Week Ending 6th March 2016
NEFS Research Division Presents:
The Weekly Market Wrap-Up 1
NEFS Market Wrap-Up
Contents Macro Review 3 Eurozone United States United Kingdom South Korea Japan Australia & New Zealand Canada
Emerging Markets 10 China India Russia and Eastern Europe Latin America Africa Middle East South Asia South East Asia
Equities 18 Financials Technology Oil & Gas
Commodities 21 Energy Agriculturals
Currencies 23 EUR, USD, GBP AUD, JPY & Other Asian
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Week Ending 6th March 2016
MACRO REVIEW Eurozone This has been a week of tough decisions concerning the financial future of the Eurozone’s ‘sick man’- Greece. The bloc’s finance ministers gathered in Brussels to discuss the country’s progress with the International Monetary Fund (IMF), whose report on Greece is due at the end of the year. On stake lie the fund’s participation in the country’s new €86bn bailout plan and the inclusion in the ECB’s 1.74 trillion asset purchasing scheme. Since 2010, Greece has reformed its fiscal policies, readjusting to unseen territories since the Great Depression. Under the IMF’s rules, it has maintained a successful fiscal discipline, liberalised its labour and product markets and improved competitiveness levels of its unit labour cost by more than 25% since 2009. Recently, the Greek parliament voted for further pension cuts; the country has liberalised further by easing capital controls even more, and has seen signs of recovery, expecting to get out of recession next year. Partners and lenders are expecting a government primary surplus of 3.5% of GDP from 2018 and beyond; the Bank of Greece’s governor, Yannis Stournaras, has argued this should be lowered to 2%, which would allow for a
reduction of taxation. This would encourage private investment and steer the country into sustainable growth rates. Yet, the IMF has refused to participate in Greece’s third bailout programme on the grounds of unrealistic financial targets without major debt relief. The final decision will be confirmed by the end of the year. Debt relief talks have been agreed on since November 2012 and should have occurred in 2014 after Greece held up its end of the bargain. This was postponed to May this year, when partners delayed the decision until 2018. The ECB and the IMF are both calling on debt restructuring, through longer maturities of loans, lower interest rates on some bonds and a more balanced repayment schedule. However, Germany is on the defensive. The vicious circle continues, as the ECB is reluctant to include Greek bonds in its quantitative easing programme unless it has solid proof of debt sustainability, for which debt restructuring is vital. The QE programme could not only stabilise confidence in the markets, but would also mean regaining market access soon, which is crucial for the economy. Desislava Tartova
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NEFS Market Wrap-Up
United States Donald Trump, now President-elect Trump, pulled off a striking victory over Democratic rival, Hillary Clinton. After an unconventional campaign Mr. Trump achieved a landslide victory with 279 electoral votes to Hillary Clinton’s 228. Sweeping across Hillary’s “blue wall” of Pennsylvania, Wisconsin and Michigan, states which typically vote Democratic. With the campaigning now over, the fears of a stock market crash predicted to coincide with a Trump victory have vanished. Data from Jeff Hirsch, editor of Stock Trader's Almanac, shows an average decline of 1.1% for the S&P 500 the day after Election Day from 1932 to 2012. However, this year the S&P 500 and Nasdaq both reported a rise of 1.1%. 10year Treasury yields also rose to a 1 month high of 2.04% and as seen in the graph below the Dow surged 218 points Thursday. This optimism stems from Mr. Trumps plans to “dismantle the DoddFrank Act” and replace it with new policies that “encourage economic growth and job creation”. Goldman Sachs CEO Lloyd Blankfein, said Thursday at the DealBook Conference in New York, that Mr. Trump’s “policies are market-supportive… as far as asset prices in the market are concerned”. Additionally, with Mr. Trump rumored to provide a $500 billion stimulus package for spending on America’s infrastructure.
