin America This week, we focus on Venezuela’s biggest challenges alongside interest rate developments in Mexico and Brazil. In a recent report, the International Monetary Fund (IMF) predicts worsening outcomes for Venezuela with the possibility of inflation reaching 10% this year, shown by the graph below, the economy shrinking by at least 18% and unemployment growing to 38%. These figures come at time where fresh sanctions by the Trump administration has banned US citizens from buying PDVSA (Petroleum of Venezuela) bonds and sovereign debt, in an attempt to bring down Nicolás Maduro, whom it no longer recognises as president. RBS Capital Markets suggest that these sanctions could be “calamitous for Venezuelan finances” with an effective loss of $11bn in export proceeds over the next year. In the wake of these sanctions, PDVSA have since stated that they look to expand to Europe and Asia. In addition, Venezuela has seen tens of thousands of people flee the country into neighbouring Colombia and Brazil daily to find food, water but more importantly, medicine. The humanitarian emergency in the country has been recognised by many organisations, including the Pharmaceutical Federation of Venezuela, estimating that the country is suffering from an 85% shortage of medicine indicating that the entire healthcare system is on the verge of collapse.

As resources become scarce, drug prices have rocketed along with those of food and other basic necessities and more than 13,000 doctors have left Venezuela in the past four years in search of better opportunities. Overall, before any PDVSA bondholders can think about potential recoveries the stock market, the country first needs huge amounts of humanitarian and multilateral support, and the breathing room to rebuild its shattered economy. As expected, both Mexico and Brazil have decided to hold rates at 8.25% and 6.5%, respectively, after subdued inflation and a dovish turn by the US Federal Reserve – easing the pressure of further hikes. For Mexico, it seems that the low confidence within investors (due to global financial volatility and Mexico’s poor economic outlook) has “reduced appetite for further rate hikes” because “monetary policy remains the most important anchor of stability”. For Brazil, economists suggest that movements will mainly come from social security reforms. Despite being optimistic that this will happen, the Brazilian Central Bank wants to wait for more definitive action before providing more “aggressive guidance”. Kaythi Aung

NEFS MARKET WRAP-UP

Russia & Eastern Europe Russia’s central bank decided early Friday morning to leave the key interest rate unchanged at 7.75% after inflation growth was revealed to be slower than anticipated, suggesting a calming economic climate after two unexpected rate hikes ended 2018. Surprisingly, the inflationary impact of the recent raise in the VAT rate from 18% to 20% has been only moderate thus far and has consequently prevented the need for any interest rate changes. The Bank of Russia also cited the US Federal Reserve’s recent decision to end rate raises as a reason for maintaining Russian rates given that this has reduced the risk of capital outflows from more developed economies. The Russian finance ministry announced that it will resume its purchasing of foreign currencies after purchases were suspended five months ago to support the rouble. The halt came amid fears over possible new US sanctions on Russia which saw the rouble devalue sharply. Since this, the Kremlin has attempted to limit the impact of sanctions by reducing its dollar reserves. Data released earlier this week revealed that the Bank of Russia halved its dollar reserves to a record low in the second quarter of 2018, a move which facilitated the recent resumption of foreign currency purchases equivalent to 265.8 billion roubles ($4 billion) that ended on Wednesday.

Friday morning saw that Hungary has started 2019 with its largest budget surplus of the past 20 years. Excluding local councils, Hungary’s cash-flow-centred budget showed a 244 billion forints ($865 million) surplus for January, driven largely by a spike in tax revenues and EU receipts. With tax revenues 200 billion forints ($709.9 million) higher than in the same month just a year ago and payments from the EU exceeding 200 billion forints, there is an early sign of confidence that the government’s 1.8% of GDP deficit target for the whole year is achievable. The European Commission’s Winter 2019 European Economic Forecast was published on Thursday and all Eastern European EU member states are predicted continued economic growth throughout 2019. Slovakia tops the ranking for Eastern Europe, with GDP growth expected to exceed 4%, notably thanks to rising production volumes in the export-orientated automobile industry which are anticipated to more than offset the slowdown in global trade. Other predicted strong performers include Romania (3.8% GDP growth), Bulgaria (3.6% GDP growth) and Poland (3.5% GDP growth) - see chart below.

