NEFS Weekly Market Wrap-Up Presented by the NEFS Research Division
18.03.19
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 This week has seen the publication of the UK’s January growth statistics, Phillip Hammond revealing his spring statement and additionally, Britain signing a post-Brexit trade deal with the Pacific islands of Fiji and Papua New Guinea. The latest official figures show that the UK economy grew faster than expected in January after bouncing back from a weak December. In the three months to the end of January, the UK economy expanded just 0.2% (seen in the graph below from the Office of National Statistics, ONS) with weaknesses showing in several sectors as uncertainty over Brexit drags on. All of the major sectors of the economy - including services, construction and manufacturing - expanded in the month. Manufacturing grew 0.8%, ending six consecutive months of contraction. The services sector, which includes hospitality and banking, grew 0.3%. But according to the ONS, the 0.5% expansion in January couldn’t make up for the “sluggish” growth over the last three months.
This week, the Chancellor of the Exchequer, Phillip Hammond, revealed his spring statement. Mr Hammond used his spring statement to warn that a disorganised Brexit would deal a significant blow to economic activity in the short term. Therefore, Hammond has pledged to spend £26.6billion on a ‘Brexit War chest’ to boost the economy if the members of parliament vote to leave the European Union with a deal. This potential boost would be designed to help boost Britain’s economy, and as companies regain confidence, Phillip Hammond could choose between increased spending on public services, capital investment and keeping taxes low while also bringing down debt. However, Britain’s independent budget forecasters reveal almost half of Hammond’s fiscal headroom might be lost, depending on how official statisticians treat student loans in the public accounts. Furthermore, this Thursday has seen Britain sign a post-Brexit trade deal with the Pacific islands of Fiji and Papua New Guinea, as the government rushes to sign as many agreements as possible before the 29th of March. The deal signed by International Trade Secretary, Liam Fox, will eliminate all tariffs on all goods imported from Fiji and Papua New Guinea and will gradually remove 80% of tariffs on UK exports to these countries. While the deal is significant given that trade between the countries totals around £369m per year, many are arguing that it is not sufficient to replace potential losses in EU trade. Abigail Davis
18.03.19
MACRO REVIEW
The US and Canada This week saw a rebound for US equities, spurred on by trade talk optimism, which pushed the S&P 500 up almost 3% since Monday. The rally carried into Friday as Chinese state media reported that trade talks between the world’s two largest economies had resulted in “substantive progress�. This followed Beijing passing a new foreign investment law, seen by many as a tool to smooth a path to a new trade deal with the US. Sticking with US equities, estimates from Wall Street analysts show strong first-quarter earnings predictions for US companies heavily exposed to the American economy (see graph). However, the more companies are exposed to the global economy, the weaker their earnings and revenue growth are predicted to be. This could be explained by a stronger US dollar, US-China trade tensions and a weaker global economic outlook that look likely to hit the profits of American firms with a strong global presence in the first quarter. Elsewhere, the price of US treasuries rose on Friday, pushing yields lower, after disappointing data on US manufacturing activity added to concerns that the American economy is slowing sharply in the first quarter of 2019. Yield on the 10-year US Treasury, the benchmark government bond, fell 5.2 basis points to 2.578 as speculators bet that weak economic data will prompt the Federal Reserve to keep rates on hold for longer this year.
Looking north of the US border, Canadian manufacturing figures began 2019 with their strongest sales gain in 7 months, bringing to an end a string of disappointing data releases. Statistics Canada reported that factory shipments jumped 1 percent in January to C$57.1 billion ($43 billion). The figures have been interpreted by some as a sign that the economic slowdown recorded at the end of last year has not spread to outside of the household sector. The S&P/TSX Composite Index, the benchmark Canadian index rose 0.54% off the back of the news, completing a positive week for the market which saw it rise 0.9% in value. Finally, Statistics Canada announced that, for the first time, it was including the legal and illegal cannabis market in the national economic account. Estimates show that spending on cannabis hit an annual rate of C$5.9bn ($4.4bn) in the fourth quarter of 2018, equivalent to 0.5 per cent of all household spending.