Wednesday saw a sharp rise in the stocks of construction and steel companies such as Caterpillar and U.S. Steel. This will in the short-term lighten the boarded of the Federal Reserve as Chairwoman, Janet Yellen, has in the past called for Congress to increase fiscal policy to encouraging economic growth and employment. However, the medium-term effect of the stimulus may not be as positive. Right leaning economics Doug Holtz-Eakin, has stated that the stimulus will only server to “lift economic growth for several quarter before returning to the levels of 1.5% to 2%”. There have also been some drops in the market since the news of a Trump Presidency. Hospital operators HCA Holdings and Tenet Healthcare fell 11% and 25%, respectively as Mr. Trump has promised to repeal and replace Obamacare. Furthermore, with the prospect of trade wars and an increase in levels of protectionism, there is still much uncertain about Americas economy under a Trump Presidency. As chief global economist at The Economic Outlook Group, Bernard Baumohl, writes “though Trump has been on the campaign trail for some two years, he remains a staggeringly enigmatic person”. Disun Holloway
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Week Ending 6th March 2016
United Kingdom ‘Brexiteers’ were adamant that the sterling’s lengthy decline following the referendum would provide a stimulus to British exporters, and thus, reduce the trade deficit. A weaker pound should, in theory, make British goods cheaper abroad – increasing exports. However, latest figures released by the Office for National Statistics (ONS) show that Britain’s trade deficit widened by £1.6 billion in September, reaching a substantial £5.2 billion (as shown below). Imports of ships, materials and oil all rose in September, according to the ONS. Manufacturing output increased by 0.6% in September, exceeding forecasts of 0.4%, and partly offsetting the contraction seen earlier in the summer. Although the sector contracted by 0.9% in the quarter, the modest growth in August/September is indicative of a recovery. The ONS said that manufacturing output was only up 0.2% over the year, although, they were quick to refute the notion that the slowdown has been caused by the referendum result. BoE’s latest agents’ survey further reflects the sentiment, as British businesses are expected to keep investment stable over the next year. Carried out between August and mid-October, the report points to ‘broadly stable’ or perhaps ‘slightly lower investment’ spending, namely due to rising
cost inflation for the private sector, caused by a weaker pound. The financial and construction sector companies are thought to have the most subdued outlook for prospective investment over the next year, whilst manufacturers reported negligible investment expectations. The BoE was pleased with the rebound of ‘overall UK business sentiment’, although it appears to remain fragile due to uncertainty regarding Britain’s prospective relationship with the EU. Levels of household debts have risen to £1.5 trillion following a period of flat growth. The latest statistics, compiled by the Money Charity, claim UK adults owe an average of £30,000 each, comprised mostly in mortgages, but also in loans & credit cards. With the Bank of England (BoE) warning of an imminent rise in inflation, borrowers have been urged to start reducing their debts, as inflation rates suppress household spending power. Donald Trump’s election success seems to have, hitherto, benefited Britain, as the Sterling rebounded and surpassed $1.26 (a gain of 0.5%) for the first time in over 5 weeks. It appears the sterling is now moving towards levels seen before Theresa May announced Article 50 would be triggered in March 2017. Usman Marghoob
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NEFS Market Wrap-Up
South Korea Further presidential turmoil as arrest warrants were issued for Ahn Jong-beom and Jung Ho-sung (respectively President Park’s former senior secretary for policy, and current private secretary). The pair are wanted in relation to charges of fraud and abuse of power, charges that hardly surprise in South Korea’s current political landscape. The corruption scandal that erupted last week, involving President Park Guen-hye and a close friend Choi Soon-sil, has since unravelled rapidly. Dubbed ‘Choi-gate’ by critics and political opponents, the episode has turned up some unwelcome secrets of Korea’s political elite. In addition to the aforementioned Ahn and Jung, investigations are ongoing at Samsung Electronics in relation to the scandal, with other conglomerates likely to be dragged in. Despite this, and a pitiful approval rating of 5%, Park has refused to resign. However, the premier has been effectively forced to make some concessions, telling speaker Chung Sye-kun; “If parliament recommends a good person with an agreement between the ruling and opposition parties, I will appoint that person as prime minister and allow him to essentially take control over the cabinet.” Giving up this much presidential control to
the predominately centre-left opposition, led by the Minjoo party, could spell some significant changes for the Korean political economy, as the current ruling Saenuri party, and other conservative parties, have dominated for the majority of the Republic’s sixty-eight-year history. The opposition will seek to capitalise on this greater control, perhaps by steering the country away from a dependence on the Korean ‘chaebol’ model, which has often been accused of growing on the back of government protection and policy favours, and could fare very badly amid ongoing corruption scandals. Whatever the case, conceding control to the opposition is a perhaps a necessary move from Park, in order to avoid political paralysis and resume much needed structural reforms in South Korea’s dogged shipping sector, that have been postponed amid the crony-ism crisis. Finance minister Yoo Il-hoo and the Bank of Korea (BoK) have each expressed a readiness to deal with market volatility - the Korean won fell to 1,149.5 against the US dollar, down 1.3% from Tuesday (as shown below) especially amid uncertainty following the election of anti-free trade Donald Trump as president in the US. Jamie Peake
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Week Ending 6th March 2016
Japan Japanese market was among the first to react to America’s election last Tuesday through Wednesday, and was also among the most volatile in the wake of the outcome. Election day saw the yen seesawing against the dollar as the results rolled in, with the currency strengthening by as much as 3.8% to ¥101.20, as shown in the graph below. However, over the week the dollar regained strength to ¥106.99 on Friday, its highest value since July. Similarly, the TOPIX index of the Tokyo Stock Exchange was down -4.6% on election day, but rebounded through Friday, closing 1.1% higher over the week. Despite these rallies, the story here is the volatility. The extreme swings over the week show that any trend will be shortlived, and that traders are following closely the words of the President-elect.
