NEFS Weekly Market Wrap-Up Presented by the NEFS Research Division
26.11.18
MACRO REVIEW
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United Kingdom The US and Canada Europe Japan & South Korea Australia & New Zealand
03 04 05 06 07
EMERGING MARKETS
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Africa China Latin America Russia & Eastern Europe South Asia
08 09 10 11 12
EQUITIES, COMMODITIES & DEALS
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Financials Energy, Oil & Gas Tech & FinTech Pharmaceuticals Mergers & Acquisitions
13 14 15 16 17
CURRENCIES
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Major Currencies Minor Currencies Cryptocurrencies
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NEFS MARKET WRAP-UP
.MACRO REVIEW United Kingdom On 20th November, a week after the prime minister Theresa May agreed on the terms of a deal with the European Union (EU), Bank of England governor Mark Carney publicly backed May’s plan. During a Treasury select committee, Carney pointed out that the EU withdrawal agreement would “support economic outcomes” that would be positive for the British economy. He welcomed having some transition between the current and the ultimate arrangement, as a no-deal and notransition situation “without a doubt” would cause an “unprecedent supply shock” to the UK economy with few historical comparisons. The day after Carney’s statement, the Organisation for Economic Co-operation and Development (OECD) highlighted the importance for the UK to have the closest possible relationship with the EU, or an economic downturn is likely to happen. Although it did not explicitly support May’s deal, the OECD warned that the failure to come to a withdrawal agreement with the EU is “the greatest risk in the short term”, and that the lack of details on the extension of the transition period could negatively affect business confidence. This week had the first UK budget deficit reading after budget discussion last month, when chancellor Philip Hammond announced spending will be raised by £20bn.
On 21th November, the Office for National Statistics published that UK public finances deteriorated in October (see graph), as public sector net borrowing (excluding public sector banks) grew by £1.6bn to £8.8bn compared with October 2017, far above the £6.15bn economists had forecast. This figure implies the highest October borrowing level in three years. According to some analysts, increased government expenditure and a slowdown of UK growth could further deteriorate public finances. This cast doubt Hammond’s argument that there is enough headroom for spending to support the economy if no-deal Brexit scenario takes place. Following Brexit negotiations, on 22th November the President of the European Council, Donald Tusk, said that a draft political declaration on the future relationship between the UK and EU has been “agreed at negotiators’ level and agreed in principle at the political level”. This should pave the way for the formal approval of EU leaders at the summit taking place at the end of the week this report refers to. If the draft declaration is approved, the next stage will be to put the deal to a vote in the UK parliament, which is likely to happen in the week beginning 10th December. Sergio Bravo
26.11.18
MACRO REVIEW
The US and Canada This week, the US stock markets suffered significantly and fell so much that all of 2018's gains have more or less been wiped out. on Tuesday 20th November, the Dow Jones Industrial Average and the S&P 500 turned negative for the year (see graph). The S&P 500 fell 1.8% while the Nasdaq dropped over 2%.
These losses symbolize the growing fears in the US economy. Investors are worries about a potential slow-down in the economy and a trade war with China. Members of the 'FAANG' trade (Facebook, Amazon, Apple, Netflix and Googleparent Alphabet) closed in a bear market on Monday, where they were down over 20% from their 52-week highs. The Managing Director of global macro at TS Lombard said that 'additional retrenchment in the FAANGs could also undermine the broader US stock market'.
Goldman Sachs said on Monday that they “expect tighter financial conditions and a fading fiscal stimulus to be the key drivers of the deceleration�. They believe that growth could fall to 1.6% in the final quarter of 2019. In Canada, many are worried that the global downturn could hit at a particularly vulnerable time for Canada. One especially worrying problem for the country right now is the low price of western Canadian crude oil. The Alberta Premier, Rachel Notley, came out to say that the Canadian economy is losing $80 million a day due to the oil price gap. Notley said on Monday that Canada is losing out because Alberta is currently selling a barrel for $45 less that West Texas Intermediate in the US. In other news, the Canadian Central Bank is planning a review of its inflation targeting mandate. On Tuesday the Senior Deputy Governor, Carolyn Wilkins, laid out plans to assess different alternatives to the current inflation targeting regime. This would mean that there is an aim of 2% inflation over about two years, and the targeting mandate would focus on price stability. The average inflation rate. In 2017 in Canada was approximately 1.61%.
Abigail Grierson
Although the wider US economy appears to be in good condition, with very low unemployment (4.0% in June) and low interest rates of 2%2.25%, some investors and economists believe that the US could be hit by a recession, or at least a large slowdown, in 2019.