Ben Shepley
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NEFS MARKET WRAP-UP
Europe This week, Italy risks angering its US and European counterparts as it negotiates a preliminary deal to join China’s 'Belt and Road' initiative (BRI), whilst Germany’s 2019 economic growth forecast is cut. The Italian government is making plans to sign an agreement for official participation in the transcontinental BRI infrastructure project during Chinese President Xi Jinping’s visit to Rome on 22nd March. It hopes that this so-called “memorandum of understanding” (MOU) will revive the stalled construction sector and bolster the Italian economy which, for the third time in a decade, has fallen into a recession. The government plans to develop trade through its three ports and claims that despite China’s COSCO Shipping buying control of the largest port in Greece, Italy offers better entry points into Europe. Furthermore, with its €13.17bn worth of exports to China last year significantly trailing behind China’s largest European importer – Germany which exported €93.8bn worth of goods, Italy is looking to boost exports to China. Not only could this be done by making Italian companies key players within the BRI, but by giving more leverage to Italian firms in the Chinese market. Therefore, alongside the MOU, Deputy Prime Minister Luigi Di Maio is pushing to sign around 21 deals between Italian and Chinese companies. This includes the Italian gas infrastructure firm, Snam, which is looking to tap into China’s growing demand for gas amid the country’s dwindling reliance on coal.
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Nevertheless, despite thirteen other European countries already having signed a MUA with China, Italy will be the first G7 country to endorse the BRI. Therefore Italy’s openness towards China has heightened fears of Beijing using the BRI to further China’s strategic and military influence. Elsewhere this week, Munich-based Ifo Institution cut Germany's 2019 economic growth rate estimate from 1.1% to 0.6% (see graph). In particular, it blamed the decline in Germany’s manufacturing sector which, according to figures released on Monday, suffered a fall of 0.8% in January rather than the predicted 0.5% rise. Although domestic driving forces are still intact with a strong increase in real household incomes set to bolster private consumption this year, global demand for German products has suffered from the worldwide economic slowdown. Therefore, as the Eurozone’s largest economy, this cut to Germany’s 2019 economic growth forecast has added to fears that the country’s slowdown is extending into 2019 and will weigh on the already struggling eurozone economy. Hannah Cousins
18.03.19
MACRO REVIEW
Japan & South Korea The benchmark index finished the week at 21,450.85, up 1.84% from the opening on Monday (see chart below). The strong performance was pinned down to Friday’s rate decision by the bank of Japan. The Bank of Japan (BOJ) left its shortterm interest rate unchanged at -0.1%, as widely expected. Policymakers also kept the target for the 10-year Japanese government bond yield at around 0%. The BOJ said Friday that an economic slowdown in China and some other countries is beginning to weigh on exports and production at home. Exports from Japan declined 8.4% year-on-year (YoY) to 5.57tn Yen in January 2019, worse than market consensus of a 5.5% drop and after an upwardly revised 3.9% decrease in December. It was the steepest fall in outbound shipments since October 2016. Furthermore, it was announced on Friday that industrial production in Japan fell 3.7% month-onmonth (MoM) in January 2019 after dropping 0.1% in the previous month and compared to market expectations of a 2.5% decline. It was the sharpest decrease in industrial output since January last year, mainly due to motor vehicles (-8.6 %), electrical machinery (-9.9%) and production machinery (-9.8%).
In contrast, production rebounded for inorganic and organic chemicals (0.9% from -2.2%) and petroleum and coal products (0.6% from -2.5%). On an annual basis, industrial output remained unchanged following a 1.9% fall in the prior month. Meanwhile in Seoul, South Korea’s benchmark KOSPI index performed well throughout the course of the week. The index closed Friday’s session at 2,176.11 index points, up 1.67% from the opening on Monday. The week’s gains were underpinned by better than expected unemployment date released by the Government of South Korea on Tuesday. The unemployment rate in South Korea dropped to 3.7% in February 2019, compared to 4.4% in January 2019 and market expectations of 3.9%. It was the lowest jobless rate in eight months. Furthermore, South Korean export and import pricing data was released by the Government on Thursday. Export Prices in South Korea increased to 82.97 Index Points in February from 82.95 Index Points in January of 2019. Meanwhile, import Prices in South Korea increased to 86.56 Index Points in February from 84.98 Index Points in January of 2019. Sean O’Hagan
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NEFS MARKET WRAP-UP
Australia & New Zealand The Royal Commission’s recent report on financial misconduct seems to have encouraged the Commonwealth Bank of Australia (CBA) to decide against separating its Wealth Management division from the firm.
Arguably, this may have an effect on the already diminishing availability of credit in the Australian economy, which has been named a reason behind falling property prices, potentially contributing towards further slowing of economic growth.
The original decision to do so was seen to be put in place as pre-emptive measure, following sentiment that the ACCC (Australian Competition and Consumer Commission) would take steps to reduce the size of large banks in the country, where four firms dominate the domestic market (see Figure 1).
