NEFS Weekly Market Wrap-Up Presented by the NEFS Research Division
04.02.19
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 Brexit developments, strong corporate earnings and progress between US-China trade talks were a few of the reasons behind UK markets experiencing one of the strongest weeks this year. The FTSE 100 saw four consecutive days of gains, finishing on Friday at 7,020.22 up 3% from the opening on Monday (see chart below). On Thursday, the FTSE 100 saw gains for a third consecutive session as stellar earnings from Shell and Diageo helped cushion losses in banks and growing concerns over European growth. The gains continued into Friday following signs that the US and China could soon settle their trade dispute. Such optimism was not shared in the currency markets, the pound was down 0.26% against the US dollar on Friday afternoon following UK Manufacturing PMI falling to a three-month low of 52.8 in January 2019 from 54.2. This is the secondweakest reading since July 2016. The research, by IHS Markit/CIPS, found companies were stockpiling goods at the fastest pace in the survey's history. Employment in the sector fell, and the survey warned that export orders were "near-stagnant" and that there was a risk of the sector slipping into recession.
On Tuesday, UK Parliament voted on a series of amendments on Theresa May’s Brexit plan including seeking “alternative arrangements” to replace the Irish backstop. Consequently, the Prime Minister has been given an effective mandate to return to the EU negotiating table and secure a “legally binding change”. The Prime Minister hopes her revised deal will be brought back to the Commons "as soon as possible" for a second "meaningful vote". Another amendment, rejecting a no-deal Brexit, also won the support of Parliament, but the vote was not binding. This week also saw British and EU regulators agreed to cooperate on oversight of financial firms and share key market information to help avert problems arising from a no-deal Brexit scenario, especially for asset managers. But despite this week’s more promising Brexit signs, the President of the European Council Donald Tusk said the withdrawal deal was "not open for re-negotiation" and "remains the best and only way to ensure an orderly withdrawal of the United Kingdom from the European Union". Furthermore, UK businesses are still sceptical with the Institute of Directors (IOD) reporting that a third of UK firms are looking to move operations overseas while Barclays announced its intention of moving £170bn of assets to its headquarters in Dublin. Sean O’Hagan
04.02.19
MACRO REVIEW
The US and Canada This week has seen US claim progress in tackling some issues with China concerning their trade war, in which Donald Trump has suggested that a new Presidential summit might be necessary to settle the economic conflict. After two days of negotiations, Robert Lighthizer - the US trade representative - said his talks with Liu He China’s Vice-Premier - had finally centred on the US demands for structural reforms which includes ending the forced transfer of technology from US companies, intellectual property protection and reining in the use of industrial subsidies in China. While this week has seen progress made, if no resolution is made between US and China by 1st March, tariffs on $200billion of Chinese goods are set to increase from 10% to 25%, and further continue the trade war. Furthermore, in the US this week official figures have shown that 304,000 jobs have been added in January which was far in excess of economists’ forecasts of 165,000 jobs. These jobs (according to the US Department of Labour) were added in leisure and hospitality, construction, healthcare, transportation and warehousing.
The gains achieved this January marked the 100th month in a row of increased hiring, all which demonstrate the US economy’s continued strength and growth despite concerns about trade tensions and recent dips in consumer confidence. This week has also seen figures revealing that Canada’s economy is shrinking for the second time in three months. The graph below shows Canada’s monthly GDP changes, and it is evident that from the end of 2018 into 2019, Canada’s GDP has fallen sharply. Statistics Canada report that output from the energy industry fell 0.6% as lowered production of petroleum and coal drove a 0.5 per cent decline in manufacturing in November, the third drop in four months. Bank of Canada (BoC) Governor, Stephen Poloz, signalled earlier this month it will now take longer to add to his five interest-rate increases because of signs of setbacks to growth. If the BoC continues to increase the interest rate, this contractionary policy will be detrimental to growth as it may reduce the amount of investment in Canada and lead to further falls in Canada’s growth. Abigail Davis
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NEFS MARKET WRAP-UP
Europe Eurozone growth is sluggish, with new figures showing figures of 0.2% against the average of 0.3% in the lead up to January (see graph). Trade tensions between the US and the EU, as well as Brexit, have created a lack of confidence and certainty, meaning that investment decisions are being delayed as exporters and other businesses do not know what to expect. Economic growth in China, the largest purchaser of European cars, slowed in 2018 after decades of rapid expansion, leading to lower demand for cars, one of Germany’s most valuable industries. Yet, this trend of slow growth is not new – most European economies such as Italy are still smaller than in 2008 when the financial crash occurred. In Italy, economic growth has been disappointing. In the third quarter of 2018 its growth was -0.2%, followed by -0.1% in the fourth quarter, officially bringing the economy into recession in 2019. The Italian government cited declines in agriculture, farming and industry as reasons for the downturn. Furthermore, due to budgetary rules in place in the Eurozone, Italy’s expansionary government spending plan was rejected by EU officials, thus eliminating one way out of recession for the country.