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NEFS MARKET WRAP-UP
Europe This week we focus on the purge of Russian banks, alongside European banking reforms and Italy’s budget crisis while touching on Germany’s growth contraction. In 2013, Elvira Nabiullina took over the governorship of the Russian Central Bank (CBR) containing a bloated 900 banks, but since then only 560 remain, with experts saying that another few hundred could go before the clean-up is over. Through the period, regulatory oversight has been intensified with tightening standards, including capital-adequacy and liquidity requirements. But now, the focus has shifted to the “big banks” such as Otkritie and B&N which together account for 5% of banking assets. Officials speak of cleaning up and privatising the banks, after claims of mismanagement and related-party lending indulgences yet, many still doubt that a private lender will emerge. European banking reforms are also taking place. Looking to open up European banking to more competition and tightening rules on trading, regulators are introducing five sets of new rules. To encourage extra competition in retail banks, account aggregators are now allowed to pull data together from accounts at several banks so that Europeans can see broad view of their finances in one place. In addition, investment banks are facing a more transparent financial market with a restriction on trading in securities to force more derivatives to be traded “over the counter”.
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Heading westward, instead of purging, Italy looks to be expanding. In October, the European Commission had taken their first steps in sanctioning Italy over its national budget (see graph) and, from Wednesday, the Commission reiterated that formal proceedings were now “appropriate”. Despite being the third-largest economy in the eurozone, the country has more than €2 trillion euros of debt (131% of the country’s entire economic output), second largest in the European Union, see graph below. Eurozone officials worry that such high levels could cause instability for the entire bloc. Italy argues that this budget would “end poverty”, attempting to fulfil election promises of lowering the retirement age and a guaranteed basic income of €780 for poor families. Following reports on Germany’s recent economic slowdown, further details, from the Federal Statistics Office, have been released attributing these affects to a contraction in German exports; falling 0.9% while imports rose by 1.3%. Part of the blame has been laid on the failure of manufacturers to prove that vehicles have met the new emission standards, reducing exports of German cars.
Kaythi Aung
26.11.18
MACRO REVIEW
Japan & South Korea A report released last Thursday showed that the Japanese economy is recovering from the contraction caused by a string of natural disasters in the third quarter. A powerful typhoon and an earthquake in September are thought to have created an annualised real GDP contraction of 1.2%. Exports in September fell by 1.2% from the previous year as a result. The Cabinet Office’s monthly economic report informed that private consumption and business spending is on the rise, while exports are almost flat as a slump in demand for smartphones in Asia hampered electronic component exports. Despite the recent plateau, exports have grown by 8.2% from the same month last year, slightly missing the 9% growth estimate. A draft plan compiled by a government panel last Thursday paves the way for Japan’s working age limit to be raised to 70. This targets one of the country’s biggest concerns for growth, the ageing and shrinking population (see graph). It is expected that the government will also encourage different working styles to further combat the problem while it prepares to submit the bills on age limit in 2020.
Meanwhile, the export dependent South Korean economy continues to struggle with structural unemployment as Chinese competition weakens the country’s traditional mainstay manufacturing industries. President Moon Jae-in’s signature economic policy, ‘income-driven growth’, aims to boost domestic consumption by moving money to low-income households by increasing minimum wages. Climbing labour costs have forced strained SMEs to reduce hiring, but SMEs make up for 88% of private sector hiring. This and the government’s lack of progress in reforming the country’s dependence on large conglomerates have lead to strikes across the country last week. Over 150,000 workers walked out of factories to protest Mr Moon’s policies, exposing the president to new scrutiny.
In other news, the South Korean government has revealed a new set of measures to support the country’s smaller shipbuilders. While the largest shipbuilders have been able to win new orders despite Chinese competition, the country’s small and mid-sized shipyards have suffered from mounting losses and debt from being outcompeted. The government, and the private sector, plans to support smaller shipyards by placing orders worth about $885m USD for a combined 140 vessels by 2025. Rudai Wang
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NEFS MARKET WRAP-UP
Australia & New Zealand The OECD’s latest economic outlook of Australia has revised its 2018 estimate on economic growth to 3.1% and edged down the 2019 forecast to 2.9%. These forecasts are less optimistic than the Reserve Bank of Australia which is forecasting growth of 3.5% and 3.25% respectively. The OECD has warned that regulators need to be vigilant due to the risks from the housing market and high household indebtedness. Within the housing market, house prices have climbed 70% in the past decade (see graph), yet in the past year they have been falling - leading to concerns of a downturn. A note released this week by Paul Bloxham, Chief Australia and New Zealand Economist at HSBC, designated five factors (both domestic and international) which could cause the housing market to crash. He attributes one factor to be the further tightening of credit availability in response to recommendations from the banking royal commission. This lack of credit means that consumers may find it hard to buy houses, therefore resulting in a lack of demand and causing house prices to plunge.