Matthew Copeland

11.02.19

EMERGING MARKETS

South Asia This week South Asia has seen widening current account deficits in Indonesia, which could contribute to increased economic uncertainty in the future. The Indian Central Bank has cut interest rates ahead of the elections in a move which could have been influenced by high ranking political figures. Furthermore, the Bangladeshi economy announced a large export gain for the six months to January, which reflects the high levels of confidence currently surrounding the economy. The Indonesian economy has recently attempted to reduce its level of imports due to large current account deficits. However, the most up to date figures released this week show the largest deficit since quarter two of 2014. The capital account does cover the losses on the current account with large amounts of investment flowing into the economy but there is concern around the current account deficit as previous deficits have impacted the Rupiah. During 2018 the Rupiah took a large fall in part due to current account deficits so it remains to be seen whether or not the continuation of these imbalances will again influence key macroeconomic variables.

With the Indian elections upcoming, the Reserve Bank of India has surprisingly reduced interest rates by 25 basis points to 6.25% (as seen in the diagram below); it is thought that the government was previously unhappy with the Reserve Bank due to its reluctance to cut rates. A key advisor to Prime Minister Modi requested the Reserve Bank to cut rates in order to stimulate higher growth. The interest rate cut still came as a shock despite the political pressures, with 32 out of 43 analysts surveyed by Bloomberg predicting no change. The Bangladeshi Export Promotion Bureau released data this week showing the value of exports reached $24.17Bn in the months between June and January. $20.21bn of the total export balance came from exports of ready-madegarments (RMG). The continued strength of RMG goods is a huge positive for the economy due to the importance of the textiles industry as one of the primary drivers behind economic performance. The figures also demonstrate how improved safety conditions within factories are benefiting businesses following the destabilising effects of various incidents such as the 2013 Savar building collapse. Ashley Brumfield

. EQUITIES, COMMODITIES & DEALS Financials This week saw positive, yet nominal, performances from the FTSE 100 (UKX) and the Dow Jones Industrial Average (DJI). The former climbed from 7,026 points to 7,075 while the latter saw a rise from 25,037 points to 25,103.

Whilst likely a means to keep investors content after a worrisome 30% fall in share price across 2018, such a freeze won’t help the already high turnover of the bank’s senior managers.

More positively, Italy’s largest lender, UniCredit, posted net operating profits of €6.4bn for 2018, which marks a 13% increase on the year prior and the highest profits recorded since 2008. These impressive results arrive even in spite of the $846mn write-down of UniCredit’s Turkish assets in Q3 of 2018. Similarly upbeat, Anglo-French advisory boutique Rothschild & Co., is set to This has taken the form of Société Générale, launch an investor advisory service in an France’s third largest bank, announcing plans to cut opportunistic move to benefit from the Mifid II €500mn in costs from its investment bank as well regulations placed upon established brokers as a lowering of its target for returns on tangible within the City. equity from 11.5% to between 9% and 10%. US behemoth, Goldman Sachs, has announced to On a more dramatic note, following the internal downgrade its fixed-income activities - which have probe into Wirecard’s operations which bore seen a 23% loss over the last 3 years - and forged documents and accounting irregularities, reallocate the cut capital to divisions such as their the German fintech company was raided on investment bank division, which have seen much Friday in its Singapore offices. Whilst the more success as of late. Whilst Credit Suisse is yet company has experienced a 12.5% drop in its to release their Q4 earnings, the Swiss lender has share price in the mere hours since, the wider announced a freeze of its 2018 bonus pool at repercussions of this raid remain to be seen. $3.2bn. With 2018’s jittery fourth quarter reports posted after a generally painful year (see chart for a composite of the top 26 European banks’ share price performances over the last year), banks across the globe are figuring out how best to optimally amend their strategy and structure.

Sebastian Hodge

11.02.19

EQUITIES, COMMODITIES & DEALS

Energy, Oil & Gas This week, crude oil’s rebound from late December seemed to stall amid renewed global growth concerns. Brent posted a 1% fall from $62.75 to $62.1 per barrel whilst WTI suffered a 4.8% loss from $55.26 to $52.62 by Friday evening. Despite this week’s overall price drop, bears were briefly sent back into hibernation on Monday morning when Brent and WTI crude oil prices hit 2019 intraday highs of $63.66 and $55.75 respectively. Investor optimism was driven by continued US oil sanctions against Venezuela and OPEC’s January output, a fall of 930,000 barrels a day, proving to be the biggest monthly production drop in two years. The fall in active US oil rigs from 862 to an eight-month low of 847 also pointed to a less pronounced rise in US oil production. However, both benchmarks ended Monday’s session lower after disappointing US factory data suggested a slowdown in fourth-quarter 2018 manufacturing. Rather than its projected 0.2% rise, new orders for US-made goods tumbled 0.6% in November (see graph) amid manufacturers’ complaints that tariffs on steel imports were pushing up the prices of raw materials. The US dollar also strengthened across the board, making oil more expensive to holders of other currencies.