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Italy already has a debt to GDP ratio of 132%, which is considered to be very unsustainable. Moreover, the ongoing recession will most likely lead to unemployment, reduced consumer confidence and spending, reducing tax revenues from incomes and VAT. This will make any further increases in spending and debt more unsustainable and destabilise the government’s budget position further. Net exports increased for Italy at the end of 2018, but were not sufficient to hold back the recession, meaning that exporting may not be a way to regain growth either. As of this week, the average unemployment rate in the Eurozone has not changed significantly, at just under 8% - though it is at its lowest level since 2008. The exchange rate of the euro to the dollar has also stagnated at 1:1.4, a 0.1% increase compared to December. However, yields on sovereign government bonds are continuing to slowly fall, currently standing at 0.17% compared to 0.2% this time last year. This could signify a small rise in investor confidence in Europe.
Megan Jackson
04.02.19
MACRO REVIEW
Japan & South Korea This week, economic data released in Japan and South Korea is skewed towards the downside, exacerbating both country’s inability to cushion the impact of the shortfall of exports to China following the ongoing trade rhetoric. Growth in Japan’s manufacturing sector stalled in January. For example, the Nikkei flash Manufacturing PMI fell from Decembers revised 52.6 to 50.0, the lowest reading since August 2016. This decline is signified in a longer-term trend. The following graph shows that Japans manufacturing sector has fallen by around 8% in January 2019 compared to the same time last year.
This data, combined with the sluggish export data, due to lower shipments to China on the back of higher US-China trade friction, exacerbate the headwinds that the Japan’s economy is currently facing. According to Joe Hayes, an economist at IHS Markit, this downturn in Japan’s trade cycle coincided with the “lowest level of business confidence for over six years”.
However, Japanese consumers have begun reaping the benefits of the bilateral trade deal between the EU and Japan. This deal was orchestrated in December and includes increased access to the EU car market with a removal of tariffs that represent 30% of global GDP. These falls in tariffs has led to lower prices for consumers, including alcohol, as Japan’s 15% duty rate on EU wine was scrapped leading to a fall in average prices by 10%. Therefore, the increase in consumer purchasing power has helped minimize the negative impact of slower factory output. Elsewhere, the slowdown in economic activity in Japan has been mirrored in South Korea. For example, South Korean manufacturers’ confidence were among the lowest on record due in part to a domestic slowdown, rising labour costs and weaker exports. The latter fell 5.8% year on year in January representing a second straight month of declining outbound shipments, signifying that the Chinese economy is hitting regional trade activity. These data are consistent with the Bank of Korea’s decision to hold interest rates at 1.75% on Thursday in an effort to rapidly increase GDP and sustain the positive impact the current interest rate had in the fourth quarter of last year. The stimulus helped spur a 3.1% year on year lift in GDP. George Kennedy
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NEFS MARKET WRAP-UP
Australia & New Zealand This week the National Australia Bank’s (NAB) business confidence index showed how business confidence had deteriorated to 2.8 points in December (from 3.4 in November), below its longrun average. This may be driven by worsening trading conditions and profitability, particularly ongoing global trade war between Australia’s largest trade partners, China and the US, indicating an underlying weak level of private sector investment. Australian businesses still are optimistic as the figures stay above 0, yet this varies between sectors with notable declines in manufacturing, construction and transport. Every sector faces unique challenges, like the significant effect of artificial intelligence on business operations. PwC Australia CEO Luke Sayers said Australia suffers from inaction of “business leaders to minimise the potential impact of trade conflicts on their organisation’s growth” and failing to “seek out strategic opportunities” will continue to hamper growth and expectations. Equally, it was announced that the Melbourne Institute and Westpac Bank’s Consumer Sentiment Index for Australia had also fallen by 4.7% from last month to 99.6 in January 2019 (see graph below) - the lowest since September 2017 and below the average of 101.36 Index Points over the last 35 years.