Bloxham also shares a view conveyed by Macquarie Bank’s Australian economics team, that the greatest threat that could make the current downturn a whole lot worse is Australia’s already elevated household debt levels. Australia’s debt levels have risen to a new record high in recent years, with the household debt to income ratio currently around 190%. Furthermore this week, New Zealand’s central bank has signalled that the interest rate could remain steady at its current record low until 2020. However, if growth remains slow and business confidence low, then Geoff Bascand, the Deputy Governor of the Reserve Bank of New Zealand, has revealed it is possible to reduce the rate to provide stimulus for firms and consumers to borrow. However, we cannot be sure whether cutting interest rates will provide the boost to growth that they believe, as it has been said that firms are struggling to acquire the necessary labour resources rather than lacking the means to invest.
Abigail Davis
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26.11.18
. EMERGING MARKETS Africa On Thursday, over half a million people went on strike in Tunisia to protest against the government's reluctance to increase public sector wages. 650,000 public sector workers approximately 6% of the population - were joined by thousands of others to demonstrate their frustration with public sector wages set to be frozen, despite a squeeze on purchasing power.
Firstly, Tunisia has a high budget deficit which weighed in at 6.2% in 2017 and needs to be reduced to 4.9% by the end of 2018. To achieve this, many highly unpopular policies have been implemented such as public sector and state company cuts as well as fuel subsidies. The current public sector wage bill represents 15.5% of GDP, one of the highest in the world, which the government aims to reduce to 12.5% by 2020.
Workers at schools, universities and ministries all took industrial action, whilst hospitals were open for emergencies only, after the walk out was planned by the Tunisian General Labour Union (UGTT), with many calling It a "strike for dignity." Prime Minister Youseff Chahed faces a difficult task, with his citizens becoming increasingly unhappy at their diminishing real incomes.
Additionally, inflation reached 7.4% in October, which, in combination with stagnating wages, is suppressing spending power and consumption, further damaging the economy. If the government does not make sufficient progress in addressing these structural issues, the IMF are likely to withdraw their financial support, which Is currently propping up the economy.
In spite of the public sector wage bill doubling from 7.6 billion to 16 billion dinars since 2010, purchasing power has fallen 40% in the last 4 years according to the Institute of Strategic Studies. Tunisia's economy has been on the decline since Zine al-Abidine Ben Ali was ousted in 2011. The International Monetary Fund (IMF) provided the struggling nation with a $2.9 billion loan in 2016 and in return, the government has promised to tackle structural issues. Hopefully this will relieve weakness such as its increasing current account deficit (see graph).
With even head of the UGTT union conceding that the wage negotiations are in the hands of the IMF, it is difficult to see a way in which public sector workers will have their wishes met as the wage increases are set to cost 2 billion dinars, a sum which the IMF will simply not allow the government to spend. Joseph Houghton
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NEFS MARKET WRAP-UP
China With the Chinese Yuan having depreciated over 6% against the US Dollar this year (see graph), Chinese firms who have issued offshore corporate dollar bonds (OCDB) are facing pressure. Nomura’s research states that from January to October of this year, defaults on OCDB’s have reached $3.4 billion which – compared to no defaults last year suggests that this is something to be watchful over. Meanwhile, as China continues its debt cutting campaign, this has led to the growth of shadow banking, which is lending carried out by firms operating outside the formal banking sector to help raise capital for smaller and medium sized firms. The government is now “cracking down on shadow banking”, which as deprived smaller firms from “accessing valuable working capital” according to Carlos Casanova, Asia Pacific economist at Coface. This pressure on vital firms in the supply chain has been compounded by trade disputes between the US and China. The ongoing trade tensions have led to a greater incentive for firms to relocate their manufacturing export centres away from China and into countries such as Vietnam and Malaysia. This movement to Southeast Asian countries is further driven by the gradual rise in Chinese labour costs which puts pressure on profit margins for domestic firms and deteriorates the international competitiveness of Chinese exports.
