Week Ending 31st March 2017
NEFS Research Division Presents:
The Weekly Market Wrap-Up 1
NEFS Market Wrap-Up
Contents Macro Review 3 United Kingdom United States Eurozone Japan South Korea Australia & New Zealand Canada
Emerging Markets 10 China India Russia and Eastern Europe Latin America Africa South East Asia
Equities 18 Financials Technology Oil & Gas
Commodities 21 Energy
Currencies EUR, USD, GBP 23
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Week Ending 31st March 2017
MACRO REVIEW
United States After close to a decade of low-interest rates and a slow but steady growth rate, the U.S economy has officially recovered (woohoo!!). With the unemployment rate at 4.7% and the Fed close to achieving their goal of a 2% interest rate, John Williams, head of the Federal Reserve Bank of San Francisco dubs it the “Goldilocks economy”. With 2016 and the Great Recession behind us, what could possibly go wrong? A government shutdown in April, the country’s debt doubling over the next thirty years, or finding out you’re being replaced by artificial intelligence at work. Unlike Goldilocks, these events could actually happen. The Federal Budget expires on the 28th of April. If Congress fails to pass a spending bill by then, President Trump will celebrate his 100th day in office with a partial government shutdown. There are multiple scenarios that could lead to a partial government in April. The likely culprit is the President pushing for a budget that defunds Planned-Parenthood, and pushes for spending on a Sothern border wall. According to Senate Minority Leader, Charles Schumer, "that will not stand". Based on the 2013 partial government shutdown, we should expect to see nonessential government agencies being closed.
As for the debt doubling over the next thirty years, we can put that one on the massive tax cuts that the President is promising. Analysts say Trump's tax proposals could add $7 trillion to the debt in the first decade. The Congressional Budget office estimates by 2047 national debt to be 150% of GDP. It’s currently at 77%. Thanks Obama. However, he did inherit an economy with unemployment at 10%, a global financial crisis, and somehow provided healthcare to 22 million Americans, so again, thanks Obama. Last but not the least, what are the odds of being replaced by a robot at work? According to a report by PwC, over the next 15 years, 38% of jobs in the U.S. are at risk of being replaced by artificial intelligence. However, this shouldn’t be thought of as the rise of the machines, instead, it should be thought of as the reshuffling of the job markets which creates a new pool of employment possibilities. The bottom line is someone has to program them. But don’t worry, the future isn’t all doom and gloom. After all, the key behind the Great Sphinx of Giza was perseverance. Disun Holloway.
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NEFS Market Wrap-Up
United Kingdom Theresa May triggered Article 50 this week, hence starting the formal process of the UK leaving the EU. Whilst the short-term implications are unlikely to be dramatic, the long-term implications are uncertain and could have profound effects on the UK economy. Consequently, the Bank of England (BoE) announced that the UK’s biggest banks will be stress-tested on their ability to stay afloat in a worst-case Brexit scenario. This banking group incorporates the UK’s seven largest lenders (Barclays, Santander, RBS, Nationwide, HSBC, Lloyds Banking Group and Standard Chartered), of which account for more than 80% of lending. The scenario will encapsulate the pound plunging 32% against the dollar and inflation spiralling to 5%. The banks will also be tested on their ability to respond to a deep UK recession, with output slumping to 4.7% and interest rates rising to 4%. Furthermore, it has been predicted by several experts that the BoE could announce another round of quantitative easing, should the UK economy fall back into recession following Brexit negotiations. Victoria Hasler, Head of Research at Square Mile Investment Consulting and Research, said such a situation would likely cause a new issuance of quantitative easing, with the BoE having made it clear recently that altering interest rates was an unlikely solution. Since September, the
BoE has also been undertaking an 18month corporate bond purchase scheme in order to support the post-Brexit referendum economy. In addition to Brexit, the BoE has highlighted the recent jump in household debt as posing a serious danger to the UK economy. The BoE’s Financial Policy Committee (FPC) declared that UK household indebtedness remains high by historical standards and is rising greatly relative to incomes (see below). This poses a great risk to lenders, if accompanied by weaker underwriting standards. Yet despite all the current uncertainty, Qatar’s Prime Minister announced a vote of confidence in the UK economy, stating Qatar will invest £5billion in the UK over the next 5 years. This will be achieved through various investment projects that will focus on energy, infrastructure, real estate and services. It is in addition to many other successful investments in the UK, including Qatar’s involvement in the Shard and Harrods department store. At the moment, overall UK investment from Qatar stands at £40billion. Additionally, reports have emerged that Qatar and several other Gulf States have been looking to sign free trade agreements with the UK. Charlotte Alder
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Week Ending 31st March 2017
