NEFS Market Wrap Up - Week 8 by Nottingham Economics and Finance Society

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

17.12.18

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 On Monday, official GDP data for October was released by the Office of National Statistics (ONS). As anticipated by analysts, GDP grew by 0.1% compared to September and by 0.4% in the three months to October, confirming the UK economy is losing momentum after the rolling three-month growth of 0.7% in August (see figure below).

In this rolling quarter, trade in goods widened £1.7 billion, as the £3.6 billion increase in imports was greater than the £1.9 surge in the volume of exports. Trade in services caused the total trade deficit to increase by £1.3 billion, as exports dropped by £1.0 billion and imports climbed by £0.3 billion.

While the monthly services sector growth was slightly better than expected at 0.2% (consensus was 0.1%), it continues to slow on a rolling threemonth basis after the 0.7% peak in July. Construction also was somewhat stronger than expected, with a fall of 0.2% compared to September (consensus had expected a fall of 0.5%). On the other hand, industrial production surprised analysts with a monthly fall of 0.6% (consensus expected a 0.1% rise), driven by a drop of 0.9% in manufacturing.

On Tuesday, data on the UK labour market for October was made available by the ONS. As widely expected by analysts, the unemployment rate was unchanged at 4.1%. At the same time, the number of people in work in the UK rose by 79k in the three months to October. This in turn implies an employment level of 32.5 million people and an employment rate of 75.7%, an all-time high for both figures.

In the same day, the ONS also published that UK workers' total earnings (including bonuses) Trade data was also published on Monday, showing increased by 3.3% annually in the three months to the UK total trade deficit enlarged by -£3.1-10.3 October, above the previous recording of 3.1% in billion in the three months to October, as the goods September and beating consensus estimates of deficit widened and the services surplus narrowed. 3%. This growth in earnings is the highest since the three months to July 2008 and so could further support the hawkish stance of the Bank of England. Sergio Bravo

17.12.18

MACRO REVIEW

The US and Canada Over the last few weeks, we have looked at how well the US economy is performing as well as the potential risks for the future. These include the high levels of debt and extremely low levels of unemployment. Although the US economy is one of the world's top economic leaders, this week the chair of the Federal Reserve, Jerome H. Powell, has come out to say that the current climate might be “too good to be true” and that the levels of inequality in the country are a huge problem for Americans. In a speech on the 6th December, Powell said that “the aggregate statistics tend to mask Important disparities by income, race and geography”, and how although “the economy is strong overall, we recognize that some communities have yet to feel the full benefits of the ongoing expansion”. Although the numbers look good, with the lowest levels of unemployment for almost 50 years, and low inflation, other indicators highlight the hidden structural problems within the economy. For example, according to a study by Gallup in November, 45% of Americans only rate the economy as 'only fair' or 'poor', which shows how negatively some Americans view the state of the economy.

In addition, the labour force participation rate for men ages 25 to 54 is only 89%. This figure is well below the level before the recession in 2008 of 90.6%. This shows how a worrying level of men in their prime working years are out of work. Similarly, in the labour market, according to the Labor Department, approximately 4.8 million Americans are stuck in part-time jobs and cannot find a full-time position. Wages also appear to be suffering for the working class with average weekly pay, adjusted for inflation, falling last year for both transportation and administrative jobs as shown in the graph. Although Trump appears to be helping those who have been left behind, with legislation to raise the minimum wage and pushing apprenticeships, it is unclear as to whether the gap can be closed in the next few years. In Canada, there is also a big Issue with inequality. The 10 richest families in British Colombia have the same wealth as the bottom 1.32 million British Colombians combined. Canada has recently been given a C rating by the Organisation for Economic Co-operation and Development (OECD) and ranked 12th out of 17 countries. It came behind Norway, Finland, France, Germany as well as others.

Abigail Grierson

NEFS MARKET WRAP-UP

Europe This week we explore a weakening German and French according to a trio of economic surveys that compound months of underwhelming data for the region. This comes alongside the consequences of European Central Bank’s (ECB’s) decision to cut their Quantitative Easing (QE) stimulus programme, while exploring the potential plans of European Union’s (EU) tax on “tech giants”. Germany’s composite purchasing managers’ index reading came in at 52.2, marginally below analysts' expectations, but still indicating growth. Coupled with this, analysts at IHS Markit said that data suggests the eurozone’s biggest economy was lodged in a period of tepid expansion, with the exuberant boom of 2017 now a distant memory. In addition, data released earlier on Friday, showed France’s private sector sunk into contraction in December for the first time in two and a half years as a series of protests hit business.