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Consumer confidence has taken a hit from declining house price growth, global trade wars and political uncertainty. Looking more closely at the survey composition, its measure of consumer’s economic expectations fell by 1.36% from last month to 92.87. This appears related to a relatively large drop of 7.8% to 96.2 for the survey’s measure of economic conditions for the next 12 months, and the measure for the next five years similarly dropped by 5.9% to 96.5. The indexes for family finances over the next year fell; this persistent worsening in consumers’ expectations driving low consumer confidence in Australia that is likely to continue and facilitate weaker consumer demand. In New Zealand, consumer prices rose by 1.9% in the final quarter of 2018, beating forecasted expectations of 1.8%. However, year on year, New Zealand’s inflation rate remains unchanged from the same quarter the year previous. Whilst inflation grew in housing and utilities, food, health and recreation and culture, the inflation rate for transport fell from 5.6% in the third quarter to 3.5%. This is due to lower pressure on petrol prices and lower international air transport prices, and transport carrying a large weight (15%) in the CPI. Inflation is forecast to fall to 1.6 in the next quarter.
Amy Chai
04.02.19
. EMERGING MARKETS Africa 2019 is set to be an exciting year for many of the economies in Africa. The continent is home to many of the world's fastest-growing economies according to the IMF, including Uganda which is predicted to be the world's second fastest-growing economy in the world with a predicted growth-rate of 7.46% for the coming decade. Other exciting economies to watch in the coming years include Mali, Kenya and Ethiopia. Although the overall outlook is positive, Africa still has many worrying problems such as its growing debt problems.
Another challenge for many African Economies in 2019 is their rising debt problem. The IMF has even issued warnings that Zambia, Kenya and Tunisia have a high chance of debt distress going into 2019 because of their unsustainable borrowing. Over the past decade, a number of African countries have exploited cheap debt and going forward there are many concerns that African countries will struggle to manage their debt servicing. This is particularly worrying considering the likelihood of a global recession in 2020, current rising interest rates and uncertain commodity prices.
2018 was a good year for many Sub Saharan African economies. The growth rates were led by Ethiopia at 7.5%, followed by CĂ´te d'Ivoire at 7.4% and Rwanda at 7.2%. Predictions for 2019 remain strong and the average for the continent predicted to pick up from 2018's 3.1% to 3.6% in 2019.
In addition, the average debt to GDP ratio in Africa is 57%. The suggested debt to GDP ratio for developing economies is 40% based on a report by the Fiscal Affairs Department of the IMF. In several countries including Mozambique, Cape Verde and Eritrea the ratio even exceeds 100%.
However, the two largest economies on the continent performed underwhelmingly in 2018. Nigeria and South Africa. Nigeria and South Africa have GDP of $376.3 billion and $349.3 billion respectively. Both economies have had a challenging 2018 with volatile commodity prices, unpredictable politics and bad weather conditions. The two countries also have fairly disappointing growth expectations; 2.3% for Nigeria and 1.4% for South Africa.
Another problem facing Africa in 2019 will be its uncertain political landscape. The continent is set to hold two dozen national elections this year. One election that will be of particular interest is that in Nigeria in February. Many of these elections are likely to be controversial and contentious which is therefore likely to have adverse effects on the economy. Abigail Grierson
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NEFS MARKET WRAP-UP
China Important indicators about the Chinese economic activity were published this week. On Thursday the China Purchasing Manager Indexes (PMI) for January were published by the government’s National Bureau of Statistics (NBS). The NBS’s PMI readings showed a divergence in growth momentum between the manufacturing and services sector. Specifically, the Manufacturing PMI index, which covers large state-owned companies as well as small and medium-sized private sector firms, rose by 0.1 points to 49.5 in January, slightly above analysts’ consensus of 49.3. However, this lift was not enough to depart from contractionary territory (below 50) for the second consecutive month. Readings in the last two months are consistent with a weak external demand and a more cautious business sentiment. On the other hand, the Non-Manufacturing PMI index (which targets the domestically-oriented services industry) rose by 0.8 points to 54.7, above analysts’ forecast of 53.9. This figure confirms the resilient of the services sector, with expansion continuing at a firm pace. It seems also that trade tensions with the US and a slowing global demand have not undermined business expectations. Overall, these readings suggest that growth in the Chinese economy remains broadly stable, but possibly signs of slowing global growth and trade policy uncertainty may continue to pose risks over the near term.