Eurozone Inflationary pressure in the Eurozone fell sharply in March, slipping back from reaching the target rate in February. Data from Eurostat, statistics department for the European Commission, reveals that the annual rate dropped to 1.5% this month, down from the promising 2% in February. This unexpected drop is most likely the fallout of a spike in oil and food prices earlier this year; nonetheless, the current rate exceeds inflation throughout 2016 (see below). The slip in price pressures should also mean an easing of the pressure on the president of European Central Bank (ECB), Mario Draghi. Slowing inflation softens the argument made by German interest rate hawks that the current 0% interest rate is punishing savers. When February’s inflation data was discussed by the ECB governing council in early March, the rate had exceeded the target of “below, but close to, 2% over the medium term”, prompting calls for a more optimistic monetary policy. Regardless, Draghi left policy largely unchanged so as not to shock markets into misguided action. The ECB will continue its quantitative easing programme, buying €60bn of government bonds each month from April until the end of the year. Richard Barwell, economist at BNP Paribas Investment Partners, justifies this course of
action - “If you have made the case that you can’t consider an exit from monetary stimulus until you see a pick-up in underlying inflation, then you can’t do anything yet. There is no evidence of an uplift in inflation.” Monetary policy for 2018 is likely to be revised and decided according to present conditions as 2017 draws to a close; by that time, both the French and German presidential elections will have passed, potentially leaving a vastly different political climate in anticipation of Italy’s February elections. Wednesday’s triggering of Article 50 is a symptom of the underlying problems with the EU and the Eurozone, alongside other Eurosceptic movements. One solution, long championed in France, is a complete fiscal union to allow the monetary union to function properly. It is vastly unpopular in Germany and other northern European economies, who feel they will be charged to balance out regional disparities; yet European Commission vice-president Jyrki Katainen, of the powerful centre-right EPP, has expressed that there is now greater willingness to make the monetary union work - "Because of Brexit, the sentiment of the remaining 27 countries on reforming the EU has strengthened, with a focus on EMU." Jamie Peake
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NEFS Market Wrap-Up
Japan The effects of a tight labour market are being realised in the wages for part-time or physically demanding jobs and for experienced workers in certain markets, such as information technology. The unemployment rate fell in February to 2.8%, while the ratio of job offers to job seekers fell to a fifteen-year low of 1.43 in January. That wages will rise given a shortage of labour is no surprise, but it will build momentum needed to escape a trend of deflation. According Junichi Makino at SMBC Nikko Securities, “If the increase in labour costs is duly reflected in the prices of services, real wages should go up, which would then stimulate consumer spending.” Already, consumer prices, excluding fresh food, rose 0.2% y/y in February. Household spending, however, is lagging. In February, spending shrank -3.8% y/y, continuing a year-long decline. This concern will be one to pay careful attention to in the future. The burden of economic recovery rests on the propensity of Japanese workers to spend. Crucial to encouraging this is improving market expectations and inspiring confidence in economic growth. The Bank of Japan attempted to do this by firmly asserting its devotion to achieving its 2% price target. Since November, conditions have suggested it may slowly be successful. The
weak yen provided a large boost to the economy, but there is concern that this run is at its end. While the bank claims that there is a 10-yen cushion within which the dollar exchange rate can move, turbulent international events, including the coming French election, may see capital flock back to relatively stable Japanese securities, leading to an appreciating yen. The massive industrial group Toshiba began the process of removing the US nuclear power company Westinghouse from its books. Westinghouse, acquired by Toshiba in 2006, faced increasing losses from a slump in nuclear energy demand. Now, the Toshiba board has approved plans for the nuclear unit to file for bankruptcy protection. While this will improve earnings by ¥350 billion, responsibility for Westinghouse’s debt from project delays means that Toshiba will post an operating loss of 1 trillion yen for fiscal 2016. The group is reliant on the sale of its memory chip subsidiary to recoup the loss. Yet as both the bankruptcy filing and the spin-off memory operation are subject to intervention from the Japanese and US governments for national security reasons, negotiations may be protracted, to Toshiba’s dismay. Daniel Blaugher
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Week Ending 31st March 2017
South Korea South Korea releases its awaited GDP growth figures for the final quarter of 2016 as well as data on business confidence. Samsung is also preparing to launch its new smartphone to restore confidence in the company amid its recent corruption scandal and last year’s fire catching phone disaster. Last Monday South Korea released its year over year GDP growth rate for Q4 2016, reporting at 2.4%. This figure exceeded the 2.3% consensus forecast. Growth in the South Korean economy was largely driven by a stronger than expected manufacturing and construction, which grew 2.7% and 10.1% respectively. Agriculture businesses unfortunately shrank by 4.7%. More positive news is with improvements in business confidence for the month of March. Although business confidence reported a 79 where a reading below 100 indicates a deteriorating outlook, this is the highest reading since 2015. Since the beginning of 2017, business confidence has been trending upward out of the 71-72 range it had been stuck in for most of 2016. Now we’ll move on to new business developments as Samsung prepares to roll out its new smartphone, the Galaxy S8. This new product brings several new features to the table that make it a desirable