Despite a recent slowdown in the EU’s recovery, the ECB has confirmed that it will be ending its huge net asset purchase programme, worth €30bn a month, which first took place in 2015 after the US and UK took similar measures themselves. The aim of the scheme has been to provide financial institutions to boost credit and therefore demand across the economy. However, the project has been controversial economically and politically, and these political arguments are the reasons for its cease. With this, the ECB has also said that they will be keeping their main interest rate on hold at 0% (shown by the graph below) and will be reinvesting existing QE money once the bonds mature. But, with interest rates so low, economists question what shape further action may take if they find themselves needing to stimulate the economy. On the flip side, technology giants such as Facebook, Amazon and Google are said to raise £4.4bn a year through a new technology tax across Europe. This comes in an attempt to change the corporate tax system to reflect digital presence instead of just physical. However, member states are concerned due to worries that the new tax will damage the wider economy and make investing in the EU less attractive. But, any agreed EU tech tax will only be temporary. This is because international bodies such as the Organisation for Economic Cooperation and Development (OECD) must agree a similar type system applicable to all countries, dampening previous fears about investment into Europe. Kaythi Aung

17.12.18

MACRO REVIEW

Japan & South Korea Last week in Japan, a new series of tax breaks for housing and cars was unveiled. The government hopes that these plans will prevent a recession when the country will raise consumption tax from 8% to 10% next autumn. Prime Minister Shinzo Abe has vowed to go ahead with the scheduled rise in consumption tax, which is aimed at reducing the budget deficit and raising funds to spend on education. The ruling coalition’s tax plans will form part of the 2019 budget, which will be revealed in the coming weeks. Meanwhile, confidence in the economic recovery of the fourth quarter was bolstered by the Bank of Japan’s Tankan index report, which showed that manufacturers held steady at +19 index points (see graph). The Tankan index is the Bank of Japan’s quarterly survey of around 10,000 companies, which is then turned into indices ranging from minus 100 to plus 100. Higher readings suggest more robust economic growth. The Tankan index is relied upon heavily to track the business cycle, as Japan’s statistics on consumption and output are notoriously unreliable.

In South Korea, a drop in new orders has pushed its manufacturing sector after just two months of expansion. The Nikkei-Markit manufacturing purchasing managers’ index for South Korea dropped to 48.6 in November, falling below the 50-point mark which separates contraction from expansion. Both total new orders and new export orders shrank from the month before, and business confidence has slid to a 27-month low. In other news, Hyundai have named Albert Biermann as their first foreign head of research and development, as part of a management shake-up as the company’s heir prepares to succeed the current chairman. The move drove Hyundai shares up 6.3% and lifted shares of affiliate Kia Motors by 3%. Hyundai said that changes were aimed at driving “internal innovation and enhancing the group’s ability to respond to the change of the business environment in the future”. This recent news comes after a year of doubts around Hyundai’s growth prospects, as sales slowing in key markets brought stocks down 23% this year. Investors have also been concerned about the company’s slow adoption of new technologies. Rudai Wang

NEFS MARKET WRAP-UP

Australia & New Zealand This week has seen the Reserve Bank of New Zealand (RBNZ) propose an increase in bank capital requirements. The proposal is that banks will have to hold between 20% and 60% more "high quality" capital. This increase represents a 70% loss of the banking sector's expected profits over a five-year transition period. The actual increase in high quality capital will depend on each bank’s current levels of capital, how much extra they choose to hold above the required minimum, and whether they are a large or small bank. Furthermore, the Reserve Bank proposes that important banks have a Tier 1 capital requirement equivalent to 16% of their risk weighted assets (RWA), with other banks requiring 15%. Currently all banks require a minimum Tier 1 capital ratio of 6% plus a common equity buffer ratio of 2.5%. This is to ensure a safer banking system; these buffers are to ensure that banks have sufficient capital to get through a serious economic downturn. However, the consequences may be that shareholders may earn a lower return on their investment and there is a risk that too large of a buffer may limit the banks’ ability to innovate.

Furthermore, this week has seen business confidence in Australia drop to a three-year low. The business confidence index produced by National Australia Bank (NAB) declined to 3.2 points in November from October’s 5 points (see graph below). Looking at individual sectors, it has been found that the mining sector was the most optimistic by far, followed by the manufacturing and construction sectors. The least optimistic sector was the retail sector due to the sectors recent weak performance. The Q3 results showed that retail sales in Australia fell more than expected. Furthermore, the construction, transport, manufacturing and mining sectors saw worsening conditions in November. This low business confidence can therefore have an impact on how the Australian firms for example in the retail sector behave by causing a fall in investment and innovation within the retail industry - all which can have an impact on the wider Australian economy.