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On Friday, China’s Manufacturing PMI also for January was published by Caixin (in a joint venture with the independent PMI provider Markit), which focuses on small and medium-size manufacturers in the private sector. Unlike the Manufacturing PMI released by the NBS, the index in this case decreased significantly by 1.4 points to 48.3, far below analysts’ forecast (49.5), which had anticipated a decline of only 0.2 points. This is the weakest figure since February 2016 (see figure below), confirming continued softening in Chinese manufacturing sector. The data breakdown showed this drop was driven largely by subdued domestic demand, while the outlook for external demand was more positive. Analysts will be expectant to the Caixin Composite and Services PMI for January to be released at the end of the week this report refers to. As for the trade talks between China and the US, negotiations concluded in Washington on Friday, with both sides signalling that some progress has been made towards trade imbalance reduction and intellectual property protection. However, more progress is needed in other areas, and US representatives will visit Beijing in the midFebruary for another round of talks. Sergio Bravo
04.02.19
EMERGING MARKETS
Latin America This week, we focus on Argentina’s ticket out of economic drought, alongside Brazil’s pledge to open up its economy whilst exploring career prospects for Mexican women. After suffering the worst drought in the half a century last year, favourable weather conditions in Argentina have kept the Pampas plains and the prospects of the re-election of President Mauricio extremely fertile. After a 2% shrink in its economy last year, Macri is relying on Argentina’s pivotal agricultural sector – which accounts for about half of the country’s exports – to hoist the country out of recession. Current figures come from consultancy firm Agritrend, and suggest that exports will reach a “historic record” of about 93m tonnes equating to export revenues of $28bn – a $5bn increase from last year. These figures, coupled with the increase in export taxes to eliminate the fiscal deficit, also brings estimates of tax income from farmers to almost double to $5.7bn. Up North, Brazil’s recently sworn in President, Bolsanaro, pledged a pro-market direction at the World Economic Forum in Davos, promising to lower taxes on businesses and make the country more open to foreign trade.
Bolsanaro won over voters with his hard-line policies on tackling crime and corruption while vowing to combine “traditional family values” with economic liberalism. Since then his promises on investment and deregulation have boosted the Brazilian stock market, shown in the graph, which has rallied strongly since he took office in January. But is this too good to be true? So far, this soar in Brazilian stocks has been the work of local investors while foreigners are yet to bite. Doubts come from yet another Brazilian scandal stating that Flávio Bolsonaro (the president’s son and now federal senator), along with 26 other current and former Rio state deputies, have become subject of a civil investigation into suspicious financial transactions. All deny any wrongdoing but, with such a long history of corruption in Brazil, that has yet to ease the minds of investors. Finally, despite transforming from a closed economy into a manufacturing powerhouse, career prospects in Mexico seem to be stuck in the slow lane. A new report by McKinsey, examining the state of women in the workplace in Mexico, equates the low participation of females in its workforce to “driving the economy on half an engine” and reckon that closing the gender gap has the potential to boost GDP by 70% ($800bn). Kaythi Aung
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NEFS MARKET WRAP-UP
Russia & Eastern Europe 2018 ended on a relatively strong note for Russia, with comprehensive GDP data revealing a stronger third quarter expansion than was initially estimated, revising annual growth up to 1.5% (see chart below). Despite these revisions, the economy is expected to slow soon with recent hikes in both the value-added tax rate (VAT) and the key interest rate. Whilst the increase in VAT from 18% to 20% that came into effect on 1st January 2019 is predicted to boost annual budget revenues by 620 billion roubles ($8.9 billion), experts firmly believe that Russia’s economic growth will be severely hindered and that inflation will likely speed up. Perhaps though that inflation growth may be limited thanks to the Bank of Russia’s decision to increase the key interest rate by 0.25% to 7.75% in a move aimed at adopting a more proactive approach towards uncertain external conditions but that analysts are also claiming may stunt Russian growth in early 2019 through a narrowing of the availability of private credit. Similarly, many Eastern European economies finished the year having achieved strong economic performance, with regional 2018 growth having clocked 4.2%, exceeding analysts’ 3.8% expectation.
However, on a regional level, the two-year growth spurt is expected to conclude as many of the major Eastern European economies approach the backend of their current business cycles and as the many other, export-orientated regional economies suffer from both a Eurozone slowdown and a decline in global trade. In Hungary, robust 2018 economic growth has not made headlines as the political climate has demonstrated large turbulence. In an attempt to combat the problem of rising labour shortages and consequential soaring wage rates, the Hungarian parliament has recently approved a law allowing employers to increase the quantity of overtime working hours that employees can be demanded to take on, a move which has been poorly received by Hungarian citizens. Romania also has had little time to celebrate its impressive 2018 growth as a recent vote of no confidence (which the current government survived) and the cabinet’s approval of drastic fiscal change have taken forefront. A tax on bank assets as well as on energy and telecommunications firms in addition to an overhaul of the current retirement system are among many of these new fiscal measures which are targeted at cutting Romania's ever-increasing fiscal deficit. Matthew Copeland
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04.02.19
EMERGING MARKETS
South Asia This week in South Asian economies we have seen major developments in the India with the announcement of a ten point plan for economic growth, coinciding with the announcement of the new interim budget. It is hoped that this new plan will allow India to become a $10 Trillion economy within the next 13 years. Furthermore, a possible lifeline has been handed to the Sri Lankan economy as the IMF has agreed to reopen loan program negotiations. The Indian economy has grown rapidly over recent years, with the services sector providing the main basis for economic growth. However, many social issues still exist and there has been an increasing divide between rich and poor. The new ten part plan attempts to tackle some of this inequality and promote sustainable economic growth. For example, one of the 10 points is to create an ‘infrastructure push’ which will allow for new large projects such as roads and railways while also providing clean and safe accommodation for all families in India. As well as this there is also a target for providing all Indians with safe drinking water and improving quality of life for those people in the coastal regions, many of which have huge economic potential.