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Though these driving forces exist, a major shift of US companies out of China has not occurred. This lack of momentum is made clear by Chris Rogers, a research analyst at Panjiva, who states, “a lot of companies are talking about making changes, but not actively making changes”. The common sentiment between US firms of ‘staying put’ but not increasing investment in Chinese plants while trade disputes are ongoing will likely hinder the growth in Chinese export revenues. Next week will mark the start of the G-20 Buenos Aires summit which may alter the relationship between US President Trump and Chinese President Xi Jinping. However a removal of tariffs is seen as unlikely. Amar Toor
26.11.18
EMERGING MARKETS
Latin America This week saw another interest rate hike in Mexico, while Argentina’s new monetary policy has begun to make a positive impact on inflation. Banxico, Mexico’s Central Bank, raised interest rates from 7.75% to a nearly 10-year high of 8% (see graph), citing inflation concerns. This is the third rate hike of the year and highlights the increasing uncertainty regarding the policy direction of the incoming government. Andrés Manuel López Obrador, a leftist political veteran, takes office on 1st December and has already confirmed plans to scrap the partially built Mexico City International Airport. This announcement came as a shock to the markets with the stock market crashing nearly 10% and the Mexican peso tumbling more than 2% to a 4-month low against the US dollar. Many banks have also now forecasted weaker peso and economic growth with JP Morgan downgrading Mexico’s 2019 growth forecast from 2.4% to 1.9%. What’s more, rather than attempting to reassure investors, López Obrador has indicated further proposals to discard other infrastructure plans including the Maya train which would serve Mexico South East’s tourist hotspot area as well as 10 social programs.
Therefore, Banxico has been prompted to raise rates as a persistently high dollar could place further pressure on inflation which was 4.9% in October. Banxico also outlined that it would take any necessary action to achieve its 3% inflation target, signalling the possibility of another preemptive hike in December. Another Latin American country fighting inflation is Argentina whose Consumer Price Index (CPI) fell from 6.5% in September to 5.4% in October. This comes after the International Monetary Fund (IMF) prescribed the Central Bank with a new monetary policy in early October, which ditches inflation targeting for a 0% monetary base growth target until June 2019. By selling notes to remove the excess cash in circulation, the IMF had hoped a declining money supply would also drag down inflation. This new approach is part of Argentina’s negotiations to increase its IMF bailout in June by a further USD $7.1bn over the next 3 years. The IMF’s stiff requirements have also obliged the government to introduce an austerity budget, approved earlier this month, which cut social spending by 35% and doubled debt service payments. However, although the IMF forecasts Argentina’s economy will contract 1.6% in 2019, it maintains that the economy will begin a sustained and gradual recovery in the second quarter next year. Hannah Cousins
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NEFS MARKET WRAP-UP
Russia & Eastern Europe The government in Ukraine has been reviewing its budget in order to maintain supplies of funds from the international Monetary Fund (IMF), which could be imperative in avoiding default. Meanwhile, credit ratings agency Fitch has delivered its latest verdict on the Romanian economy and the Russian economy announced unexpectedly strong growth figures for October, with agriculture and industry being the main drivers. The Ukrainian economy has been through a very difficult time over the last few years. Internal problems at one point saw economic growth fall to -4.7% and debt is also now a major issue. In a recent outlook, the IMF stated that Ukraine had ‘major financing needs’. In response to this, the government has delivered an IMF friendly budget in order to access a potential $3.9bn of loans. The reformative budget included a deficit of around 2.3%, which is in line with the IMF’s requirements. By satisfying the IMF, Ukraine will be able to access additional funding from the World Bank and European Union, which is important as these funding streams are likely to be vital in ensuring an avoidance of default.
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Fitch, the global credit rating agency, gave its evaluation of the Romanian economy this week and the overall verdict was to maintain its BBB rating. The GDP per capita in Romania is likely to be above that of the median BBB rated economy by the end of the year, however there are concerns that expansionary fiscal policy over recent years has increased vulnerability to shocks. In addition to this, stagnating year on year GDP figures, labour market tightening and lagging productivity have all contributed to uncertainty. Russian growth figures for October were also released this week. GDP increased by 2.5%, up from 1.1% seen in September (see graph). Agriculture was one key driver: output increased by 11.9% in October following a 6% decline in September. Record increases in mining production helped boost overall industrial output by 3.7% in October. These positive results have increased analyst’s expectations of the Russian economy next year, with many now expecting larger GDP growth over the next year.
Ashley Brumfield
26.11.18
EMERGING MARKETS
South Asia This week saw several South Asian countries release economic data reports for October. In Singapore, the government announced economy grew an annual 2.2% in the third quarter of 2018, below market expectations of a 2.4% expansion. Singapore's annual inflation rate came in at 0.7% in October 2018, unchanged from the previous month and slightly below market consensus of 0.8% as food prices rose at a slower pace while cost of housing and transport continued to fall.