Abigail Davis

17.12.18

. EMERGING MARKETS Africa 3.5 billion US dollars' worth of investment has been agreed at the Africa Forum 2018 which took place on 8th-9th December 2018 in the coastal resort of Sharm el-Sheikh, Egypt. Alongside investment, other topics were discussed including infrastructure, entrepreneurship and gender-related Issues at the 2day conference, attended by many leaders of countries within the Common Market for Eastern and Southern Africa (COMESA). Egypt was the main contributor of investment, with 54% of all investment coming from the host nation, $1.9 billion, Egyptâ&#x20AC;&#x2122;s substantial investment plan focuses on improving infrastructure, developing technology and renewable energy sources in addition to promoting entrepreneurship and private sector investment. Egypt's president Abdel Fattah El-Sisi asserted that, "the high-level presence and active participation at the Africa 2018 Forum reaffirmed Africa's position as a top investment destination" before adding that Egypt provided "the gateway to Africa," a viewpoint echoed by the Director General of the United Nations Industrial Development Organisation, who praised the current economic climate in Egypt explaining that it encourages investors to pump money into the economy which as the diagram shows receives the second highest level of investment in Africa.

The proposed plans also incorporate cooperation with other COMESA nations to improve regional integration. One such plan is improvements to the 10,000km Cairo to Cape Town Highway, which until recently was not fully paved. Development of this route will improve trade between national and international communities that lie along the route which runs through the spine of Africa, therefore the impact will be felt across the entire continent. Additionally, the first regional entrepreneurship hub will be constructed in Egypt, alongside a training programme to develop 10,000 game and software developers by 2021. Women's empowerment was one of the most prominent topics at the forum with the First Ladies of Niger and Nigeria speaking at the conference to promote equality and the benefits of empowering women. For example, a recent McKinsey study found that firms with the most equal executive committees earn 47% higher than firms with no women in the top roles. Vanessa Mougar, director for Gender, Women and Civil Society at the African Development Bank explained that women's empowerment will allow Africa to fully develop but warned that this would only come with equal access to health and education services and economic opportunities. The conference represented a great success with largescale investment and clear, strategic plans to further the continent's development. Joseph Houghton

NEFS MARKET WRAP-UP

China China’s balance of trade provides a clear reflection that China’s export heavy economy is continuing to grow despite recent trade tensions. The balance grew from $34.01bn in October to $44.74bn in November, see graph below, showing a clear widening in the surplus of export revenue. This news also vastly beat the market expectations of $34bn and was driven by a growth in exports by 5.4% whereas imports only grew by 3%. Specifically, in the context of the US-China net trade position, the trade surplus also saw a widening to $35.55bn from $31.78bn demonstrating that new trade tariff hikes implemented by US President Trump are not having an immediate impact on overall competitiveness of export bases in China. The Consumer Price Index saw a slow down to 2.2% for the year, from the previous month’s 2.5%.

This could be a worrying sign of a slowdown in economic growth, however the change in the inflation level has mainly been fuelled by food inflation hitting its lowest rate in three months. On the other hand, the cost of non-food goods and services saw an increase in the general price level, maintaining support for the sentiment that China’s economy is continuing to grow but perhaps at a slower rate. A key area of pain in China’s economy due to the trade war has been the level of Foreign Direct Investment (FDI). FDI has slumped by a huge 26.3% in November to 92.11 billion Chinese Yuan, with many arguing this is caused by great uncertainty over whether the China-US trading environment will continue to deteriorate. This has disincentivised investment from many multinational corporations into their export bases located in China due to potential rising costs. Overall, this is creating a push towards relocation of export bases into other now more price competitive locations such as Vietnam. Amar Toor

17.12.18

EMERGING MARKETS

Latin America This week, markets cautiously await Mexico’s budget while cash-strapped Ecuador renegotiates the terms of its debt with China. As part of his first budget, Mexico’s President Andres Manuel Lopez Obrador is expected to announce social expenditure surges for pensions, education and infrastructure projects. The President is under pressure from his 30million voters to deliver on election campaign promises such as a universal pension which was a policy he successfully implemented while mayor of Mexico City from 2000 to 2005. He also promised 100 new universities and the creation of a vast scholarship program to address the needs of the young, many of whom end up joining criminal gangs given the lack of economic opportunities. However, investors fear that these expenditures will reverse the country’s primary budget surplus, particularly at a time falling oil prices are already eroding fiscal revenue. Last year, Mexico posted its first primary budget surplus, 1.4%, in almost a decade which helped avoid a potential national credit rating downgrade. Although the finance minister has promised to broaden the surplus from this year’s projected 0.7% of GDP to 1% (see graph), markets have remained shaken since Lopez Obrador’s cancellation of a partially-built Mexico City airport at the end of October.