It is clear from these reforms and targets that the key to long lasting Indian growth is not only based in providing economic stimuli but also enriching and enhancing individuals’ quality of life, which can provide sustainable growth well into the future. Additionally, the Sri Lankan economy has recently been struggling with large levels of debt. We can see from the chart below how debt has expanded rapidly which has led to a downgrade from various credit rating agencies. The fact the IMF have stepped forward in an attempt to resurrect discussions over the Sri Lankan loan program is vitally important to ensuring the debt problems can be dealt with, the economy is currently extremely fragile and must service $5.9bn debt this year while there are only $6.9bn in foreign exchange reserves left at the central bank. IMF intervention is therefore vital as it will help to stabilise the economy and ensure any potential default can be avoided. Ashley Brumfield
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. EQUITIES, COMMODITIES & DEALS Financials This week saw both the FTSE 100 (UKX) and the Dow Jones Industrial Average (DJI) deliver healthy performances. The former climbed from 6,787 points to 7,020 while the latter saw a rise from 24,405 points to 25,063.
In addition, this bank-wide yearly profit appears to rely solely upon the frugal cost cutting strategies deployed by fresh faced CEO Christian Sewing, as the bank also reported its eighth consecutive quarter of lessened revenue. With concerns over how the bank will reignite growth Asset management firms listed in the US saw 1% of across the board and specifically within its CIB their stocks wiped this week after a lacklustre division, combined with rumours of a possible showing in the fourth quarter reports. For instance, merge with Commerzbank, Deustche’s share Franklin Templeton, a $650bn-in-assets price dropped a painful 3.8% this week, which management house lost 6% of its market value only adds to its rocky fall over the last year (see after releasing their report. In line with a largely chart). terrible quarter for global equities, fund managers lost, on average, 26% in share value across the Nomura is another bank which reported year. somewhat worrisome earnings this week. The largest lender in Japan reported a loss of ¥95.3bn ($875m) for its fourth quarter of 2018. The bank Deutsche Bank released their long-awaited placed blame upon the trade friction between earnings report for the fourth quarter of 2018. China and the US reducing the level of financial Whilst they experienced a loss of €408m activity amongst Nomura’s core client base. throughout the fourth quarter itself, Deutsche managed to turn a yearly profit for the first time The Nikkei 225 Average, Japan’s primary index, since 2014, to the tune of €341m. The Corporate and Investment Bank division (CIB) appears to have reported a decline for the first time in seven struggled severely, with a 42% fall in revenues for years, which has undoubtedly had some effect on Nomura’s operations. Regardless of the the Fixed Income and Currencies unit - marking a speculated causes for this loss, Nomura has 10 year low for the typically prosperous unit. ordered a company-wide review of its business with potential to restructure its business model.
Sebastian Hodge
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04.02.19
EQUITIES, COMMODITIES & DEALS
Energy, Oil & Gas This week, US export sanctions on Venezuela and positive US-China trade talks ensured that both Brent and WTI crude oils continued their 2019 price revival. Brent crude rose by 2% during the week to close at $62.75 a barrel while its US counterpart WTI rose from $53.56 on Monday to $54.63 by Friday afternoon, enjoying a 18.5% January increase (see graph) - its strongest monthly rise in nearly three years.
On Monday, the White House announced that it was going to limit transactions between US companies and Venezuela’s state-owned oil firm PDSVA as it bids to pile pressure on Venezuelan President Nicolas Maduro. The move, long put off by the Trump administration who are pushing for low oil prices to bolster the wavering US economy, is expected to cut Venezuelan exports by 500,000 barrels a day and led to WTI and Brent crude futures rising 2.5% and 2.2% respectively on Tuesday.