upgrade for holders of the Galaxy Note 7, including the “infinity display” screen, which partially wraps around the edges of the phone. A smooth launching of the Galaxy S8 is seemingly critical for Samsung’s position in the smartphone market in light of its troubles with the Note 7 catching fire. “This device is the first real test that Samsung has had since the Note 7 disaster, which is why the S8 needs to sell very well, confounding the big fall in trust that Samsung has suffered over the last six months,” says analyst Richard Windsor in an interview with the Financial Times. The stock is currently trading at Won2.06mm. This week, big data releases are coming out. South Korean inflation is reported on Monday, with consensus forecasts at 2%. The central bank directs its monetary policy to target 2% inflation over the medium term. Foreign exchange reserves data is also released on Monday. Reserves are expected to increase to $375B from last month’s $373.91B. The current account, which measures imports and exports, is released on Tuesday. South Korea has been a trade surplus nation since 2012 and is projected to increase its surplus to $6.8B for the month of February. Dan Minicucci
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NEFS Market Wrap-Up
Canada With GDP figures for January set to be released, economists are already revising upwards their predictions for growth with market consensus increasing forecasts to 0.4%. Coupled with employment gains, the projections are emblematic of rising confidence in the Canadian economy. Furthermore, with interest rates approaching zero, a weak Canadian dollar and a recuparating energy sector, it would certainly seem intuitive to see a thriving economy over the course of the year. However, the Bank of Canada remain circumspect of dwindling business investment, which lags significantly behind US investment. In fact, investment spending by corporations shrank 15% in Q4 2016, and 8% overall for the year. With business investment comprising a substantial 12% of Canada’s GDP, the BoC considers slowing investment a harbinger for future stagnation and waning consumer and business confidence. A precarious market for minerals, coupled with a strengthening Canadian dollar are likely culprits for the fall in investment, stymieing spending in Canada’s mining and exploration sector, followed by a contraction in the energy sector throughout 2015 and much of 2016. However, more recently, alterations in global demographics may be stalling investment growth according to the BoC, with aging populations in advanced nations impeding labour force growth.
Given emerging fragilities in the economy, the BoC is visceral to err on the side of caution despite recent data pointing to an ameliorating economy. Governor Stephen Poloz referred to the transient nature of ‘positive data points’ in the past 3 years, and said the case for interest rate cut in April remains tenable. Although Poloz believes the economy is aligned with the US, the economy still has excess capacity and scope for enhanced recovery following the oil price shock. Thus, economists predict the interest rate to increase until mid-2018. The greatest uncertainty plaguing the economy remains US attitudes towards foreign trade with Canada, particularly after Trump lambasted NAFTA as ‘the worst trade deal’ and his presumed penchant for insular and protectionist trade policies. The BoC expects GDP growth to increase to 2% in 2017 and 2018, underpinned by the expansion of the service, as with any developed nation. However, a thriving services sector simply cannot stimulate the considerable spending and investment that the energy & natural resources sector has in the past. Perhaps Canada will transition away from traditional investment in physical capital, and towards more contemporary spending in intellectual property, software, and research & development. Usman Marghoob
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Week Ending 31st March 2017
Australia and New Zealand Floods in Queensland, Australia have left two dead and four missing after torrential rains dropped before a potent tropical cyclone. Hundreds of soldiers have been mobilized for clean-up through the aid of helicopters and plane, in the hopes of restoring infrastructure and providing emergency supply. Catastrophe in this region has added $1 billion AUS to the damage bill provided by the Insurance Council of Australia. The toll the devastation caused by Cyclone Debbie will have on the economy of one of the biggest mining states is yet to be determined. During 1969, the main Australian export was agricultural products, meanwhile minerals and fuel only accounted for 17%. However, in present days minerals and fuel accounts for 64% of exports due to growing demand from Asia. Additionally, innovations such as drones and semiautonomous equipment have boosted productivity, yields, and safety on mine sites, hence allowing the expansion of the industry. A new report released by Deloitte finding mining and mining equipment, technology and services (METS) sector has accounted for 15% of Australia’s GDP. This report highlights the importance of the sector to Australia’s economy, hence the impact a
natural disaster like Cyclone Debbie could potentially shake up the economy and slow down growth. In total, the METS sector contributed with AUS $236.8 billion between 2015-2016, adding 1.1 million jobs nationwide. This accounts for around 10% of overall employment, most of which is mainly in Western Australia. The contribution made by the sector in the WA region explained 88% of the region’s overall GDP. However, despite catastrophe striking the coast of Australia, the countries’ economists remain optimistic. Craig James, a senior economist at the securities unit of Commonwealth Bank of Australia reflecting expressed to Bloomberg “there should be “minimal impact on broader economic growth” as the storm is hitting late in the March quarter”. He also added that “any delays to production should be caught up over the June quarter. Any repairs to damaged buildings and infrastructure will boost economic activity over coming quarters”. Although Cyclone Debbie may have hit the 15% contributor to Australia’s GDP, a positive outlook remains intact as there is hope for increased productivity in the calm after the storm. Maria Fernandes Camaño Garcia