Philippine and Thai stocks were the top gainers on Friday, while other markets in the region saw lacklustre trade; investors were still unnerved by US-China trade concerns ahead of a meeting between leaders of the two countries next week. The Philippine index rose 1%, driven by gains in real estate and financial stocks. It gained 3.6% during the week (see graph) and Thai shares climbed 1.1% on gains across the board but were down 0.8% for the week.
Thailand's gross domestic product grew by 3.3% year-on-year in the third quarter of 2018, following a 4.6% expansion in the previous period. It was the weakest growth rate since the fourth quarter 2016, as net external transfers contributed negatively to growth while government spending, investment, and private consumption continued to rise at a solid pace.
Taye Shim, head of research and strategist with Mirae Asset Sekuritas commented “Investors are now turning their focus towards emerging markets, the global market retreat is driven by tech and export market turbulence whereas Southeast Asia is more of a domestic-driven economy rather than exports and tech serving economy". Goldman Sachs Asset Management says the volatility saturating global stock markets this year isn’t unusual and provides a window to buy selective South Asian assets.
Meanwhile, Malaysia's consumer price inflation rose to 0.6% year-on-year in October of 2018 from 0.3% in the previous month. It was the highest inflation rate since July, due to a jump in prices of food and a faster rise in cost of transport while housing inflation was steady.
In New Delhi, the Reserve Bank of India is expected to keep Interest Rates unchanged at 6.25% at its ensuing policy meeting next month, amid easing global crude oil prices and robust agriculture production. Sean O’Hagan
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. EQUITIES, COMMODITIES & DEALS Financials The FTSE 250 index saw a slight recovery on Friday, rising 0.016% up 3.01 points after a volatile week while the FTSE 100 fell by 0.11%, falling 7.46 points. Amongst the top risers in the recovery was British Asset Management Firm, Schroders. Shares saw a 1.44% increase on Friday moving 35.86 points. This has been an upwards trend, with the stock seeing gains over the last 3 sessions.
Schroders is Britain’s second largest fund by AUM (Assets under management), and the deal will see the asset managers investment expertise merge with Lloyds vast client network.
Stock in wealth management firm Charles Stanley has recovered this week after a difficult month, which saw its share price plummet from £335 to £290 per share towards the end of Lloyds Banking Group also featured amongst the November. Stock is up 3% on the back of top 20 risers, seeing a 2.14% increase on Friday continued revenue growth across all divisions rising 1.20 points (see graph). Friday’s results are with core businesses revenue increasing by reflective of a strong week overall for Lloyds, who around 5% to £77.7m. Investors have welcomed a saw steady gains rising from £54.60 per share on 10% interim dividend increase to 2.77p per share, Monday to £57.27 at the end of the week. Lloyds as the consensus shifts back towards buy. It has has put in place a solid growth outlook reflected in also announced an increase in FUM (funds under positive earnings reports for the third quarter management) by 5% to £25b. The London based beating analysts’ expectations by £1.7 billion. investment manager has also bragged about a ‘robust balance sheet’, with cash balances Positive results for both firms come after they have increasing to £67m and net assets to £102.8m. entered a joint venture. Schroders have taken on an £80bn investment contract from insurance Charles Stanley insist that these results are a company Scottish Widows, which is own by Lloyds product of a successful restructuring programme, Banking Group. This will create one of the largest after it reported losses of £6.2m in 2015 blamed wealth management alliances in the city, focusing on a lack of market volatility and difficult on financial planning for wealthy customers. competition. The outlook for the wealth manager which now trades at 14.5 times earnings looks strong, with 29% earnings growth projected for next year and 35% the year after.
Oscar Miller
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26.11.18
EQUITIES, COMMODITIES & DEALS
Energy, Oil & Gas Brent crude oil prices fell by 3.74% between Thursday and Friday, and continued to fall further on Friday, as shown by the graph. Waivers on sanctions for eight Middle Eastern countries which buy Iranian oil may have given Iran incentive to boost supply, driving down prices for Middle East crude oil. This meant that other oil producers were pressured to decrease their prices to maintain sales, bringing down Brent crude prices. However, the trend in prices is not set to last. The sanction waivers are set to expire soon, which could curb Iranian supply, while OPEC (Organisation of Petroleum Exporting Countries) and Russia are going to meet in early December to discuss production cuts. OPEC is attempting to persuade other oil-exporting allies to collude and cut production by 1 to 1.4 million barrels per day. Current oil prices have seen Western countries benefit. For example, in the UK, Asda reported that petrol and diesel prices were down one and two pence per litre respectively. However, as oil is its principal export (70% of export earnings), Saudi Arabia’s wealth will essentially fall if oil prices remain low, and the government is already concerned about its prospective budgetary stance.