Meanwhile on Thursday, Royal Dutch Shell shares were up 4.5% as it posted bumper fourth-quarter earnings to finish 2018 with a 36% jump in full-year profits to $21.4bn. The Anglo-Dutch merger profited from rising oil and gas prices throughout the bulk of 2018. What’s more, since 2014’s downward spiral of oil prices which wrecked the industry, Shell has focused on cutting costs and spending as well as completing the sale of $30bn in assets to shrink its debt pile, which grew with the $54bn acquisition of BG Group in 2016. Elsewhere, utility company PG&E filed for bankruptcy on Tuesday in anticipation of $32bn in lawsuits, including those of California’s deadliest ever wildfires in November. However, despite the bankruptcy announcement, stocks of the US’s largest energy provider soared by 17% on Tuesday. With listed assets of $71bn and liabilities of $52bn including the expected $32bn, many investors are sceptical whether PG&E is in fact insolvent or rather, trying to avoid liability meaning for once during a bankruptcy, equity investors would be in line for a pay-out. Hannah Cousins
Improved hopes of a US-China breakthrough during Wednesday and Thursday’s trade talks also boosted oil prices on Friday. Nevertheless, the slowing global economy has kept a ceiling on oil prices particularly after last week's Purchase Managers' Index (PMI) revealed that China's manufacturing sector contracted for the first time in 19 months. Analysts also remain cautious over the relentless US crude output which is expected to hit a record 12 million barrels per day by mid-2019. 14
NEFS MARKET WRAP-UP
Tech and FinTech US stocks incurred a rally fuelled by earnings from Apple and Facebook, even as Amazon earnings were disappointing for investors. Amazon stock fell as analysts see the outlook of the core retail business entering a period of slower growth, as shown by the graph. Its performance following the last two quarters of 2018 and the first quarter of 2019 have indicated “slowing trends across various parts of the business” according to Simeon Siegel, Nomura analyst. These pressures on Amazon’s growth have been brought about by new regulation in India which restrict Amazon’s e-commerce business however have also been fuelled by the expectation of Amazon increasing investments in 2019. This higher level of investment would eat into earning growth therefore has contributed to the downward pressure on the stock, causing a 4.2% fall on Friday to $1646.40. Nonetheless, the evolving outlook of Amazon growth was overshadowed by stronger expectations for Apple earnings. Despite a continuous weaker growth trend in iPhone sales, analysts expect Apple revenues from other products and services to continue to grow around 20% this quarter with total revenues between $55 billion to $59 billion.
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This positive forecast has been compounded by Facebook’s strong earnings report, displaying confidence that data privacy issues have not scared away users and advertisers. User growth for the firm grew 9% for the year to 1.52billion active users, whilst average revenue per user soared, helping to contribute to the overall uplift in the US stock market this week. Ant Financial, the payment affiliate of Chinese ecommerce giant Alibaba, has accounted for 35% of total FinTech funding last year, when receiving a total of $14 billion in total during 2018. The firm has been in talks with WorldFirst, a British money transfer company since last year, as WorldFirst seeks to expand into China’s market by planning to undertake a £700million takeover. In order to avoid the takeover deal being blocked by American regulators over national security concerns, WorldFirst has chosen to discontinue with its US operations, with the US branch now operating independently under the name Omega. This takeover deal would be Ant Financial’s first big push into the European market, whilst bringing new revenue from Japan India and Canada under WorldFirst’s current operations. Amar Toor
04.02.19
EQUITIES, COMMODITIES & DEALS
Pharmaceuticals Swiss pharmaceutical company, Novartis, have experienced rising net revenues in Q4 of 2018, driven by sales of Entresto, a medication used to treat heart failure. In addition, the firm reported a net sales figure of $13.3bn in Q4, 6% higher than the previous year as a result of both Entresto and Cosentyx sales.
A contributing factor to the share price’s demise was Allergan’s reconsideration of plans to sell its women health business, instilling a lack of confidence in stakeholders. The firm also announced a drop of 5.7% in revenue from Q4 2017 to Q4 2018, caused by a fall in sales of Restasis by 18%.
Overall net sales grew by 5% to $51.9bn over the course of the year with the firm predicting a similar percentage increase through 2019. Novartis’ CEO accredited these impressive figures to the change in the firm’s direction towards the innovation of new medicines. Novartis will pioneer 10 new medicines to be launched by 2020 causing analysts to predict strong growth for the foreseeable future, as illustrated below.
Not only this, but Allergan is also underperforming on its predictions, expecting net revenues to reach a maximum of $3.55bn this quarter, missing analysts’ predictions by nearly £100m. Allergan’s drastic change in fortunes has also led to an operating loss of $5.4bn compared with the figure of $90.4m in the previous year which translates to a loss of nearly $13 per share. US pharmaceutical giant, Pfizer, have downgraded their 2019 sales forecast by $900m causing them to fall short of analysts’ predictions of $52.5bn. The devaluation comes after the firm announced the effects of the current strong dollar on their international trade. Since almost half of the firm’s revenue comes from outside of the USA, the strong dollar has caused a fall in competitiveness of Pfizer’s exported goods, translating to a reduced forecast of $900m. However, the firm’s share price has increased by 9 per cent this year and the general consensus is that of recovery.