the US military budget has led investors to anticipate an increase in the Japanese military spending.
However, the turmoil on Wednesday shows where exactly traders are focusing their attention. Carmakers Nissan, Honda, and Mazda all fell significantly on Wednesday as investors predicted a sustained decline in USD strength, a factor which has cut into the profits of the export-oriented companies since earlier this year. Defence contractors and weapons systems manufacturers such as Ishikawa Seisakusho and Howa Machinery saw their value rise. Mr Trump’s accusation that countries such as Japan are free-riding on
In other news, machine orders, a popular indicator of capital expenditure, contracted -3.3% in the September. The Tankan survey of business confidence for the same month suggested firms were facing subdued conditions. The trade surplus also declined in September. The current account fell from ¥1.98 trillion in August to ¥1.48 trillion as exporters were hit by a strong yen. Preliminary GDP estimates will be released Monday, and they will likely demonstrate low growth.
The Trans-Pacific Partnership was also in play Wednesday. Before the election, the Agreement passed through Japan’s lower house of parliament. The President-elect is staunchly against the agreement, which could leave the future of free trade in the region hanging in uncertainty before it can be fully ratified. The Chinese PM Xi Jinping has stepped up efforts to promote a Chinese-centred free trade agreement. Most of the Pacific-Rim heads of government will meet on the 19th and 20th of November for the Asia-Pacific Economic Cooperation forum, and China likely will promote the need for a new regional agreement.
Daniel Blaugher
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NEFS Market Wrap-Up
Australia & New Zealand With the aim of increasing inflation and devaluing the currency, the Reserve Bank of New Zealand cut the interest rate to 1.75% this week. The graph below shows how New Zealand’s interest rate has been steadily falling in the past few years. Despite many economists predicting this new cut, news from across the ocean of Donald Trump’s presidential victory may have been a clinching factor. When asked if further measures are required to boost the island’s economy, the bank’s governor Graeme Wheeler said, “numerous uncertainties remain, particularly in respect of the international outlook, and policy may need to adjust accordingly.” In further news, New Zealand’s Food Price Index showed that overall food prices fell by 0.8% in October. Tomato and lettuce both fell in price by 29% while staple groceries such as cheese and milk remained price stable. Despite ramifications of a Trump presidency being mostly strongly negative for the global economy, some analysts have been describing the potential positives for Australia. Foreign investment into Australia is predicted by some to rise rapidly as investors look away from America into more stable developed markets. Mathew Tiller, head of research at Australian real estate franchise LJ Hooker, said that lacking confidence in American markets may translate into investors looking for stability elsewhere. He added, “investment [in Australia will look] more attractive for large foreign developers and institutions, as well as high net worth private buyers looking to purchase residential property.”