Foreigners withdrew more than $20bn from Mexican stocks and bonds in October and November which was almost the amount that had flowed in over previous two years. Therefore, to reassure markets, it is essential the budget prioritizes fiscal prudence over social spending and development. Meanwhile, during his visit to China on Thursday, Ecuador’s President Lenin Moreno successfully managed to secure a $900m loan at an undisclosed interest rate which he dubbed `the lowest in history`. However, although these concessions give Ecuador some much-needed breathing space, they certainly don’t solve the country’s $6.5bn Chinese debt problems. These stem from former leader Rafael Correa’s decadelong reign, which was ended last year, who borrowed billions from China to fast-track development projects and thus maintain electoral support. What’s more, after a $3.2bn default in 2008 left Ecuador shunned by many lenders, China has since become the OPEC member’s largest financier with debt obligations including control of 90% of Ecuadorian oil exports since 2013. Therefore, not only did this excess borrowing and spending inflate the budget deficit to 5.9% in 2017 but the subsequent fall in oil prices further complicated debt repayments, forcing Moreno’s visit this week in search of debt repayment lenience. Hannah Cousins

NEFS MARKET WRAP-UP

Russia & Eastern Europe This week we have seen Russian key rate hikes, a progression in trade talks between Ukraine and China and affirmation by Standard and Poor’s (S&P) of Estonia’s long-term credit rating of AA-. Firstly, the Russian Central Bank has increased its key interest rate in the past week to 7.75%, a rise of 0.25% (this increase can be seen in the below diagram). Uncertain external conditions, including continued sanctions from the European Union and volatile commodity markets, have contributed to the rise, with inflationary pressures and upcoming VAT increases also playing a significant role. It is hoped that the rate increase will help to reduce inflationary pressures in the economy and help to maintain Russia’s impressive economic growth figures which have been announced over the last few weeks. Ever since the Russian annexation of Crimea, Ukrainian economic performance has been extremely volatile. However, developments this week have acted to improve prospects for the future of the economy, with a new free trade deal being initiated with China. Free trade agreements have previously been made with the EU and Canada, but creating an agreement with the world’s largest economy and one of the world’s economic powerhouses could continue to provide economic prosperity well into the future.

The largest Ukrainian private energy company has also signed agreements with Chinese companies and the continued dedication of China to their westward expansion will ensure continued investment into the future in new economic sectors. The Estonian economy has been through some uncertainty over recent months, with money laundering scandals in its banks casting a shadow of the economy. This week, good news came in the form of the S&P economic outlook in Estonia as the country maintained its AA- rating. Although economic growth levels were projected to be below 2017 levels, they are estimated to remain close to 3% for the next three years. There is also expected to be continued strong demand for exports - particularly in services. As well as this, the outlook for the economy was maintained as stable. There were further positive remarks from S&P who stated a better rating could be achieved if average incomes were to converge further toward levels in the eurozone. Ashley Brumfield

17.12.18

EMERGING MARKETS

South Asia In New Delhi, The Reserve Bank of India (RBI) announced on Wednesday that annual consumer inflation had declined to 2.33% in November of 2018. This was below market expectations of 2.8% and the lowest rate since June 2017 (see chart below). The RBI pointed to the fall in the prices of food and fuel as the biggest driver behind the fall consumer inflation with food prices falling the most since the series began in 2012. On Friday, the Government of India released trade figures for November which showed that India’s trade Deficit widened to $16.67bn in November 2018 from $15.1bn a year earlier, slightly higher than market expectations of $16.08bn. Exports increased by 0.8% primarily due to a 42.7% rise in sales for petroleum products and a 12.3% increase in sales of chemicals. Imports however increased by 4.3% boosted by a 41.3% increase in purchases of petroleum and crude. Across the border in Pakistan, the Government received a $1bn bailout package from its close ally Saudi Arabia on Friday. According to State Bank of Pakistan Spokesman, Abid Qamar “The latest package has shored up the central bank’s foreign reserves, hitting the $9.4bn mark”.