Irish-based Pharmaceutical firm, Allergan, was the worst player on the S&P 500 after releasing poor performance figures for the year. As a result, the firm’s share price fell by 7.4% to $146.93, the greatest fall of any share price listed on the S&P 500.
Usmaan Jamil
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NEFS MARKET WRAP-UP
Mergers & Acquisitions Management at Germany’s largest lender, Deutsche Bank are bracing for a potential government brokered merger with rival Commerzbank AG as they anticipate the release of fourth quarter results. Analysts expect a fall in revenue for the fourth quarter, which will be the eighth consecutive fall for the bank, after attempts to restructure have been unsuccessful. Share prices have struggled recently, standing at 7.75 euros a share at market closure on Thursday, down 3.96% (see graph). Similarly shares in Commerzbank tumbled on Thursday, falling to 6.26 euros a share compared to 6.71 at opening. Some predict that the merger will not solve Deutsche Bank’s main issue of client growth, as Commerzbank is considerably smaller than Deutsche, with total assets at $513.07 billion compared to Deutsche’s $1.88 trillion. Many board members have openly criticised the possibility of a merger, with CEO Christian Sewing ruling out any possibility of a merger before 2020. The merger will not necessarily increase Deutsche’s presence in the international market when it comes to attracting clients, despite gaining market share domestically. As of 2017 Deutsche Bank had 3.2% of global market share for investment banking activities compared to 4.9% in 2015 while competitors like Barclays have seen an increase.
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The World’s largest ship building company, Hyundai Heavy Industries (HHI) based in South Korea is in talks to buy state owned Daewoo Shipbuilding and Maritime Engineering (DSME). The Korean government have expressed their desire to find a buyer for DSME after it experienced considerable financial distress as a result of the ship building downturn of 2015-2017. The Korean government became the largest shareholder owning a 55% majority stake in DSME after a series of bailouts in 2017. It has been reported that Hyundai have been in talks to buyout Daewoo for around a year, with DSME CEO signalling that he is positioning the firm to be sold. The merger would boost competitiveness for South Korean shipbuilding allowing it to compete with state-owned Chinese conglomerates like the China State Shipbuilding Corporation (CSSC). The amalgamation of HHI and DSME would result in revenues of more than $75 billion, which is more than the total of Korea’s ‘big three’ ship builders combined. CSSC reported earnings of $29.8 billion in the last fiscal year while the China Shipbuilding Industry Corporation (CSIC) reported revenues of $44.4 billion, reasserting South Korea’s position as the world’s largest shipbuilder. Oscar Miller
04.02.19
.CURRENCIES Major Currencies The Euro endured a difficult week off the back of disappointing growth within the Eurozone, especially in Italy. The Euro/US Dollar exchange rate moved from 1.13223 at 12:00 25 Jan to 1.14716 at 12:00 1 Feb, one week later.
In spite of the Euro's poor performance, the UK Pound has failed to capitalise, predominantly due to ongoing uncertainty regarding Brexit. The Pound/Euro finished the week at 1.1389 at 12:00 Feb 1, down from 1.1534 at 12:00 Jan 25.
The Eurozone experienced just 1.2% growth in 2018, having slowed down significantly over the latter half of the year, growing only 0.2% quarteron-quarter in Q3 and Q4. However, even more alarming news is the current economic state in Italy, the third biggest economy in Europe. Consecutive quarters of negative growth, -0.1% in Q3 and -0.2% in Q4 mean that the Italian economy is officially in recession, the first major EU economy to do so since 2013. Additionally, inflation rates of just 1.4% demonstrates further stagnation within the Eurozone, all leading to a weakening Euro.
Following Tuesday's parliamentary Brexit debate, where MP's voted to scrap Theresa May's backstop plan, led to the pound depreciating further against the Euro. The vote forces the prime minister into a difficult position now given that the European Union have clearly stated that they will not reopen negotiations over the withdrawal agreement. Although the pound recovered later in the week against the Euro, following negative figures released by the Eurozone's Purchasing Managers' Index (PMI) which was very close to complete stagnation.
The diagram shows the weekly appreciation of the Dollar against the Euro, including a large fluctuation on 31 January, where the Eurozone and Italy's poor growth figures were released. Furthermore, the negative inflation of -0.8% coming from Germany, offer greater concern for the value of the Eurozone and long-term growth prospects within the Eurozone. The likelihood is that the European Central Bank will keep interest rates very low, discouraging further investment in the Euro.