Foreign investment in Australian housing has been on the up and was worth $34.7 billion in 2015, with investment from the US coming second only to China. Ken Jacobs of Christie’s International Real Estate added to these views, saying, “in the lead up to this election the level of inquiry on property from buyers in the US has been building steadily.” This may be a positive for the Australian economy but the flip side is deemed to be considerably worse; the trade war that may ensue following Trump’s plan to slap taxes on Chinese imports has the potential of damaging Australia greatly as the country is highly exposed to global trade currents. Already there have been shocks to the market following Trump’s win as the Australian share market lost $34 billion immediately on Wednesday but managed to recover and close with only a 1.9% loss. Perhaps this bounce-back ability will be a recurring theme in the near future until Trump’s controversial policies begin to affect Australia more directly. Nikou Asgari
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Week Ending 6th March 2016
Canada Recent economic trends have shown that there has been a retreat away from free trade and globalisation, towards protectionism. The decision of the British citizens to vote in favour of leaving the European Union was a major statement in support of closed border policies. More importantly, in the case of Canada, the newly elected American President Donald Trump has expressed his desire to increase trade barriers between America and other nations, as well as demanding a renegotiation of the NAFTA trade deal. These protectionist sentiments have led to the liberal policies employed by Canada coming to greater attention. The Canadian government has adopted a progressive and welcome attitude with regards to immigration and to restoring economic growth. The Canadian attitude towards immigration has demonstrated strong liberal inclinations. Canada allowed 312,000 immigrants into the country in 2016 with a fifth of Canada’s population being foreign born. There are members of the Canadian public against the idea of increased immigration into Canada, but a vast number of Canadian believe that these immigrants contribute in a positive manner to the Canadian economy. The Canadian system for immigration is regulated to promote immigrants who are likely to be sufficiently educated with university
degrees and can contribute in a positive manner- adhering to the nation’s needs. Canadian Prime Minister, Justin Trudeau, has also looked to adopt liberal policies to enhance Canada’s growth prospects. GDP growth currently stands at a disappointing 0.4% for June 2016. Even though Canada is facing a small government budget surplus of 0.1%, Mr Trudeau plans to increase infrastructure spending, encouraged by low interest rates to create jobs for high paying, low-medium skilled workers and improve productivity. Moreover, there has been rise in taxation for the top 1% in order to enable a tax cut for the middle classes. Most importantly, Canada has adopted an open attitude to global trade. The country is a fundamental part of NAFTA and has recently signed the CETA trade deal with the European Union. This liberal attitude towards trade stands as a stark contrast to the trade policies proposed by Donald Trump. Overall, although the Canadian economy still has several issues to resolve, the approach taken by Mr Trudeau and his government with regards to immigration and trade, shows that liberal and globally open policies are still being implemented. This is despite several other nations retreating away from increased economic integration and globalisation. Isher Hehar
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NEFS Market Wrap-Up
EMERGING MARKETS China China’s latest monthly statistics on foreign exchange reserves came as no surprise to the market, nevertheless it signaled the persistent challenges for the monetary authorities. The foreign exchange reserves at the end of October stood at 3,120.7 billion USD, the lowest level since March 2011. The monthly decline of 45.7 billion dollars shows the Chinese currency still faces depreciating pressure, partly due to the weakening of other currencies against the dollar. China has been trying to move to a foreign exchange rate regime of managed float in reference to both the dollar and a basket of other currencies. This fall in other currencies accounts for an estimated 30 billion dollars fall in the valuation of the foreign reserves, according Liu Jian, an analyst at the Bank of Communications. Many of the firms and investors have evidently been delaying the conversion of dollars into the yuan, too. The yuan has steadily depreciated to around 6.81 against the dollar, down by close to 10 percent over the past 12 months (see chart below).
achieving an open economy, protecting foreign reserves and maintaining stable exchange rates. Given China’s record of preference for stability, this is most likely to still take some time, but the weakening of the yuan and the increased foreign reserves held by investors may at some point create the conditions needed to achieve the set goal of a floating currency. The CPI and PPI statistics released last week were higher than expected at 2.1 and 1.2 percent, respectively, largely due to low base effect and rising prices for coal and certain food. This may be helpful as the Fed is expected to raise the dollar interest rate soon. The Shanghai Composite Index broke through resistance to close at 3,196.04 on Friday, the highest since the beginning of this year. The stats to watch in the coming week include fixed asset investment, industrial production, retail sales and foreign direct investment.
Michael Chen
There seems to be signs of greater tolerance by the policymakers for the depreciation of the yuan. Guan Tao, a former senior official at the State Administration of Foreign Exchange, has recently argued for allowing the yuan to float, citing the “impossible trinity” of 10
Week Ending 6th March 2016
India In a shock announcement on Tuesday, the Indian Prime Minister, Narendra Modi, announced the immediate scrapping of 1,000 and 500 rupee notes. This will have a significant impact on India’s economy, considering that these now worthless notes make up 86% of money circulation in India. It is anticipated however, that by declaring these notes as illegal tender, it will flush out tax evaders and decrease the size of India’s black market. Consequently, whilst individuals can exchange the illegal tender for the new notes that will be shortly issued, the income tax department will question anyone exchanging large amounts of cash. A black market is where the money in circulation has been earned without tax paid on it. The last predication for the size of India’s black market was in 2007 by the World Bank, where it estimated that the black market made up 23.2% of India’s total economy. For many years India has suffered from corruption and its black market. This has had many negative effects on the economy, most notably on tax revenue and inflation. Currently, only 1.6% of India’s population of 1.25 billion people pay income tax. It is hoped that this decision will increase the proportion of taxpayers.