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NEFS Market Wrap-Up
EMERGING MARKETS China
Following a quarterly meeting of China’s monetary policy committee, the bank released a statement saying that although the economy remains “generally stable” there are “complexities that cannot be underestimated”. This was a sentiment echoed by the People’s Bank of China whose governor, Zhou Xiaochuan, said in a press conference on Saturday morning that through a “prudent and neutral monetary policy” structural reform will be successful. He also said that the decline in China’s foreign reserves from $4 trillion to $3 trillion was “not bad”, further commenting that reserves are there to be used. The bank’s need to “fine-tune financing and loans when necessary”, was an important point raised considering that loans to China’s household sector rose by 64% in 2016 and the total stock of household loans is up by 25% since February this year. Zhou emphasised how this rise in household credit is expected to lead to an increase in demand in many different industries in China, and that policy adjustments are required to ensure that risks in the financial sector are reduced. The bank’s vice-governor brought up the issue of China’s corporate leverage which
when globally compared is quite high; China’s corporate sector is carrying an estimated $18 trillion of debt. A Reuters survey carried out in 2016 found that a quarter of firms did not have profits adequate enough to fund debt servicing obligations. Zhou said that this problem must be addressed and that until it is, banks should not support companies with high leverage. The graph below shows China’s soaring debt levels as a percentage of GDP. Much of the vast investment into China’s infrastructure over the past few years has been through bankissued debt in the form of loans and bonds with the biggest borrowing sectors – property developers, oil and gas companies, mining firms, construction and engineering firms, and utilities companies – holding 60% of total national corporate debt. Over the next few months, it is anticipated that China will continue to keep a close eye on its debt levels as well as focusing on encouraging the development of its technology and financial sectors. In particular, combining the two together to create more user-friendly systems and payment services. Nikou Asgari
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Week Ending 31st March 2017
India The main economic news emerging from India over the past week involves India’s current account which measures the value of the outflow of exports, imports, and investment transfers. The statistics illustrate that India’s current account deficit for the last three months of 2017 stands at USD 7.9 billion or 1.4% of GDP. This deficit was higher than the figures recorded at the same time last year where the current account deficit was revealed to be USD 7.1 billion. The diagram below illustrates the trend rate for India’s current account position over the past three years. The main factors responsible for the increase in the current account deficit have been due to the reduction in the surplus offered by services which is India’s most efficient exporting sector. The services surplus fell from USD 18 billion last year to USD 17.6 billion this year. Elsewhere, the current account figures were also dampened by falls in earnings provided by software and other financial services. However, there has been some minor improvements offered to the current account position by the fall in the trade deficit provided by goods from USD 34 billion to USD 33.1 billion. Looking at India’s short and medium term growth prospects, it appears evident that India has enormous potential to become
one of the world’s leading economies. The demonetisation programme has provided an economic shock to India’s banking system, causing instability in growth rates and causing the Reserve Bank of India to adjust its policy goals. Nevertheless, it is hoped that the decision will have long term benefits by removing the threat of the black economy and encouraging more people to become more integrated into the formalised economy. Overall, the demonetisation scheme can be viewed as part of a wider wave of reforms taken by the Indian government to liberalise trade, open capital markets and increase growth provided by the private sector. The government is looking to implement the necessary domestic and external reforms to ensure that India can increase its trade to GDP ratio and promote foreign direct investment into India. Conversely, India faces several social and economic challenges which must be addressed to ensure that it reaches its growth potential. These include guaranteeing India’s workers have a high level of education; considering the environmental implications of rapid growth and hoping that the external global system continues to promote the benefits of trade. Isher Hehar
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NEFS Market Wrap-Up
Russia and Eastern Europe After the encouraging news of last week that the bank of Russia would be dropping the nations interest rates to 9.75% from 10%, the latest GDP figures for the country were published on Friday with more promising news with regards to its recovery. The figures show that Russia’s economy returned to growth at the end of 2016, turning the page on seven consecutive quarters of contraction that laid waste to the middle class after oil prices crashed. Gross domestic product gained 0.3% from a year earlier in the fourth quarter after a decline of 0.4% in the previous three months, the Federal Statistics Service said Friday. GDP shrank 0.2% in the full year, the statistics service said, confirming its first reading. The challenge for the world’s biggest energy exporter now is for its recovery to gain traction as consumer demand continues to sag and the outlook for oil remains dim. Russia may now be at a turning point as capital-intensive businesses come to life after three years of declining investment that followed the collapse in crude prices. Officials gave further positive outlooks with GDP