New Zealand’s NZX 50 Index (the main equity index for Kiwi companies) achieved a high-point last week of a 6.7% year to date gain. This rally was spurred by growth in the stocks of financial companies (including Westpac Banking, 0.9% increase) and dairy firms (A2 Milk Company, 2.9% increase). The reasons behind this are varied, but most analysts feel that the potential for the Chinese government to put in place large fiscal stimulus in order to address the growth slowdown, is a substantial factor. For New Zealand, China is their largest export market, with 20.1% of all exported goods and services being sold there (providing the country with a trade surplus of NZ$4.32bn with China in 2018). Particularly with the increased popularity of Kiwi dairy products in China since the Milk Scandal of 2008, it is clear that this stock market rally is mostly linked to undertones from this major economy in the region.
Following this, the CBA is taking action to reimburse customers wrongly charged by its Wealth Management division, paying out A$1.2bn on refunds and mediation of misconduct for this business area. Ultimately, this reflects a wider trend of the feeling that there is increasing need for transparent banking in the Australian Financial sector. However, even with the opportunity for CBA and others to retain their Wealth Management arms, it is evident that regulators are following the banks with much greater scrutiny.
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Nonetheless, with tensions rising between New Zealand and Australian governments with the Chinese over the Huawei Scandal, it seems there is the potential for economic trade sanctions to put both economies in a difficult current position economically.
James Counsell
18.03.19
. EMERGING MARKETS Africa The IMF announced this week that it is cutting down Liberia’s 2019 GDP growth forecast from 4.7% to just 0.4%. Despite improved revenue collections in the first half of the fiscal year coupled with a significant loosening of the government’s fiscal stance, the IMF found that the nation’s ever-increasing inflation rate (see chart below) has rendered Ethiopia’s macroeconomy fragile. Kenyan courts have annulled a controversial banking law that caps the interest rates that lenders can charge consumers on loans at 4 percentage points above the key central bank rate in an attempt to boost private-sector credit extension. Against the advice of both the central bank and the National Treasury, the cap was implemented in 2016 to improve lending terms for consumers. However, the cap triggered reduced profit margins for lenders which caused credit growth rates to slow to 2.4% annually in both 2017 and 2018, down from 20% annually in the decade before the law was introduced. Angola managed this Wednesday to secure a loan of $1 billion from the World Bank for direct support to the state budget along with finance destined for social protection and water supply projects.
Behind Nigeria, Angola is Africa’s second largest oil producer, but has suffered an economic crisis following falling oil prices since mid-2014. The harsh domestic conditions caused by this crisis have qualified Angola to receive over $1.5 billion in World Bank loans over the next three years. With the removal of customs duty on Europeanmade vehicles, a campaign calling on Egyptians to stop buying new cars in order to curb price rises has gained momentum throughout recent weeks yet has also severely dented car sales. On average, the monthly increase in Egyptian car sales is 39.3%, but figures released this week show that sales have in fact fallen 42% throughout the last month. Despite the campaign having suppressed prices for non-luxury passenger vehicles by up to 4000 Egyptian Pounds (£1740), many customers are clearly still steering clear. A combination of 53 individuals and companies are reportedly involved in a scandal with South Africa’s first ever mutual bank, VBS, in which almost 2 billion rand (£104.5 million) has been looted, leaving some 22,000 depositors abandoned. The South African Reserve Bank has managed to guarantee a maximum of $7300 (£5500) per retail depositor. Matthew Copeland
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NEFS MARKET WRAP-UP
China Data for the first two months of the year show that the Chinese economy is still performing disappointingly (see graph). Industrial and retail output have grown by the slowest amount since 2009 and 2012 respectively. Moreover, unemployment is now 5.3%, jumping from 4.9% in Q4 of 2018, and total exports have fallen by 20.9% since the end of last year. Analysts believe this is the result of the trade war with the US, as Chinese businesses face uncertainty over tariffs and trade relations with one of the largest buyers of their exports. However, both fixed-asset and property investment have increased, by 11.6% in the case of property, a sign of hope for economic recovery, although the Shanghai Composite fell by 1.2% on Thursday. A new report from credit insurer, Coface, details the toll of the economic slowdown on the Chinese private business sector. Defaults on corporate bonds amounted to the value of $16 billion in 2018, while this month, 40% of suppliers claim that companies are not paying them on time, up from 29% last year.