Australia is looking to make solar panels more prevalent in the sunny country, where this renewable energy could be capitalised on. Yet, only 4% of homes have panels installed. The problem that officials are struggling to overcome is that almost half of the population in the sunniest areas, such as the Northern Territory, rent houses. Landlords have no incentive to install panels, which cost up to A$12,000, as they receive no benefits from doing so. However, organisations are proposing a ‘split cost agreement’, a legally enforceable idea where tenants agree to pay higher rent in exchange for the landlord installing panels. Non-Governmental Organisations have teamed up to provide interest-free loans to some landlords, to service the large one-off payment. As a substitute for energy bought on the National Grid, solar power energy is cheaper for tenants. If solar panels become commonplace, the price of traditional energy should fall, as demand decreases. However, the National Grid is a large natural monopoly – it achieves lower average costs for production because it produces energy on such a huge scale. Therefore, lower demand could mean that operations are scaled back, and therefore higher average costs and lower efficiency.
Megan Jackson
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NEFS MARKET WRAP-UP
Tech and FinTech The start of this week was characterised by a sell-off in technology stocks in the US within a three-day decline. For example, the tech index dropped more than 2 per cent on Tuesday, building on Monday’s 3.8% retreat, due in part to lower revenue outlooks from Amazon, Alphabet and other chipmakers. However, this decline was relatively short-lived as tech stocks rebounded on Wednesday, providing respite to the recent equity sell-off, with the S&P 500 information technology index rising by 1.7% Nonetheless, FAANG stocks (Facebook, Apple, Amazon and Netflix) are down more than more than 23% from their highs, and Google Parent Alphabet is down 18% This represents a fall of $1 trillion of their combined market value. The longer-term trend is depicted on the following graph:
Elsewhere, the technology sector was weak in Asia due to geopolitical tension and poor performance. For example, the US continues to campaign against Huawei Technologies (a Chinese telecommunication service and network products provider) due to concern that they would utilise US military bases in order to undergo espionage. Similarly, Chinese food delivery app Meituan saw its stock fall 14.4%, due to an increase in costs and competition from established incumbents. However, Michael Van Voorst, from UBP Asset Management, predicts that an improvement in tech stocks could ignite a quick rebound in Asian shares and outlines that listed companies still attain strong balance sheets. Additionally, Tencent and Alibaba are still generating prodigious cash flow with the latter reporting interest and net income of RMB 6.6bn in the last quarter. Furthermore, joint ventures within the financial sector remain commonplace. For example, Clydesdale Bank owner CYBG has agreed to a £400 million deal to fund loans through UK financial technology group Salary Finance. Salary Finance’s business provides more secure payments, enabling banks to extend credit at a cheaper rate. The deal has helped diversify beyond CYBG’s personal lending businesses and represents a disruption of payment companies, credit card providers.
Consequently, the extent to which this rebound represents an upward trend can be disputed. Mark Grant, chief global strategist, at Briley FBR emphasizes this is just a ‘slight bounce’.
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George Kennedy
26.11.18
EQUITIES, COMMODITIES & DEALS
Pharmaceuticals VanEck Vectors Pharmaceutical ETF (PPH) and SPDR S&P Pharmaceuticals ETF (XPH), the largest international and US-specific exchange-traded funds respectively, have remained fairly stagnant this week. PPH fell slightly from $62.35 to $61.10, with XPH falling from $43.33 to $42.78. SDPR S&P Biotech ETF (XBI), the largest biotech exchange-traded fund, has shown no sign of recovering from the major sell off in the biotech subindustry which took place earlier this month. XBI fell from $80.00 to $78.51 this week, which should be viewed in the context of its peak value this month being $85.75. US addiction treatment specialist Indivior suffered a wipe of over half its share price this week (see chart), following Tuesday’s announcement that it lost a crucial court battle. Indivior’s top drug is SUBOXOME Film, a prescription medication used to combat opioid addiction. The result of this court battle is that Indian pharmaceutical company Dr Reddy’s Laboratories has had an injunction, which restricted them from selling their version of SUBOXOME in the US, lifted. Clearly this marks the introduction of a significant rival to Indivior’s primary product and thus the share price has dropped accordingly.