This is the latest payment Pakistan has received from Pakistan that has been aimed at supporting Pakistan’s ailing currency and address its balance of payments crisis. On Monday, the Indonesian Government released retail sales figures which showed an increase of 2.9% year-on-year in October 2018, down from a 4.8% increase in previous month. The figures troubled investors as it was the slowest increase in retail trade since July. The disappointing results were subject to slower growth in food, beverage and tobacco sales. In Singapore, unemployment figures released by the Ministry of Manpower (MOM) on Thursday saw the rate of unemployment inch higher to 2.1% in Q3 of 2018. This is only a small rise from the twoyear low of 2% in the previous month and hasn’t proven to spook investors. With regards to the region’s main equity markets, Singapore’s benchmark Straits Times Index witnessed a rally throughout Wednesday and Thursday only to erase any gains on Friday where the index closed down 1.09% and only up 0.19% across the week. Meanwhile, India’s benchmark SENSEX index rallied throughout Wednesday through to Friday, finishing the week up an impressive 2.5%. Sean O’Hagan

. EQUITIES, COMMODITIES & DEALS Financials The French CAC 40 index saw steady growth at the start of this week, rising from 4,797.92 at opening on Monday to a weekly high of 4,926.86, as fears of a US-China trade war begin to dissipate. Nevertheless, it was a poor start to the week for CAC component, Société Générale (SocGen). Shares tumbled during Monday’s session from €30.30 per share to a weekly low of €29.52 (see graph). Results below the trend line continued into Tuesday, with shares in the French investment bank failing to breach the €30 per share mark.

Shares in the New York based private equity firm fell below the $30 per share mark on Monday morning, but recovered reaching a high of $31.38 towards midday on Tuesday. The share price hovered around $30 on Wednesday, opening at $30.88 and closing only slightly lower a $30.50.

However, despite steady results of late, the outlook for the world’s 5th largest private equity firm by capital commitments looks strong. Analysts have given the company an average 12-month price target of $43.5 per share, representing a 42.67% increase on the previous closing price. Projections on the lower end However, stock in the bank saw some recovery towards are still as high as $34 per share, $3.52 over the market opening price on Friday’s session. the end of the week, reaching a weekly high of €30.99 per share during early trading on Thursday before Despite hitting a 52-week low of at the start of stabilising around the €30.50 mark for the rest of the day. The recovery comes as SocGen open a clearing hub December, the analyst consensus is still optimistic with 13 ‘buy’ ratings and 1 ‘hold’. This comes of the in Paris to process billions of euros of derivatives. The back of positive earnings which are up 10% year-overmove will see derivatives migrate from London to continental Europe, as the bank seeks to sidestep Brexit year at $0.76 beating analysts’ predictions of $0.74. uncertainty and reduce risk. The French Bank has taken Quarterly revenues for the company that specialises in leveraged buyouts surged 8% to $1.83b, a $140m a cautious strategy to Brexit, while others have increase on earnings from this time last year. remained bullish choosing to remain in London. Shares in Asset Management Company, Blackstone Group (BX) saw a slight recovery this week after a fall during trading last Friday.

Oscar Miller

17.12.18

EQUITIES, COMMODITIES & DEALS

Energy, Oil & Gas At the end of last week, OPEC (Organisation of Petroleum Exporting Countries), along with other major oil exporters such as Russia, agreed on oil production cuts of 1 million barrels per day; OPEC itself will cut production by 800,000 barrels per day. The cuts will begin in January and are the result of Brent crude oil prices falling by 30% since October. At the beginning of the week, the price of Brent crude oil (the ‘standard quality’ oil against which the price of similarly produced Middle Eastern oil is benchmarked) increased by 5%, after lows of under $58 per barrel last week. The trend continued, and on Thursday night prices reached a peak of $61.44 per barrel (see graph).

Interesting news which has recently come to light is the statistics on corporate America’s response to growing concerns over climate change. Xcel Energy, one of the US’s largest utility companies, has committed to eliminating carbon emissions by 2050, while switching all energy production to solar and wind. CEO Ben Fowke said that the main motivation for the change was consumer preferences and demand for cleaner energy, but that investment was costly, and some technologies needed to make the change are not even yet commercially available. General Motors and Walmart are among other influential corporate giants pledging to reduce their carbon emissions. These statistics highlight an unprecedented upheaval in research and development spending in the corporate world. Big businesses clearly believe that the pay off, in terms of higher custom and profit, will be higher than the extensive costs of investing in renewable energy. Only time will tell whether taking an ‘environmentally friendly’ stance will really boost customer perception of businesses, and the effect on profits.