The average waiting time for payment is now 86 days, as opposed to 10 in 2018, putting companies’ cash flows at risk. The automobile and construction industries have been the worst hit by cash flow issues, notably in the automobile industry where vehicle sales have been decreasing for 8 consecutive months. Companies are in financial dire straits because of the lack of demand caused by the economic slowdown and US tariff impositions, and also due to a lack of liquidity in financial markets. A result of China’s crackdown on risky lending and deleveraging campaign (selling government assets quickly in order to reduce debt), businesses and individuals are finding it harder to gain access to credit and other financial resources needed to pay companies back. 59% of companies are pessimistic about Chinese growth this year, up from 26% from last year. This reports also demonstrates the gap between the public and private sector in China – while the private sector is experiencing multiple defaults and bankruptcy, State Owned Enterprises (SOEs) continue to flourish, making 1.2 billion yuan in profits in 2018. Megan Jackson
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18.03.19
EMERGING MARKETS
Latin America This week, there was an update regarding the planned Brazilian pension reforms, new information on house prices in Chile and Mexico’s release of plans for future economic growth. Brazil’s Economic Minister, Paulo Guedes, announced on Wednesday that due to political pressure in Brazil's Congress against the deal, the diluted reform will have less than half the planned $314 billion in savings. The new government wishes to reform the pension system by transitioning towards a system of individual retirement plans due to the existing deficit in social security being the biggest contributor to its budget deficit, which was 7.8% of GDP according to the graph below. This announcement coincided with the announcement of the new central bank President, Roberto Campos Neto, who plans to make Brazil more attractive to foreign investors as well as encourage the development of fintech throughout the economy. He plans to maintain the "caution, serenity and perseverance" approach undertaken by his predecessor, although economic conditions may prohibit this such as slowing growth and industrial production. Interest rate futures markets predict a 60% chance of a reduction in base rates by January next year.
Chilean house prices data published recently showed a 6.94% year-on-year increase in prices in 2018, based on new apartments in the Greater Santiago region. This is a slight increase compared to 2017's growth rate of 6.69%, in part due to strong economic growth figures in 2018 of 4% compared to 1.5% in 2017. This increase in growth was due to increased prices for copper, a major Chilean export, as well as an improvement in Chilean business sentiment due to the lack of election uncertainty compared to 2017. According to IMF forecasts, growth is expected to be 3.4% in 2019 and 3.2% in 2020. Mexico should attempt to attract between $35 and $40 billion annually in foreign direct investment in order to stimulate the economy according to the president's chief of staff. President Lopez Obrador is targeting 4% growth over his 6-year term and as such needs to attract capital in order to improve the competitiveness of the economy. He may also be helped by recent progress between US and Mexico on negotiations on tariffs on Mexico's steel and aluminium exports, with the Economy Secretary suggesting that the tariffs may be removed before the USMCA trade agreement is ratified. Nathan Howell
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NEFS MARKET WRAP-UP
Russia & Eastern Europe Data released this week in Bulgaria revealed consumer prices grew by 0.5% In February, slightly lower than the 0.6% recorded the month previous (see graph below). The Statistical Institute attributes this to higher prices of food and non-alcoholic beverages; inflation in the country edged upwards to 3.2% In February compared to 3% In January. This meant annual average inflation rose to 3% from 2.9% before. In the Czech Republic prices followed a similar upward trend, with consumer prices rising by 0.2% In February, for which the Czech Statistical Office believed was mainly caused by higher food prices and non-alcoholic beverage prices again, as well as housing and utilities. Inflation was revealed to have hit a 16-month high In February, moving slightly up from 2.5% to 2.7%. The Central Bank has forecast the Czech Republic's Inflation to be 2.2% for this year; last month's recording is above the 2% target but within the 13% tolerance band. Also in Eastern Europe, it was revealed that in Slovakia over the last year industrial production was boosted by mining and quarrying activity.