This recovery could yet be reversed though, when the UK's PMI figures are released for January, which forecasts predict will show deterioration in the manufacturing sector. Whilst the Euro has suffered this week, the longterm forecasts remain stable, as whilst Italy's economy has contracted, it is only by a small percentage, and the Eurozone remains stable if not particularly strong.
Joseph Houghton
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NEFS MARKET WRAP-UP
Minor Currencies The Australian Dollar (AUD) remains well positioned against its peers after a week of gains against the Pound (GBP) and US Dollar. The AUD had gained +0.14% in a day, on Friday, against the Pound Sterling (GBP), following a weaker than expected UK manufacturing Purchasing Managers Index (PMI) performance. This comes after a surge on Wednesday (30/01, for graph) of the AUD against the US Dollar (USD), after sharp falls of the USD following the outcome of the Federal Reserve’s first policy meeting of the year. The Fed decided to keep interest rates on hold following a hike in December. The AUD/USD rate climbed from 0.7155 to 0.7260 (see graph), a gain of 1.4% in a day. Further driving the AUD’s gains last week was the recent upswing in commodity prices, particularly that of iron ore, which accounts for around 20% of Australia’s total exports. Meanwhile, the South African Rand (ZAR) has been one of the biggest beneficiaries of the Federal Reserve’s gift to emerging markets. The ZAR has strengthened 7.4% against the dollar in January, the ZAR’s best start to the year ever recorded by Bloomberg, since it began tracking in 1998. This also makes the Rand the best performing currency in the world this month. However, although the general risk environment has improved, the risk sensitive currency is still weighed down by US-Sino tensions and continued Brexit uncertainty.
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The Rand may also be in for more gains in February. Historically, the rand has strengthened against the dollar in February for 7 of the previous 10 years. However, the rand has a volatile nature, being a very risk-sensitive currency. For example, the ZAR slid following news of renewed US-Sino tensions, as the US Department of Justice began filing criminal charges against Chinese Tech Giant Huaiwei and their CFO, Meng Wanzhou. The ZAR slid against the GBP as news broke, before regaining momentum in the early hours of Tuesday. The rand further strengthening in February would also be impeded by the slowdown of the Chinese economy, which would be a cause of concern for all emerging markets. The Canadian Dollar (CAD) also strengthened last week as a dovish Fed sunk the dollar, boosting stocks and crude oil prices. The monthly Canadian GDP report confirmed that the economy contracted in November, by 0.1% month on month- which was in line with estimates. Probabilities of an interest rate hike dropped simultaneously dropped, yet the CAD remains relatively strong at the close of last week.
Rudai Wang
04.02.19
Currencies
Cryptocurrencies On Saturday, Bitcoin (BTC) officially passed the threshold for longest bear market in history at 411 days. Due to a sudden sell-off, BTC hit a fresh sixweek low of around $3350 on the 28th. In total, the currency is down 7.6% this month, and has crashed below a vital long-term support which likely indicates further sell-offs in the short term.
BTC and Ethereum (ETH) both remained below their respective short-term resistance levels, which signals no end to the current bear market. However, ETH is still relatively weak, trading at $107.49 on Friday and a quick change in price action is needed to avoid Ethereum falling below the $95-$100 mark. O
According to Morgan Creek Digital, Bitcoin is likely to fall below $3000 before making a bullish run. It is currently trading at $3488.79, up 0.8% from the previous close according to CoinMarketCap; trade volumes have also declined this week, falling from $6bn on Monday to $5.5bn as of Friday. The sudden sell-off cause the crypto market capitalisation to bottom out at $111.3bn this week. It has since recovered and reached $114.5bn on Friday afternoon (see graph).
n a more positive outlook, Litecoin (LTH) is still trading above the $30 support line, trading at $33.18 on Friday. However, as it failed to break through the $34.50 resistance level on Wednesday, Litecoin is likely to test the $28 support in the coming days. Stellar (XLM) is in trouble as it remains in unknown territory with a lack of technical reference indicators. XLM/USD (Stellar/US Dollar) has lost over 25% in value since early December, with no sign of change - stellar is trading at $0.082278 as of Saturday. XLM/BTC (Stellar/Bitcoin) also breached a critical demand zone which has resulted in greater selling pressure.
Ripple’s surge in price on Wednesday led to a rally which quickly ran out of steam. The majority of cryptocurrencies failed to make meaningful technical progress and the bearish forces affecting the market remained strong. Ripple (XRP) briefly traded above the $0.33 level but the bearish market quickly dragged it back down. Ripple is trading at $0.308989 on Friday, following a 0.25% 24hr decrease.
The hardest hit this week, altcoin Dentacoin, lost over 65% of its value in just under 12 hours on Friday, plummeting from $0.00000072 to $0.00000025. Rhys Dil
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