Prices then tumbled on Thursday with Brent down 2.8% and WTI down 3.8% as not only did the European Commission slash Eurozone 2019 GDP forecasts from 1.9% to 1.3% but further doubts were cast over a US-China trade deal before the 1st March deadline. Speculation of increased oil output from Libya also weighed on prices on Thursday after it retook control of the country’s largest oilfield which was seized by gunmen in December. Libya is currently exempt from OPEC’s production cuts due to the country’s civil unrest. Elsewhere the upcoming Storm Erik fluctuated British wholesale gas prices which dropped from Monday’s opening of 50.6 pence per therm of gas (p/therm) to 49p/therm Friday morning. On Thursday, colder-than-expected weather from Storm Erik led to a slightly under-supplied system. This edged prices higher for gas, which heats around 80% of British homes, to 50.75p/therm. However, on Friday morning prices fell 3.4% to 49p/therm as a result of high wind speeds from Storm Erik increasing UK wind farms’ output. Nevertheless, as Storm Erik draws to a close over the weekend, UK wind power production is forecast to peak on Saturday and then fall next week with demand for gas thus expected to bounce back. Hannah Cousins

NEFS MARKET WRAP-UP

Tech and FinTech Adobe has led this week with substantial gains in sales revenues and earnings. The firm has generated an average 24% sales growth over the last four quarters, with earnings per share growth averaging 58%. This has helped fuel an upward swing in the stockâ&#x20AC;&#x2122;s value to $253.74, shown in the graph below, as investors see the firm having a solid place in the market given the status of Adobe software as standard for online document sharing. Recently, Adobe has begun adopting a new model for distributing its software packages, whereby it now offers software as a service using cloud computing as opposed to traditional software licensing, further supporting investorsâ&#x20AC;&#x2122; confidence for sustainable revenue growth. In contrast, Spotify announced on Wednesday that over the last four quarters, profits rose, however there has been decline in average revenue per user of 7%. This comes whilst the firm continued to add 8 million new users to its Premium service, a part of the business which accounts for 88% of total revenues, bringing the total number of paying subscribers to 96 million.

Although Spotify experienced this healthy continuous user growth, the firm has attributed the fall in average revenue per users due to the higher percentage of users signing up to certain packages such as student and family plans, as well as growth in emerging markets. Overall, the market reacted to this news with a sell-off leading to a sharp fall in the stock price of 2.8% to $135.45. A survey conducted by Juniper Research covering 1000 smartphone users across the UK and USA has found that despite high levels of support from retailers, only 14% of respondents use smartphone payment services for instore purchases. This low adoption rate has been associated with developments in contactless cards which help provide similar benefits of increased transaction speeds, a potential threat to services such as Apple Pay and Google Pay, leaving little time to establish a dominant position. The smartphone landscape is evolving, with consumers becoming increasingly reluctant to make incremental upgrades to their devices. IDC research uncovered smartphones sales have fell 4.1% last year, notably impacting Apple as consumers in emerging markets are choosing lower cost devices from firms such as Huawei and Xiaomi, which have seen an increase in sales by 33.6% and 32.2% respectively.

Amar Toor

11.02.19

EQUITIES, COMMODITIES & DEALS

Pharmaceuticals Building on from last week, French Pharmaceutical giant, Sanofi, have promised strong future growth as a result of new sales plans to launch innovative drugs. Holding exchange rates constant, the firm increased its earning per share by 5.1 per cent, whilst total net income over the year is expected to increase by 3 to 5 per cent, according to the firm’s executive board. 2018 saw Sanofi undergo tremendous rationalisation which included the sale of its European generics businesses for €1.9bn, as well as the purchase of two biotechnological firms, Bioverativ and Ablynx for a total of $11.6bn and €3.9bn respectively. This is the result of a dramatic change in strategy as the firm moves towards growing its rare blood disorder capabilities. The reorganisation of the firm has been the result of a decline in its cardiovascular and diabetes related sectors which fell by 8 per cent in 2018. News of these acquisitions has resulted in a slight rise in the firm’s share price as of Thursday. GlakoSmithKline have reported a 14 per cent increase in income for Q4 of 2018, caused by a rise in the sales of their shingles vaccine to £784m. Shingrix holds 98 per cent of the market share for Shingles vaccines and is an area heavily monopolised by GSK.