Not only this, but there was an increase in the supply of electricity, gas steam and air-conditioning, with the manufacturing sector showing clear growth too. Industrial production grew 7.2% annually from January 2018 to January 2019, with average annual growth expected to be 4.9% for 2019. Meanwhile in Russia, cooperation has been planned with China in internet trade, the space industry and the aircraft industry, with the goal being to double the volume of stable bilateral trade to $200 billion. The volume of trade between Russia and China for January and February grew by 1.7% year on year, at $16 billion; Russia's imports from China decreased by 4.8% to $7.07 billion, whilst Russian exports of goods and services rose by 7.5%, climbing to $8.97 billion. For the first time Russia officially estimated the value of all its resources, with the figures having been released on Thursday. Russia's Natural Resources and Environment Ministry calculated that the combined value of the country's oil, gas and other resources, of which Russia is one of the world's top producers, totals to 60% of the economy's gross domestic product. Russia is known to be very reliant on exports of these resources, however supply is likely to be consistent as the ministry estimated reserves of natural gas to be at their highest yet. Amy Chai
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18.03.19
EMERGING MARKETS
South Asia This week, we look at Singapore’s residential recovery alongside the potential for a trade war in Palm Oil between the European Union (EU) and its suppliers. Singaporean home sales have inched higher in a sign of residential recovery in the economy from the cooling measures implemented last year. In July 2018, the government imposed higher stamp duties and tougher loan-to-value rules to deter from a sudden bout of exuberance expected in the housing market. This led to the first decline in private residential home prices in six quarters in the three months to December 31st, shown by the graph below. However, the Urban Redevelopment Authority has recently come out with a statement stating that developers have sold 455 units, a 4.4% increase on January’s 436. In addition, the number of new apartments launched for sale in February was 596, compared with 498 in January and 101 in December, a month typically slower due to the holiday season. Palm oil has emerged as a trigger for a potential trade war between the EU and some of the world’s developing nations after the bloc imposed stricter limits on how the crop can be used in green fuels in an attempt to tackle climate change.
Indonesia and Malaysia, which supply 85% of the crop, have warned that they are ready to retaliate against what they see as “discriminatory” rules. This comes as the Council of Palm Oil Producing Countries announced that they will jointly challenge the bill through bilateral consultations as well as though the World Trade Organisation. The council claims that the law is “scientifically flawed” which “makes no attempt to include broader environmental concerns” linked to other vegetable oils. Malaysia has already planned to halt the expansion of palm oil plantations as it seeks to eliminate the oil’s reputation as a driver of deforestation. However, Indonesia has warned that EU restrictions on the use of palm oil would jeopardize the nation’s fight against poverty. Instead, the country hopes that they will be able to find a “win-win” situation adding that his country has considered buying around 250 new airplanes, with Airbus among possible suppliers. This comes as Indonesia’s flag carrier announced that it wants to cancel its order for 49 Boeing 737 Max 8 jets after the airline lost confidence in the model following two crashes. Kaythi Aung
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. EQUITIES, COMMODITIES & DEALS Financials Markets were fairly positive this week with both US On Friday, global equity markets hit a five-month and European markets ending on a high at the end high. The news that Britain could avoid a chaotic exit from the European Union meant that the FTSE of the week. 100 was 0.4% higher, making its fourth consecutive Following a vote to delay Brexit as well as news of session of rises and placing it on course for weekly renewed optimism on the US-China trade front on gain after ending three weeks in the red. In Friday, both the Dow Jones Industrial Average, S&P addition, the FTSE 250, which is more exposed to 500, the Nasdaq and the European Stoxx 600 closed outcomes of Brexit, rose by 0.6%. positively at the end of the week. Also on Friday afternoon, European stocks ended In US markets, stocks saw their biggest weekly gain higher with the Stoxx 600 closing provisionally in over three months. The S&P 500 was up 0.5% 0.73% with most sectors in positive territory. The whilst the benchmark was also up 2.9%. Trade Dax performance index was also up 0.85%. Shares optimism also meant that the Nasdaq closed at a 5- in UBS fell by 1.1% following their announcement month high. Investors reacted positively to the that the bank had put money aside for appealing a Chinese Premier's comments that a China-US trade French court that ruled alleged money laundering. deal could be achieved that suits both parties. Other big movers included Gulf Marine which is up The trade talks between the globe's two largest 14% and Kier Group up 8.72%. In addition, shares economies could mean that markets could fully in travel firm Tui rose 2.4% after Morgan Stanley recover from the sell-off in December. Christopher announced it had upgraded the stock to Wood, the global equity strategist at CLSA said that overweight on Thursday. 'there's room for further rally If there's a positive Elsewhere, in Latin America, the stock markets rose surprise on the deal'. alongside its global peers on Friday. Equities in Argentina rose 0.7% and in Brazil they rose 0.5%, with gains across most sectors outweighing losses in materials and energy stocks.