Analysts are on the fence as to whether this production cut will significantly affect long-term pricing. Some say that the effect on prices will dwindle due to factors out of OPEC’s control. For example, slow growth in the world economy is likely to weaken demand for oil, as well as a glut in US shale and oil production propping up supply levels and keeping prices low. However, other experts predict a global supply deficit in 2019, caused by a general scarcity in the non-renewable resource, and further cuts in production as OPEC members attempt to maintain the value of their most important export.

Megan Jackson

NEFS MARKET WRAP-UP

Tech and FinTech US stocks fell sharply on Friday, as the heavily tech weighted Nasdaq traded 1.4% lower due to a lack of improvement in US China trade relations. Meanwhile, Apple shares declined by 2% on Friday, bringing their decline for the quarter to more than 25% as analysts estimate falling demand for iPhones. This sentiment contrasts the risk-on attitude on Wednesday whereby the Nasdaq rose 2.4%; Amazon and Facebook shares gained 1.2% and 1.7% respectively.

Similarly, net losses narrowed to $1.07bn from 1.46bn a year ago, whilst their they still occupy 70% of market share in the US as its closest competitor Lyft operates only in the US and Canada.

This week, riding-hailing service Uber and its US competitor Lyft have filed confidentially for initial public offerings. Bankers estimate that Uber could be worth $120 billion on the public markets whilst Lyft’s estimated worth ranges between $18 billion and $30 billion. Currently, Uber is currently working with Goldman Sachs and Morgan Stanley on its offering, with Morgan Stanley helping Uber draft its IPO prospectus whilst JPMorgan Chase & Co. is leading Lyft’s public offering. Uber chief executive Dara Khosrowshahi has told investors that the company is targeting an offering in the first half of the year, while Lyft plans to list as soon as March or April.

The firm currently specializes in allowing consumers to access services such as cryptocurrency wallet and exchanges and aim to streamline the process of retail and business customers applying for loans, enabling instant transactions. They chose Lithuania due to the ‘fintech friendly’ regulatory environment there and it represents 7% of the 2.25 million customers it had in July. This banking license will enable it to expand its product offering and compete more rigorously with other digital startups including Monzo and N26.

There are incentives for Uber to list; the company lost $1.1 billion in the third quarter on $2.95 billion in revenue, whilst growth slowed to 38%. Their accelerated timeline has come to fruition due to concerns over stock market volatility and the global growth outlook. Nonetheless, these concerns stem from Uber’s diverse expansions into bicycles, scooters, heavy spending on autonomous driving technology, and renewed pressure on its ridehailing business.

Elsewhere, London-based fintech company Revolut, valued at $1.7bn, has secured a European banking license from authorities in Lithuania, allowing them to offer current accounts and loans across the EU from early next year.

George Kennedy

17.12.18

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 both experienced a rather dire week. PPH experienced a fall from week’s peak of $60.71 to $58.22 at week’s end, whilst XPH experienced a week’s peak of $42.13 and week’s end of $39.89. Whilst these falls seem somewhat nominal at face value, they represent a 6 month low for both ETFs. US drug maker Gilead Sciences has secured industry veteran Daniel O’Day to step in as new CEO come March 2019. Mr O’Day, who has spent the entirety of his 30-year long career at Swiss rival Roche, said he “long admired Gilead for its work to develop medicines that have fundamentally changed the way HIV and viral hepatitis are treated”. This appointment follows Gilead experiencing a sharp decline in sales of its blockbuster hepatitis C drug, with year on year sales falling by over 50% and shares responding with an 11% slide - which it is still yet to properly recover from.