projections being as much as 2% this year, according to officials. Capital expenditure and an increase in inventories were the growth drivers but this year, household consumption and investments are necessary for economic expansion. While a recovery in real wages and disposable incomes will support consumption, investments may be restrained, depending on corporate incomes. The ruble is among the world’s top three performers this year, adding to its best-ever year in 2016, as the central bank maintains its carry-trade appeal. The Russian currency appreciated almost 9% against the dollar in 2017. Despite this, the breakdown of GDP components for the fourth quarter shows the economy isn’t in the clear yet. Mining and manufacturing shrank, reversing gains earlier in the year, while construction as well as retail and wholesale trade continued to contract. The best performers included utilities and agriculture, according to the data which proves the continued strengthening of the Russian economy. William Bunnis
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Week Ending 31st March 2017
Latin America This week is the final edition of market wrap up this academic year; I will provide my views on the future prospects of the region until Market Wrap-Up begins again in October. Also this week, Mexico’s central bank raised the nation’s interest rate. Brazilian economic data released this week solidifies my view that the supposed Brazilian recovery from recession is nonexistent. First to Mexico, the BCM delivered a 25 bp increase in the nations key lending rate, bringing it to 6.5%. The rate rise was in line with market expectations and the move comes to keep pace with the rising inflation in the Mexican economy. “Since the last monetary policy decision, the conditions in national financial markets improved significantly”, Banxico said in its statement, through it acknowledged external uncertainty remained. The peso rallied in anticipation and trading around 18.63 just after the announcement. Banxico has voted to increase the nation’s key interest rate 6 times in just over a year, and the result, according to Luis Arcentales at Morgan Stanley, is that “the peso no longer stands out within the emerging-market space as a cheap ‘proxy hedge’”. According to the majority of analysts, inflationary pressure looks set to continue into the medium turn, depending on the
performance of the peso, and American politics. Friday saw the announcement of Economic Activity and Unemployment data for Latin America’s largest economy. Brazilian Economic Activity was down 26 bp, compared to the consensus amongst analysts of around -0.1% and the forecast rate of 0.13%. The decline confirms that unlike what the majority of analysts believe, Brazil is not emerging from recession. Merely the, recession is perhaps bottoming out. The unemployment rate for February only serves to further this. Unemployment rose to 13.2% in February, from 12.6% in January. The forecast rate was just 12.7%. Since early 2017, analysts have been outsmarted by the economy, whilst they remain consistently optimist about the Brazilian economy. My predictions for the major Latin American economies in the medium term are positive for Mexico, whilst negative for Brazil and Argentina. As for the long term, and for the smaller economies of the region, too much is dependent on the performance of the world economy as a whole to make an accurate judgement. Alistair Grant
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NEFS Market Wrap-Up
Africa If South Africa’s new finance minister, Malusi Gigaba, represents anything, it is alacrity. In a dramatic move, he has pledged to make ‘radical transformations’ to the country’s economy, even though he has only been in the post for 48 hours. Gigaba profited from Jacob Zuma’s – South African new finance minister – decision to purge his cabinet, sacking a predecessor who enjoyed widespread support amongst the people of South Africa. Perhaps, this is part of the reason that the African National Congress Party (ANC) has suffered a sharp decline in support. It now faces one of its biggest tests since it’s ascension to the political throne in South Africa’s first free elections in 1994. Bitter schisms within the party are threating the ANC’s power. Gigaba is planning to embark upon radical economic change by redistributing the wealth, land and opportunity to the large black majority of the population. In a country known for its stark polarization and contrasts, Gigaba has vowed that the ownership of wealth and assets can no longer remain so concentrated in the hands of such a small part of the population; more than 90% of the country’s wealth is in the
hands of 10% of 54 million inhabitants. This author agrees with his departing sentiment: ‘this must change’. However, whilst this scrupulous agenda may mean a significant rise in South African borrowing, which in turn will hinder economic ambition within the country. In other news, for only the second time since 2011 the Ghanaian central bank has cut its main policy rate by 200 basis points this month, stemming from a drop in inflation earlier on in the year. It has come as a surprise to analysts who had not predicted any forecast change in the West African economy. Inflation has incrementally decreased for five consecutive months, giving the policy makers in Ghana the ability and freedom to cut interest rates down to 23.5%. The annual price of growth still remains above the central banks aims, but prosperity in Ghana may just be on the horizon. If Africa as a whole is going to move forward, it really needs to band together and purport a united front, if it ever wants to progress from the doldrums it currently lurks in. Vincent Egunlae