Abigail Grierson
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18.03.19
EQUITIES, COMMODITIES & DEALS
Energy, Oil & Gas Crude prices reached a 2019 peak this week, before slipping back by the end of trading on Friday 15 March. Brent opened the week at $65.75 per barrel prior to climbing to a 2019 high of $68.14 on Thursday, before falling to a week-ending value of $67.16, as chart shows. WTI also hit a 2019 high of $58.95 per barrel, having started weekly trading at $56.76 before ending the week at $58.52. An oil deficit is starting to emerge due to ongoing OPEC cuts and US imposed sanctions on Venezuela and Iran, leading to oil price rises. OPEC agreed to restrict the supply of oil by withholding 1.2 million bpd (barrels per day), in response to booming US oil production, which drove down early 2019 oil prices. New data shows that demand for oil has risen in Q1, with Goldman Sachs predicting that demand is set to rise by almost 2 million bpd in Q1, surpassing forecasters' expectations, as uncertain global economic performance has supressed demand so far in 2019. China's oil production hit record levels in the first 2 months of 2019, with calculations by Reuters estimating production is currently at 12.68 million bpd representing a 6.1% increase compared to the same period in 2018.
Chinese refineries processed 102.49 million tons of oil, although most is imported from abroad, with February marking the fourth consecutive month where crude oil imports passed the 10 million bpd mark. Bloomberg Intelligence Analyst, Lu Wang, stated that China will gain an extra 890,000 bpd capacity this year followed by 1.08 million bpd in 2020 and 1.12 million bpd in 2021, which will create an even greater glut of oil. Demand for natural gas in the USA suffered a hit with total demand for the week ending 15 March finishing down at 100 billion cubic feet of gas per day (bcf/d), 23% down on the previous week and 1.1% down on the same period in 2018. Total natural gas supply also fell, with a weekly reduction of 1% to 95.7 bcf/d. A key reason for this is due to higher temperatures, leading to a 40% drop in nationwide Heating Degree Days. Some of this decrease in demand for gas has been offset by issues for gas substitutes, such as weaker hydropower inflows and greater nuclear outages, which have caused an increase of approximately 250 MMcf/d of natural gas consumption.
Joseph Houghton
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NEFS MARKET WRAP-UP
Tech and FinTech This week saw the row between Apple and Spotify escalate. Apple has introduced a 30% fee for Spotify and all other digital content providers, which is applied whenever purchases on digital content is made through apps on its devices. It is this “Apple-Tax” that explains why a service such as SoundCloud go is £9.99 per month when purchased through a laptop’s web browser but £12.99 per month on an iPhone app. In response, Spotify filed an antitrust complaint with the EU on Wednesday, accusing Apple of unlawfully abusing the dominance of its App Store as well as using this as an opportunity to promote its own version of Spotify, Apple Music, in the eyes of the consumer. This promotion will come by way of Spotify raising prices in order to accommodate the “Apple-Tax”, which is something Spotify CEO Daniel Ek declared will happen in the event this fee is not dealt with in some way. Apple responded in kind by accusing Spotify of “misleading rhetoric” and wishing to avoid paying back into the App Store marketplace, even though the marketplace is what propped up much of Spotify’s dramatic growth over the years. Whilst this feud will likely continue for some time, there is far more pressure on Spotify to act (as can be seen by its erratic share price– see chart).
Moving into a different realm of hegemonic power, Amazon has dropped the requirement for thirdparty vendors who sell their wares on its website to only offer their lowest prices. This comes amid call for Amazon to be investigated under US antitrust laws. China’s somewhat-equivalent of Amazon, Alibaba, has paid Rmb4.66bn ($693m) to acquire 15% of STO Express, a dominant player in China’s domestic delivery sector. This marks the fourth investment from Alibaba into domestic logistic companies as of late. London-based fashion technology group Farfetch, is set to merge with Chinese internet giant JD.com. JD.com invested $397m into Farfetch in 2017, but now sees more utility in uniting under the Farfetch brand but whilst JD.com handles the logistics. This merger is particularly interesting when considering that Chinese consumers account for a third of luxury purchases globally. Wirecard, the German fintech firm caught in an accounting scandal, has “lost contact” with the senior executive in charge of Asia-Pacific regional accounting since 9th February. This comes two weeks after the company’s Singapore office was raided by authorities. Sebastian Hodge
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18.03.19
EQUITIES, COMMODITIES & DEALS
Pharmaceuticals The Nasdaq Composite Index saw positive results this week, rising 0.76% to 7,688.53 compared to a previous close of 7,680.69. After a relatively volatile week, Maryland based Supernus Pharmaceuticals (a Nasdaq Composite component) saw a strong end to the week during Friday’s session, rising 1.22% to 38.20 USD rising in line with the index. The firm specialises in producing products for central nervous system diseases like epilepsy, depression and attention deficit disorder. This is both a niche and a growth area of the pharmaceuticals industry, and as a result analysts are predicting an earnings increase of 15% for the year. Shares closed at 38.04 USD on Friday, up from 37.82 USD on Monday but still lower than the weekly high reached on Monday of 38.95 USD (see graph). Some Wall Street analysts have estimated that revenues will increase by over 50% by 2022, signalling long term profitability for the company. In yearly terms, earnings are expected to grow by 16.1% and revenues by 15.3%, however neither are considered to be ‘high growth’ (20% yearly).