Further news related to opioids, is that New York state’s health department has issued a levy which aims to collect hundreds of millions of dollars from drug-producing companies in order to help alleviate the costs of the opioid crisis that is still fervent within the US. Suitably, many of the affected companies, which include notable names such as CVS Health and Endo International, have declared they recognise the seriousness of the crisis, but believe the levy to be misguided. Relevant companies and trade groups have banded together to submit legal challenges to the levy, relying on the premise that such a levy is unconstitutional. A new agreement between the UK government and the pharmaceutical industry will see the NHS’s spending on branded medication grow no more than 2% (in real terms) over the next 5 years. Below this surface level however, the agreement stipulates that “cutting edge and best value medicines” will be fast tracked for uptake by the NHS so that patients can receive them 6 months earlier than is the current case. In order to meet such a target, infrastructure within the NHS will have to evolve, which will likely entail further integration of private companies. Sebastian Hodge
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NEFS MARKET WRAP-UP
Mergers & Acquisitions British restaurant chain ‘Restaurant Group’ have plans to takeover Japanese restaurant Wagamama. The merger comes after the recent downfall of its other brands Frankie & Benny’s and Chiquito in the past 5 years. The firm sees the acquisition as a chance to diversify to a new sector of the market. However, the deal has left a bad taste in the mouth of shareholders. The group’s largest investor, ‘Columbia Threadneedle Investments’, owning nearly 8% of the firm, will vote against the proposed merger due to the extortionate price tag; reported at £559m. However, other big investors such as JO Hambro and shareholder advisory groups are in favour of the deal. Yet according to The Financial Times, the group’s share price has fallen by a quarter since the deal was revealed. This is visible on the 29th of October 2018, when the deal was first introduced (see graph). Following the arrest of its chairman, Carlos Ghosn, Japanese car manufacturer Nissan is hoping to regain traction with its close ally Renault. Plans for a full-on merger have been halted after Mr Ghosn was found guilty of under-reported pay. The current agreement between the two car makers favours Renault who hold 43% of Nissan shares according to The Financial Times.
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The blockage of the merger has therefore come as positive news to Nissan. They feel a merger will cause greater injustice and contribute to Renault’s superiority. This feeling is mainly as a result of Renault’s controlling stake which gives them a greater degree of control in selecting senior managers and in business strategy. Nissan board members have publicly announced to “fight very hard against any reorganisation that entrenches that second tier status (to Renault)”. Further developments have arisen after Flybe was listed for sale last week with Virgin Atlantic holding talks to purchase the regional airline. Despite fullyear losses of £22 million, the international airline has its reasons for acquiring Flybe, namely through securing its take-off and landing slots at Heathrow, representing a cheaper alternative than buying these individually. Owners of the superbike series MotoGP are preparing for its sale. The private equity firm, Bridgepoint who own 40% of the business after selling shares in 2012, have received an offer from CVC, the brand’s pre-2006 owners. The deal is still in its infancy. Usmaan Jamil
26.11.18
.CURRENCIES Major Currencies The British pound jumped on Thursday (see graph) as a draft agreement on Britain’s future trade and security relationship with the European Union was finally agreed by negotiators. A 26-page text of the political declaration, was leaked from the EU showing agreement in a series of areas. In a tweet confirming that a deal was ready to be signed off, European Council president Donald Tusk said: “I have just sent to EU27 a draft Political Declaration on the Future Relationship between the EU and UK. The news, which marks another major step forward in the Brexit process, sent the pound flying higher, gaining as much as 1.1% against the dollar, and passing back above the $1.29 mark, which it dropped below a week ago after a series of resignations from the British Cabinet. The US dollar’s run up the charts in 2018 may draw to a close as crude oil prices threaten to continue plunging. The Pound-to-Dollar exchange rate is set to open the new week at 1.2822 ensuring it remains set in a sideways range between roughly 1.2650 and 1.3300. The past few months the dollar has benefited from a US-based carry trade, which rested on low volatility and relative outperformance.