Much like Sanofi, GSK also changed its direction in 2018, choosing to launch new research projects based on immunology, genetics and technology. This strategy was implemented to rejuvenate the firm’s drug production. On Wednesday, the firm adjusted its Q4 earnings to 31.2p per share, a 14 per cent rise from the previous figures, leading to an overachievement of £240m on analysts’ predictions. GSK’s recent earnings report predicts a devaluation of 5 to 9 per cent of earnings per share as a result of the approval of a competitor’s alternative to GSK’s asthma drug, Advair. Despite this, the firm’s share price has risen steadily over the past week, closing 1.19 per cent higher on Friday. (See below). The reason for this is likely due to GSK’s announced deal with Merck over the rights to specific immunotherapy treatment for difficult cancers, worth £3.7bn, which has been well received by shareholders. 2019 should prove to be an exciting year for the pharmaceutical giant. Usmaan Jamil

NEFS MARKET WRAP-UP

Mergers & Acquisitions Thursday saw the announcement of the largest bank deal since the financial crisis, with BB&T in position to merge with SunTrust.

The second largest sugar refiner in Germany, Nordzucker AG has acquired a 70% stake in Australia’s Mackay Sugar Limited.

The new entity is valued at $66 billion and will become America’s sixth largest bank by assets at $440 billion. The BB&T share price rose sharply on Thursday morning after the announcement, moving from $48.53 per share to $51 (see graph), a considerable rise for a stock which has struggled to breach the $50 mark all week. The SunTrust share price also rose significantly, from $58.75 to $65.63.

This move would see Nordzucker gain access to Australian and South-East Asian markets, an important move considering how depressed the European sugar market has become. This will allow the company to implement their long-term strategy of building production facilities outside Europe, producing sugar from sugarcane, a lot of which is grown in Northern Australia.

While mergers of this size are often complicated, the increasing use of technology in back office banking operations, which previously caused issues when banks integrate makes for a smoother process. Analysts have estimated that the banks will save costs of 13%, with layoffs expected.

Nordzucker have stated they will contribute equity capital equalling $60 million AUD for the 70% share in the company and Mackay sugar will also receive a loan of up to $60 million AUD. The deal will see three of Mackay’s four factories producing approximately 700,000 tonnes of raw sugar a year, for both the Australian market and for exports.

While giants like Bank of America and JP Morgan dominate the market with 10.73% and 10.29% of the market share respectively, the merger will lead to a boost in competition in the American banking sector, with the new entity overtaking rivals like Capital One and TD bank. Investors are responding positively to the announcement with analysts signalling that earnings per share are likely to increase over the next three years. A 13% EPS increase is expected in 2021 for BB&T and 9% for SunTrust.

The acquisition is a step in the right direction for Nordzucker after a turbulent 2018, with raw sugar futures ending the year the lowest they have been in 10 years. Oversupply of sugar led to 126m EUR fall in sales for the company; but global expansion via the acquisition of Mackay signals a stronger outlook for Nordzucker. Oscar Miller

11.02.19

.CURRENCIES Major Currencies The Pound overcame a difficult start to trading on Thursday to launch a strong recovery by the end of the day's trading session (see graph).

Meanwhile, the US Dollar experienced its biggest gain since August last week. The ICE US Dollar Index finished the week 1.1% up, the largest percentage increase in 6 months. The continual The Pound/Euro exchange rate finished the day upturn in the Dollar has come as a surprise to 0.4% up at 1.1417 while the Pound/Dollar exchange some given the dovish monetary policy currently rate grew by 0.3% ending at 1.2965. being implemented by the US Central Reserve. The day began dismally for the Pound upon the announcement that the Bank of England (BOE) had Their expansionary monetary policy of low downgraded its growth forecasts for the UK. interest rates and quantitative easing typically would encourage investors and yet the Dollar Despite originally predicting annual growth of 1.7% continues to strengthen. The value of the Dollar for 2019, the UK's central bank lowered its has moved in tandem with US Government bond expectations of the UK's economy further, scaling prices, which are considered very safe and liquid down its forecast to only 1.2%, in addition to a assets but also sensitive to US monetary policy. reduction to 1.5% from 1.7% for 2020. The BOE explained their decision citing "softer activity Overall, Pound Sterling has stabilised and started abroad and the greater effects from Brexit to strengthen slightly upon the potential for an uncertainties at home." At the same time, it also end to the Brexit deadlock. The Dollar continues to announced that it would be maintaining interest defy expectations and continues as one of the rates at 0.75%, whilst marginally downgrading best performing currencies in recent weeks whilst inflation predictions too. James Smith of ING Bank the Euro remains in a slump following poor suggested that in spite of short-term negativity, Eurozone growth. there was "still the subtlest of hints that they'd still Joseph Houghton like to tighten policy further if they can" which promises a stronger future for the pound. A recovery ensued on Thursday though as some of the uncertainty surrounding Brexit was lifted given the reopening of negotiations on the Withdrawal agreement and Jeremy Corbyn's letter to Theresa May outlining what it would take for his party to back her deal, significantly remaining in a customs union, something the PM has been opposed to.