Shares in New York City based Bristol-Myers Squibb took a slight tumble on Thursday from 50.97 USD to 49.13 by 11:30am. The share price failed to recover on Friday, unable to breach the 50 USD mark. These results are comparatively poor for firm, who’s share price hovered firmly above the 50.50 USD mark for most of the week. Analysts believe weaker results towards the end of the week are not representative of the long-term consensus for BMS. The current operating margin for the company is +28.34, with its gross margin at +71.25 and net margin at 21.80%. This implies Bristol-Myers Squibb is generating considerably more profit than its market peers, which looks to be sustainable. The source of this revenue growth is in Oncology drugs, which seem to be a key driver for the company. Results for fourth quarter revenues missed analysts’ expectations coming in at $5.97 billion, 0.21% lower than the projected $5.99 billion. However, the consensus is a positive one, with many upgrading it to a ‘buy’ rating from a ‘hold’, and very few analysts giving the stock a ‘sell’ rating. Oscar Miller
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NEFS MARKET WRAP-UP
Mergers & Acquisitions Ferrovie - a state-owned railway company - is under pressure to meet demands by the Italian government to provide a rescue plan for Alitalia. The airline carrier which was put under special administration in 2017 has become a priority for the government to relaunch. Ferrovie is expected to take a stake of 30 to 49% of the new carrier, meaning it requires involvement from the two parties which have expressed interest, easyJet and Delta. However, things are not going smoothly in this deal. EasyJet has said that it would be open to acquiring a stake of 15% in Alitalia, with the condition that it can take control of certain Alitalia assets. This kept the easyJet share price strong as it grew 2.78% this week (shown in the graph below) as it stuck to its initial position that it wishes to acquire some assets as part of the deal. This has caused disruption by raising a red flag for the three special commissioners in charge of the airline as they fear it could break-up the company. Moreover, Delta is also ready to take a 15% stake by contributing around 100 million euros towards the 900-million-euro rescue plan. Overall, with the current potential shareholder structure, this would force the government to find additional investors to make up for the missing 30% stake.
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Trading house Itochu Corp announced that it has built a 40% stake in Descente Ltd, a sportswear maker. Descente currently has licensed brands within the South Korean market such as Umbro and Le Coq Sportif. This potential takeover taking place in the Japanese market started in January when Itochu holding 30% of shares offered to purchase more from other shareholders at a 50% premium. This shareholder power Itochu has built gives the trading house power over acquisitions and other strategic decisions. They have previously raised their viewpoint that the firm needs better management and should pursue expansion within the Chinese market; the heavy stake is now giving the company powers to implement such strategies as it has a powerful position on the board. Descente, on the other hand, has publicly opposed the takeover and wants to continue a discussion with Itochu to help move towards a resolution. Amar Toor
18.03.19
.CURRENCIES Major Currencies Brexit developments have again dominated currency movements this week, creating large volatility in the value of the Pound against the Euro (as can be seen in the graph below). Starting on Monday, the GBP-EUR pair had been as low as 1.1524 in early trading. However, this rose to 1.1605 due to growing hopes of a last-minute concession on Brexit from the EU. Moving into Tuesday, the Pound reached a 22month high of 1.1792 against the Euro. These gains were attributable to the increased possibility of Theresa May’s new dealing making it through a parliamentary vote. However, these gains quickly evaporated on the back of a statement by attorney general, Geoffrey Cox, who said that the UK may not be able to leave the Irish backstop without the EU’s agreement. This news sent the Pound sliding back to 1.15 against the Euro. On Wednesday, two votes occurred with MPs rejecting Theresa May’s new deal and subsequently rejecting the notion of a no-deal Brexit. On the back of this development, the Pound rallied to experience its strongest day of 2019 to date with the Pound to Euro pair quoted at 1.18 whereas against the Dollar, the Pound rose to 1.3250 before slightly paring gains in both markets. Overall, the Pound closed the week just above 1.17 against the Euro.