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Week Ending 31st March 2017
Southeast Asia Vietnam posted lacklustre GDP figures this week, as growth slipped to a three-year low in the first quarter of 2017. The General Statistics Office (GSO) for Vietnam announced on Wednesday that the economy only expanded 5.1% year-onyear (see chart below), well below both market expectations of 6.25% and the preceding quarter’s expansion of 6.68%. Analysts have largely attributed this lack of growth to weak balance of trade figures. Exports grew by just 12.8% in March, as production was hit by volatile weather conditions and a declining phone sector. Vietnam, a major rice and coffee exporter, suffered from declining agricultural output as the adverse effects of last year’s drought extended into 2017. Indeed, the sector grew at its second slowest rate since 2011. Moreover, Samsung – the country’s largest exporter – cut production in the wake of serious technical problems with its Galaxy Note 7. This resulted in phone exports contracting by 10.7% over the last month. At the same time, imports rose a huge 22.4% year-on-year. This was largely due to an 11.4% contraction in Vietnam’s mining industry, which forced local firms to import energy from abroad, and wiped 2.5 percentage points off the country’s GDP.
for March suggests softer price growth in the economy. Moreover, Vietnam’s tradeto-GDP ratio of 179% is the largest in the region, so the country is highly vulnerable to the growth of protectionism in the world economy. In an attempt to combat this, the Minister for Industry and Trade has recently urged local exporters to diversify in an attempt to create an economic structure that facilitates stable growth. Despite this setback for Vietnam, regional growth for Southeast Asia is still likely to improve this year. The region benefits from a young workforce, strong productivity growth, and has shown itself willing to cooperate efficiently on a number of policy issues. Whilst there are a number of domestic threats facing the region, such as a decline in democracy and a growth in corruption, it is unlikely that they will act as a major impediment to growth in the short term. Provided there are no major global shocks or domestic coup d’états, growth should be strong in 2017. Daniel Pettman
The GSO director warned on Wednesday that “there are signs showing that it will be very challenging for Vietnam to meet the government’s 6.7% full-year target.” The country is continuing to struggle with low labour productivity, and new inflation data
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NEFS Market Wrap-Up
EQUITIES Financials In this article, we take a final look at the week’s financial market. As ever, we see winners and losers, though this week we also consider analysis for the future of these firms. Of the many firms in this sector, we focus specifically on American Insurance Group (AIG) and Swiss bank Credit Suisse. First, we consider AIG, an insurance company that has had a good week, and is predicted to have an equally strong year. The American insurer opened the week on a mediocre $60.14, however over the course of this one week the share price has risen by approximately 4.5%, reaching a high of $62.83 on Thursday 30st. Such was the positivity in the week that the price rose 1.6% in one day, Tuesday 28th. The positive atmosphere around the insurer comes as price targets have been released be a few reputable banks - a projection of future price of a company’s stock by the expert analysis of investment analysts or investment firms. Although American International Group currently has a consensus price target of $68.87, doing well to achieve this, Deutsche Bank has improved their rating to $75. Hence, there
is clear positivity surrounding AIG, and this is indeed a stock to keep an eye on. Secondly, we look at asset management giant Credit Suisse. The bank entered the week on news that announced selling 2030% Swiss business through an initial public offering (IPO), for up to 4 billion francs. This led to an immediate fall in shares price by more than 3%, the biggest decliner in the Stoxx European banking index. However, since then, Credit Suisse’s shares rose 0.8% after Switzerland's second biggest bank released its report. The positive affect of the report has led to a weeklong increase of 5.8%, reaching a high of 15.16 Francs. However, in the last day (31st March), the Bank has been hit with a sweeping tax evasion and money laundering investigation spanning five countries and potentially involving thousands of accounts holder. Consequently, this scandal which could span the next few weeks will surely affect the stock price, but we must wait and see how. Mikun Olupona
AIG
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Technology Global consumer-tech giant Samsung’s new flagship smartphone, the Galaxy S8 was released on Thursday. The company wants to draw a line under the crises of the recent past with the launch of the Galaxy S8, but for Samsung, there was a much wider job to be done in helping to reset its corporate image. There is more than just phone sales at stake, after the company suffered more than $5.3bn of losses from the safety debacle of the fire-prone Galaxy Note 7 smartphone last year. Upon releasing the new device, “We have thought of so many ‘what ifs’ . . . as this product is crucial to regain customer trust,” said Lee Young-hee, Samsung’s executive vice-president in charge of global marketing. The initial buzz around the S8 was positive, with analysts complementing its design improvements such as the “infinity display” wrap around screen and refinements to several key features, as well as “Bixby”, the new voice assistant to rival Apple’s Siri. Samsung shares hit record highs recently after analysts said its firstquarter operating profit was expected to jump 30% on robust sales of microchips and OLED panels, two other key businesses of the conglomerate. Samsung’s share price closed up 0.5% on Thursday, gaining 16% in the year to date.