Mylan NV, a generics and specialities pharmaceuticals company registered in the Netherlands but with presence primarily in the UK and US, appears to be in line for a positive turnaround. On Thursday, the US Patent and Trademark Appeal board ruled in favour of Mylan in a patent dispute with French firm Sanofi over a lucrative insulin product. After recently hitting a five year low in share price at $30.41 (see chart), this win has acted as a catalyst for CFRA, a world leading investment research house, to upgrade recommendations on Myland from hold to buy, claiming that the firm’s worst days are over. The saga between US addiction treatment specialist Indivior and Indian firm Dr Reddy’s Laboratories continues. Last month saw Dr Reddy’s Laboratories win a court battle to allow the sale of their copy of SUBOXOME (Indivior’s top drug) in the US, which resulted in Indivior’s share price being cut in half. This week however, Indivior has won an injunction on the launch of this copycat drug until its petition for a re-hearing is admitted – which is expected to be filed next week on the 20th. The announcement of this additional injunction on Wednesday saw the already battered share price of Indivior fall a further 6%. Sebastian Hodge

NEFS MARKET WRAP-UP

Mergers & Acquisitions This week’s article will cover the merger between Moet Hennessey Louis Vuitton (LVMH) and Belmond, Japan Post’s acquisition of US insurer Aflac and further developments on the Sainsbury’sAsda merger deal. The world’s largest luxury goods group, LVMH, have reached an agreement to acquire Belmond Ltd, owners of luxury hotels, restaurants and operator of river cruises. LVMH will acquire Belmond for $25 per share, giving them a total of $2.6bn of equity in the firm. The deal symbolises a natural progression for LVMH who are diversifying into a field where they have some ground knowledge and understanding of the market. The firm will be looking to integrate LVMH brand presence into Belmond hotel chains. The Board of Directors have stated that the deal will provide certain value for shareholders and a long-term development path however the share price upon the announcement of the deal has remained stagnant with only a slight increase on Friday 14th of December when the deal was closed, outlining a lack of market enthusiasm.

Japanese postal and logistics company, Japan Post, will acquire 7-8% of US insurer Aflac, spending $2.64bn in the process. Aflac is the largest provider of supplemental insurance in America and the deal comes as Japan Post seek to diversify to an overseas market.

Aflac will become an equity affiliate as the deal is passed through a trust bank to meet regulation since the US government prevent foreign parties from influencing insurance providers. Japan Post are seeking to expand Aflac’s cancer insurance product range and began the distribution of these products at post office branches. The US insurer is heavily reliant of Japanese markets, responsible for 80% of their revenue. The deal means that Aflac can use Japan Post’s 24,000 post offices as retail bases to help expand further. Finally, the Sainsbury’s- Asda merger has reached new heights after failure to meet the conditions of the merger as set by the Competition and Markets Authority. The CMA have doubts on price increases for shoppers and service quality if the merger where to go ahead. The delay has caused a fall, at its greatest, of 13 points as shown in the graph below. The CMA will report their findings in March. As a result, the merger will be set back until then. Usmaan Jamil

17.12.18

.CURRENCIES Major Currencies The Euro’s outlook has been clouded by weak data and the European Central Bank’s projection that economic risks are tilted to the downside. Furthermore, the common currency is facing its own political demons, notably the Italy-EU standoff and the anti-government protests in Paris, and isn’t particularly immune to Brexit When the Bank of England meets next week, it’s either. The euro was down 0.5% at $1.12965 after likely to signal once again that its near term outlook German data showed private-sector expansion is dependent on Brexit. While a U.K. interest-rate slowed to a four-year low in December. increase is currently not priced in until 2020, a relatively positive Brexit outcome could open up The dollar shone on Friday, reaching a 19-month room for policy tightening and further boost the high against a basket of currencies, as investors pound. With Brexit, the risk is increasing that preferred the safety of the world's reserve currency in the wake of worrisome political and “nothing is finalised in time and that a delay beyond economic news outside the United States. "The the end of March is agreed with a pragmatic but dollar is not so much rallying as much as reluctant-to-negotiate EU,” Kit Juckes, a strategist everyone else is falling," said Boris Schlossberg, at Societe Generale SA, wrote in a note to clients. managing director of FX strategy at BK Asset “Which will leave sterling, in real trade-weighted Management in New York. terms, bumping along the bottom of its postThe Chinese yuan fell after data showed retail Bretton Woods range, while hanging like an sales grew in November at their slowest pace albatross around the euro’s neck.” since 2003 and industrial output rose the least in nearly three years. The offshore yuan shed 0.38 percent at 6.9038 per dollar. The euro weakened as the euro zone economy showed more signs of a slowdown. The Brexit-battered pound is now cheap by historical standards and that could help it rally harder on any positive news. The pound is down 0.9% against the dollar at $1.2540 (see graph), and down 0.8% against the euro at €1.1275.