The slump in crude is likely to weigh on the U.S.’s “already challenged” economic outlook and may accelerate a recent trend of investors reallocating investments into money-market instruments, a likely sign of dollar weakness, Morgan Stanley strategists including Hans Redeker wrote in a note. The currency’s inverse correlation to oil should turn increasingly positive over time. The Euro briefly rallied to the day's highs on Thursday after Britain and the European Union agreed in principle to a text setting out their future relationship. The single currency rose as much as 0.4% on the news, hitting a day's high of $1.1434. The euro's bounce against the dollar rippled through other currencies as well, with the single currency rising half a percent against the Norwegian crown and a quarter of a percent versus the Swiss franc. Gains were limited as focus turned on the minutes of the European Central Bank's (ECB) October meeting where analysts said they would be looking for any signs that the ECB was mulling a fresh round of policy support to banks to support the euro zone economy. Freddie Serfaty
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NEFS MARKET WRAP-UP
Minor Currencies The South African Rand rallied 1.3% this week against the US dollar (see chart below) after the country’s central bank raised its main interest rate for the first time since 2016 on Thursday and announced that its models forecast a further four increases before 2021.
Many analysts have affirmed that the mediumterm outlook for the Canadian currency is bright due to expectations that the US Federal Reserve will ease up on its interest rate hikes next year, helping to make the loonie relatively more attractive for investors.
It is believed that the decision by the South African Monetary Policy Committee to hike its benchmark repurchase rate from 6.5% to 6.75% was made in an attempt to lower inflation expectations closer to the midpoint of the target band rate rather than leaving them closely anchored to the top end.
The Indian rupee had its best weekly run since 2016 this week, eventually reaching 70.59 against the American greenback and causing the currency to push beyond its 100-day moving average for the first time since February.
Whilst the Rand has already extended its advance to 1.3% against the US dollar, market analysts are expecting the South African currency to further strengthen given that the last increase in the benchmark repurchase rate led to a rally of 10% over just 6 weeks against the dollar.
This rally comes thanks to falling crude prices which has largely relaxed inflation expectations throughout India, an economy which imports the majority of the energy that it uses. President Modi, whose government has been attacked for its poor economic management following the rupee’s 10% depreciation earlier this year, will be hoping that this recent rupee surge convinces voters to support him during his 2019 re-election bid. Going into next week, global currency markets look focused on the critical meeting between President Trump and Chinese Leader Xi Jinping at the G20 summit in Argentina that will provide the latest insight into whether the world’s two biggest economies area able to relax their trade tensions. Matthew Copeland
The Canadian dollar made gains during the early stages of this week after it was revealed that US demand for refined fuel, a major Canadian export, is still strong. Despite this, the loonie then saw its gains erased as it edged lower on Friday ahead of Canadian CPI and retail sales announcements expected over the coming days.
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26.11.18
Currencies
Cryptocurrencies The hash war between Bitcoin ABC and Bitcoin SV intensified this week, although most major crypto exchanges have now recognised Bitcoin ABC as being the primary implementation for the upgrade and Bitcoin ABC retained the BCH ticker. CoinGeek founder, Calvin Ayre, released a statement on his website acknowledging Bitcoin ABC’s victory. However, he also stated this was only achieved by cheating because Bitcoin SV would’ve prevailed had bitcoin.com not dedicated their entire mining pool to mining Bitcoin ABC. Bitcoin, the most dominant cryptocurrency in the market, recorded a one-day loss of 4.5% on Friday, with BTC/USD (Bitcoin/US Dollar) trading at $4,244, with an average price of $4,315 recorded by CoinMarketCap. Bitcoin was even trading below $4,100 on Bitstamp. On Thursday, Ethereum was trading at a new low of $118.56 on Binance, falling 10% in 24 hours - the lowest value of the coin since May 2017. Ethereum is now trading around $124. Ripple has held up relatively well so far but on Friday dipped below its support, perhaps signalling the bearish pressure having an increased effect on the coin than what has been seen previously. Ripple is currently 25% more valuable than Ethereum if comparing their respective market caps of $16bn and $12bn.
The broader crypto-market reached fresh 14month lows on Friday (see graph), with altcoins and tokens selling off rapidly. All but two of the top 30 cryptocurrencies recorded double-digit percentage drops and the crypto market capitalisation reached lows of $136.3bn. The value on Friday stands at $138.6bn, declining $73bn since 12th November. This may seem significant, but the current bear market represents the smallest percentage drop among the five major downswings since 2011. The largest decline occurred in 2011, when Bitcoin’s price declined 94.3% over just 5 months. What makes the current decline in prices unique is the number of eyes watching. The flood of new traders introduced in early 2017 are not used to seeing this type of rapid decline in the market and so the amount of speculation is a lot greater than in any of the previous bear markets. In the coming week, the bears show no sign of slowing down which means further losses are likely. The fact that Bitcoin is trading around the $4000 support area, and the upsurge of future trades over the past two weeks, suggest the bears are firmly in control for the near term. Rhys Dil
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