In the US, the world's second largest company by market capitalisation, Alphabet, which owns Google, is under pressure in its key source of incomeadvertising. Companies are pulling their ad dollars from Alphabet-owned YouTube after discovering their brands were being linked with objectionable video content because of a numbers-based system driven by profiling and popularity. This week Australian companies including Telstra joined a host of global brands that have stopped advertising on the platform, and analysts say the boycott could cost Alphabet $US750 million – a large sum, albeit a small fraction of the company's expected 2017 revenue of $US73 billion. For the next few months the tech industry will be characterised by a call from governments across the world to aid in the process of combatting terrorist propaganda. US Home Secretary Amber Rudd met with the technology firms on Thursday to discuss what role they should have in helping to combat terrorism. Companies in attendance at the talks included Google, Microsoft, Twitter and Facebook. Facebook CEO Mark Zuckerberg mentioned that AI will play a large role in tackling this challenge. Angelo Perera
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NEFS Market Wrap-Up
Oil & Gas Stocks in the oil and gas sector regained some ground over the past week as international oil prices staged a three-day rally to go above $50 per barrel again by Thursday.
1.59% over the week. It lost 9.92% during the first quarter of the year. Royal Dutch Shell (RDSA: LSE), closing at 2,101.91 pounds on Friday, lost 6.4% during the first quarter.
The Energy Select Sector SPDR Fund (XLE), a benchmark fund of the energy sector stocks in the United States, closed at $70.14 on Thursday, up 2.3% from the end of the previous week. On Friday noon, it was trading at $69.93, down 0.3% from Thursday.
Investors will be watching clues on the outcome of negotiations among the world’s main oil exporters, led by Saudi Arabia and Russia, on whether they would extend an output reduction agreement to support oil prices, which they are obviously not happy with.
The fund still has a decline of 6.48% over the past three months, compared with a close to 6% gain in the benchmark S&P 500 index over the same period.
While it won’t be easy for the oil-exporting countries as US shale oil firms can ramp up production any time oil prices rise, analysts are still betting on upsides. Mark Yusko of Morgan Creek Capital Management, known for calling a 40% decline in oil prices two years ago, said he expected oil prices to dip before going back to $60 at the yearend. However, in the broader market now there is “a lot of bluster and not a lot of substance,” he said.
Exxon Mobil (XOM) was trading at $82.06 at Friday noon, down 1.96%. During the first quarter, it lost 9.04%. Analysts see it as a good bargain given its good dividend record and cash holding. Chevron (CVX), trading at $107.59, lost 8.55% during the first quarter. ConocoPhilips, which agreed on Wednesday to sell oil sands and western Canadian natural gas assets to Cenovus Energy (CVE) for $12.7 billion, surged 12.88% over the week. The news is seen as a sign of persistent worries over the price of international oil capped by swing capacities like US shale, as oil sands in Canada carry higher operating costs.