Freddie Serfaty

NEFS MARKET WRAP-UP

Minor Currencies Many minor currencies paired with the pound have seen volatile movements throughout this week, with these largely speculative movements being based heavily upon Brexit jitters. Strong Australian economic data released recently helped to weaken the GBP/AUD rate early on in the week. However, after British Prime Minister Theresa May survived her no-confidence vote on Wednesday evening, the GBP/AUD recovered as market confidence regarding the likelihood of Mayâ&#x20AC;&#x2122;s Brexit withdrawal deal being seen through to completion had largely improved. Despite this, given that the pound was trading at 1.7699 Australian dollars at market open on Monday yet only reached a high of 1.7600 on Friday, the outcome of this vote was not enough to enable the GBP/AUD to fully recover. Similarly, the GBP/CAD exchange rate experienced both bullish and bearish movements this week, increasing from 1.6829 on Monday to just 1.6846 on Friday, despite having recorded a weekly high of 1.7012. Forecasts remain insistent that this rate will slump in the medium-term, notably due to the fact that expectations of a less hawkish policy being adopted by the US Federal Reserve in 2019 have limited the appeal of the greenback but have failed to shore up Loonie exchange rates.

Predictions pointing towards an easing in the Canadian inflation rate are also contributing to these expectations of a Canadian dollar slump given that lower inflation would provide the Bank of Canada with greater incentive to hold interest rates. This week has also seen a slight weakening of the US dollar against the Thai baht, the currency being dubbed by many as the best performing minor currency of 2018. The baht has declined by 0.3% against the dollar so far this year (see chart below) and has a strongly-performing current account to thank for this. Thailand has managed to post current account surpluses in every month since late September 2014, which has consequently helped to solidify its foreign currency reserves that now stand at around $203 billion, more than twice the amount that the International Monetary Fund deems adequate. Speculation that the Bank of Thailand will introduce its first interest rate increase since 2011 has also been a major drive behind the currencyâ&#x20AC;&#x2122;s recent rallies and analysts predict similar movements in the near future as Thailandâ&#x20AC;&#x2122;s local economy appears to be rapidly improving whilst inflation remains benign. Matthew Copeland

17.12.18

Currencies

Cryptocurrencies Bitcoin reached new lows of $3,204 for the year on Thursday. The coin was trading around $3,250 on most major exchanges. In the short term, prices are likely to fluctuate in the $3,200-$3,300 range. Aggregate data on CoinMarketCap showed an average price of $3,305 on Friday, a 3.8% 24-hour drop. With this, Bitcoin experienced its total market capitalisation fall below $58bn. Daily trade volumes were at $4.4bn on virtual currency exchanges, increasing slightly from Thursday. In terms of market dynamics, not much has changed this week. The crypto market capitalisation fell by $4bn this week, with prices at $104.5bn (shown in graph below). The weekly low was $101.2bn on Friday, the lowest it has been for 16 months. Bitcoin SV experienced the worst decline among the top 10 cryptocurrencies, down 28% from last week. EOS managed to gain 10.6% following a decline which took prices down to $1.50. EOS is currently trading at $1.86. Ripple was trading at $0.303 on Friday, with the resistance at $0.3135. Stellar XLM was down 9% on Friday, making it the first time this year the currency has been below 10 cents. With the exception of Tether, a dollarbacked stablecoin valued at $1.00, all cryptocurrencies in the top-20 were down at least 4% during the session on Friday.

For the week ahead, investors may be glad to know that the worst of the downward trend appears to be over. This doesn’t necessarily mean that new lows will stop, rather weekly declines will decrease now that Bitcoin is testing a critical long-term support. The horizon for the new year is looking good for the currency. Perhaps not as good as it was this time last year, but it seems to be in a much more stable position now. According to the Weiss Ratings, now is the time to buy into Bitcoin- current prices reflect Bitcoin’s “least speculative investment,” making it an ideal time to purchase. This is based on the belief that cryptocurrencies like bitcoin are “here to stay.” However, despite this recommendation, investors might be better off waiting for a definite bottom to be reached. 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

This Publication has been prepared solely for informational purposes, and is not an offer to buy or sell or a solicitation of an offer to buy or sell any security, product, service or investment. The opinions expressed in this Publication do not constitute investment advice and independent advice should be sought where appropriate. Whilst reasonable effort has been made to ensure the accuracy of the information contained in this Publication, this cannot be guaranteed and neither NEFS nor any other related entity shall have any liability to any person or entity which relies on the information contained in this Publication, including incidental or consequential damages arising from errors or omissions. Any such reliance is solely at the userâ&#x20AC;&#x2122;s risk.

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