NEFS MARKET WRAP-UP

Minor Currencies The South African Rand (ZAR) remains the best performing currency so far this year, with a 7% gain against the dollar as risk appetite returned to global markets. Iron ore prices continue to surge, and with it the Rand moves almost in lock step, with the 40-day correlation between the two climbing to 0.91 last week. The rand has strengthened 2.5% against the dollar since the 25th of January, when a dam collapse in Brazil curbed iron-ore supplies, and sent the prices soaring. Shares of Kumba iron ore, South Africa’s biggest supplier, have jumped 18% since. Meanwhile, the Canadian Dollar surged last Friday upon news of a strong jobs report, where the employment change was 66k, ahead of the market consensus for an increase of 6.5k new jobs. The Canadian dollar rose against the dollar to 0.7546 before settling around 0.7540, see graph below. The jobs data is important because of what it could mean for Bank of Canada (BoC) policy. The BoC has said that it will be more cautious about raising rates than earlier guidance suggested.

Friday’s labour market data immediately follows a punishing period for the Canadian currency, after President Donald Trump told reporters that he was not planning to meet the Chinese president before the 1st of March deadline. Tariffs on Chinese exports to the US will increase to 25% if the dispute is not resolved before the deadline. This has led markets to conclude that a march escalation in the tariff spat is likely, denting growth sensitive commodity prices and currencies, including the Canadian Dollar. The CAD fell from around 0.7620 on Monday to 0.7506 before the surge on Friday. The Australian Dollar lost more than 2% against the dollar in a day when the Reserve Bank of Australia slashed its growth forecast. The RBA cut its forecast for the country’s growth with several main concerns cited; including weak consumption growth, the global trade tension mentioned before, and the lower expectations for the Chinese economy. The Australian Dollar is often viewed as a proxy for the Chinese economy. The forecast for GDP growth has been cut from 3.25% to 2.5%, for the year to the end of June. The RBA highlighted the slow growth among Australia’s major trading partners, where it says growth slowed more than expected in the second half of 2018, due to US-Sino trade tensions.

Rudai Wang

11.02.19

Currencies

Cryptocurrencies Litecoin (LTC) triggered a lot of commotion on Friday. The coin rose more than 16% in just a matter of hours (see graph). This resulted in Litecoin overtaking Bitcoin Cash, EOS and Tether for fourth spot in the crypto rankings, ranked by market capitalisation.

In the span of 11 hours on Friday, the crypto market capitalisation increased by over $11bn, peaking at $122.2bn. This is its highest level since early January. The Litecoin rally on Friday triggered a domino effect, mainly within the top 10 cryptocurrencies. Bitcoin (BTC) broke through the $3700 barrier, and even rose above $3,800 on Bitfinex. Like Litecoin, Bitcoin is in overbought territory with a RSI over 80. According to CoinMarketCap, Bitcoin is currently trading at $3673. Ethereum (ETH) increased 14.1%, rising in price to $119.54. It was close to overtaking Ripple (XRP) for the number two spot in the market cap rankings, just missing by $400 million. ETH is currently trading at $119.80. EOS boosted 16.4%, reaching $2.73 on Friday. It is currently at $2.79. Double-digit gains were also reported for top 20 cryptocurrencies Monero, Cardano, IOTA and NEO.

Litecoin is trading at $44.80 on Saturday, having risen over 19% in 24 hours. This could be because of the news that the Litecoin Foundation which is looking to implement new privacy features through the MimbleWimble protocol. This was confirmed by Charlie Lee, Litecoinâ&#x20AC;&#x2122;s founder. Litecoin is currently in overbought territory, with a RSI (relative strength index) of over 80. However, Litecoin was not the weeks biggest gainer. Binance Coin (BNB) entered into the top ten crypto list this week. Recently, Binance Coin has been increasing in price due to the new platformBinance Launchpad. This new platform is for token sales. The BNB market cap exceeded $1.1bn, following a 23% surge. It has gained 31% since the start of 2019, currently trading at $8.77.

Despite Fridays rally, concerns of a longer-term bear market are still there. This is because Bitcoin is still close to its December low, having given back most of its recovery. Bitcoin currently makes up 52.85% of the crypto market capitalisation, therefore the broader market will follow Bitcoinâ&#x20AC;&#x2122;s behaviour. Rhys Dil

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 analystsâ&#x20AC;&#x2122; 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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