Michael Chen
British Petroleum (BP: LSE) closed 0.47% lower at 459.46 pounds on Friday, gaining
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Week Ending 31st March 2017
COMMODITIES Energy Natural gas prices were on the rise this week as milder weather conditions increased demand. Prices rose to a nearly seven-week high on Tuesday, settling at $3.096 per million British thermal units (mmBtu), amid expectations that the supplies are tighter than they were last year. On Thursday, the US Energy Information Administration (EIA) reports showed that there was a storage draw of 43 billion cubic feet (bcf) for the week ending March 24. This was roughly in line with analyst expectations of 40 bcf, however, it is much lower than the 150 bcf drop in inventories that was disclosed in last week’s report. Nevertheless, natural gas prices increased to $3.181 mmBtu following the report. The latest weather forecasts are suggesting milder weather conditions over the next week and analysts are seeing this as a factor which could undermine demand for natural gas moving forward. Oil prices rebounded this week, renewing optimism amongst market participants. On Tuesday, key pipelines in western Libya was shut down by militia which caused severe supply disruptions, as a result, oil prices rose by as much as 2%. This rise continued on Wednesday as the EIA reports showed that crude inventories increased by 867,000 barrels last week, nearly half of the build that was expected by analysts. Oil prices increased for a third
consecutive day on Thursday to its highest level in three weeks. The jump came as a result of Kuwait showing support for the extension of the OPEC production cuts. Brent Crude rose by 0.8% to $52.83 per barrel, whilst US benchmark, West Texas Intermediate (WTI) rose 1.7%, to $50.46 per barrel, as seen from the price chart below. In November, OPEC came to an agreement to curb output by 1.2 million barrels per day starting from January 1, and Russia along with 10 other non-OPEC nations agreed to cut half as much. It is reported that OPEC output has fallen for the third straight month, and members have complied with 95% of their commitments. Scott Shelton, energy futures broker at ICAP, sees an optimistic future for oil as he says: "I see no sign from OPEC and Saudi Arabia that they will not roll over the cut into the second half of the year. The market is about to go from supply surplus to deficit on crude." Bunyamin Bardak
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NEFS Market Wrap-Up
CURRENCIES Major Currencies All good things must come to an end; stock market rallies, a writers’ last article and, of course, Britain’s participation in the EU. As Theresa May gloomfully sat down and scribbled her name, the hypothetical trigger of the gun Britain has held against its head (by itself), was been pulled and the sterling took a dive to the week’s low at $1.238. Triggering Article 50 will begin at least two years of negotiations over Britain’s exit bill, trade terms, and the role of European courts in the constitution and any possible transition arrangements. Derek Halpenny, European head of global markets research at MUFG thinks the lack of major Brexit developments over the coming weeks should help support the pound. The end of week gains helped put the pound back above its 50-day moving average of $1.2426, and the currency is set to end the quarter 1.65% up against the greenback – the first quarterly gain since June 2015. With the political shock of Brexit now largely priced in, analysts argued that the pound will be driven by economic data going forward. The slight, and hopeful, euro rally of late has ended closing down at 0.858 to the
sterling. Investor demand for Eurozone bonds has cooled this morning as early inflation figures from Germany point to price growth falling back from a four-year high this month. Consumer price growth in Brandenburg is down to 1.4% to 2% in March and has declined to 1.7% from 2.5% in Hesse and Bavaria. Britain may have its issues but America has Donald Trump. The markets took a bearish view on the capacity of trump to push forward tax reforms other pro-growth policies through Congress after the collapse of Republicans’ healthcare bill last week, pushing the dollar to its lowest level since the immediate aftermath of the presidential election. The dollar closed slightly lower at 0.796 to the sterling despite this. So, when everything is said and done, we see whether a former world empire can actually fend for itself on the world markets, whether Mr Draghi will sort out his inflation headache and just how badly will Trump do? Robert Tse
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Week Ending 31st March 2017
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NEFS Market Wrap-Up
About Research Division We would the appreciate any feedback you may have as we strive to grow the quality and usefulness of weekly market wrap-ups. The Research Divisionplease was formed in Josh earlyMartin 2011 and is a part of the Nottingham Economics and For any queries, contact at jmartin@nefs.org.uk. Finance Society (NEFS, formerly known as NFS and UNIS). It consists of teams of analysts closely monitoring particular Sincerely Yours,markets and providing insights into their developments, digested in our NEFS Weekly Market Wrap-Up. Josh Martin, Director of the Nottingham Economics & Finance Society Research Division The goal of the division is both the development of the analysts’ writing skills and market knowledge, as well as providing NEFS members with quality analysis, keeping them up to date with the most important financial news. We would appreciate any feedback you may have as we strive to grow the quality and usefulness of weekly market wrap-ups. For any queries, please contact Homairah Ginwalla at hginwalla@nefs.org.uk. Sincerely yours, Homairah Ginwalla, Director of the Nottingham Economics & Finance Society Research Division
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