At the start of the week, the Euro fell against the Pound due to Brexit developments. However the news of a possible delay in the Brexit process saw the Euro gain back some of its early week losses. Against the Dollar, however, the prospect of “severe” tariffs from the USA caused the Euro totumble. The Euro-Dollar pair was quoted -0.23 lower at 1.1304 on Thursday, leading to a total loss of 1.4% in 2019 so far. The Dollar slipped against its major rivals on Friday and is set for its largest weekly drop for over three months as markets await news from the Federal reserve regarding interest rates. A change of policy is unlikely, but it is widely anticipated that Fed officials will be more cautious with monetary policy due to a volatile week in the currency markets. Against its rivals, the Dollar fell 0.2 percent to 96.61 in early London trading. For the week, it is set to weaken 0.7%, its biggest drop since early December.
Ashley Brumfield
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NEFS MARKET WRAP-UP
Minor Currencies Positive news from the UK supported Kiwi strength as the New Zealand Dollar/USD pair (NZD/USD) climbed to near 0.6870 (see graph) last week, mainly taking advantage of greenback weakness and market optimism around Brexit news. The improved probability of an extension on Article 50 and of a softer Brexit helped to back commodity bulls, which bolstered currencies including the New Zealand Dollar (NZD). Investors await China’s February economic data to make any significant movements. China is the world’s largest industrial player, and the slowing Chinese economy is expected to weaken commodity linked currencies such as the NZD. Currently, forecasts expect Chinese retail sales (YOY) to soften to 8.1% from 8.2% and for industrial production growth to follow suit with 5.5% growth against the 5.7% prior. Outside of China, also directing sentiment this week will be the February New Zealand Purchasing Manager Index (PMI) report and visitor arrival figure, each of which is used to indicate the general health of the New Zealand economy. The Australian dollar has steadied to levels of around 0.70483 against the USD last week, after Chinese officials announced that stimulus measures will be implemented in April.
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Tax cuts and other measures designed to support the economy in an hour of need will be implemented next month, which offered support to the Renmimbi (RMB) and the Australian Dollar (AUD) - which share a strong positive correlation. Several times throughout the week the AUD/USD pair edged towards the psychological barrier at 0.7100, which the Aussie has yet to break. Whether the AUD breaks the 0.7100 barrier this week will depend on developments on the US-China trade front, and the docket of US economic data to be released. Meanwhile, the ongoing bullish run in crude oil price provided a boost to the Canadian Dollar (CAD), especially against the USD. The Greenback remains on the defensive amid a modest slide in US bond yields. The USD/CAD pair traded with a bearish bias for the fifth session in the previous six, sliding from levels of 1.3416 at the beginning of the week to 1.3340 on Friday. Moving ahead, the release of Canadian manufacturing sales along with second-tier US economic data will be the focus point for this week.
Rudai Wang
18.03.19
Currencies
Cryptocurrencies Binance Coin (BNB) continues to outperform its peers after increasing 150% from the end of January. In the past six weeks, the BNB/USD charts have been rallying without any signs of slowing down (see graph). Recently, the price has hit highs not seen since last June, and over the last eight sessions, the coin has been in consolidation mode - ahead of a potential move north. The potential for another price increase is strengthened by the fact that the price has been moving within the confinements of a bullish pennant pattern. At the time of writing, the bulls are trying to break down the chunky area of demand at $14-15. Immediate resistance is also taking place when the price gets close to the upper line of the previously mentioned pennant pattern, which is currently at $15.40. A push above this area will likely result in fresh buying pressure which could push the price to the bull's next target of $17.
The price last traded in this range was recorded on June 22nd, which was followed by massive selling pressure. Looking at the bearish case, support would be seen at the lower trend line which is currently at $14.44. The next area of support would be around the $12 zone, which hasn’t been traded in since the start of March. NEM (XEM) is currently maintaining strong upwards pressure after increasing over 18% over the last four sessions. The price has hit highs for this month as a result of currently being in its fourth session of consecutive increases. Ever since the NEM Foundation announced its plan to restructure, in order to reduce operational costs, NEM’s price has been on the rise. The bulls are currently trying to break down the critical resistance zone of $0.050.052. If they succeed in surpassing this area, eyes will be focused on the $0.06 territory. XEM/USD last traded in this higher area in January before dropping to fresh all-time lows. Despite the recent bull run, the price is still down 25% year to date as it started off at $0.0662. In terms of support levels, the $0.045 and $0.04 zones are the only barriers preventing a retest of the all-time low area of $0.035. 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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