In terms of reducing India’s high inflation rate, it is expected that by making these notes worthless, consumption will fall amongst those on the black market, as they will have reduced access to capital. Furthermore, with 86.6% of transactions still carried out by cash, it is predicated that consumption throughout the whole economy will also temporarily decrease. Whilst many have welcomed this policy as an excellent way to eradicate black market money, reduce corruption and strengthen the Indian economy, there are also those who are less complimentary. Firstly, reduced consumption will have a negative result on consumer’s standard of living. It is hoped however that this will only be temporary, until the new notes are issued. Furthermore, citizens living in rural areas will face additional difficulties, in that as they have less access to banks, they save all their money in cash. Finally, through the likely possibility that a large deal of black market money is being stored as gold and other assets, making only certain notes illegal may circumvent the problem entirely. Subsequently, it will not be seen for many months if this drastic decision has had the intended positive effect on India’s economy. Charlotte Alder
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NEFS Market Wrap-Up
Russia & Eastern Europe This week we will explore recent developments in Eastern Europe, focusing on Russia and Bulgaria. Foreign exchange reserve data continues to demonstrate the challenges Russia faces amid a weak oil market. Transitions of political power weigh in on the economic outlook for Bulgaria. Russia is a huge player in international trade and relies heavily on its foreign exchange reserves to maintain the competitive value of its ruble, 65.59 RUB/USD. Foreign exchange reserve data for October 2016 was released last Wednesday, revealing a roughly 1.8% month-to-month drop to a $390.7B level. The country currently has a long-term goal of $500B in foreign exchange reserves, which was the reserve level prior to the decline in oil prices and the switch to the free floating rate regime in 2014. Since then, the country has depended on foreign exchange reserves to make up for weak oil tax revenues in order to fund public expenditure projects. However, overall reserve levels have been trending upwards since midway through last year, so no need worry yet. In other news, Bulgaria’s economic growth forecast is a modest 2.5%. The nation currently bears the lowest rank in living standards in the EU, but has been reporting
optimistic data. For the first time since January, Bulgaria produced a trade surplus of 89.40 million Bulgarian Lev (roughly $49.8 million USD) for September. Bulgaria is also sporting its lowest unemployment levels since November 2009 at 7.8%. Despite the positive trend in economic development, there is still uncertainty with what lies ahead for the nation. Last Wednesday, the first-round presidential election results indicate the increasing likelihood that Mr. Rumen Radev will win the presidency of Bulgaria. Radev is an Independent who brings forth a socialist agenda and wants to remove western sanctions on Russia. We will keep an eye on developments in Bulgaria as the potential change in leadership could have significant economic effects. We are looking forward to big data releases next week in Eastern Europe. Russia will release preliminary annual GDP growth figures forecasted to be -0.8%. Since January 2015 the country’s economy has been contracting. Will Russia be able to get back into positive territory? Next Wednesday, Bulgaria’s current account data will be released and is forecasted to remain positive but significantly lower at € 135.5M. Dan Minicucci
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Week Ending 6th March 2016
Latin America The markets of Latin America did not fare as well as their western counterparts this week, in the wake of Donald Trump’s shock victory over Hilary Clinton. Mexico, being America’s neighbour to the South was hit the worst, with rest of the continent faring little better. Aside from the election, more long term data was published across the region. In light of the U.S. Presidential election upset on Tuesday, there was an expectation that the Mexican Central Bank would intervene in the markets on Wednesday morning (in the form of special US Dollar auctions and possibly interest rate changes), however, this was not fulfilled. Although the Mexican IPC index (.MMX) has been punished since Wednesday morning, the initial reaction was subdued, with the index falling just 3%. After a short lived recovery, the market tumbled to an almost 6-month low, at 45,224 points. As of Thursday, the market is yet to find substantial resistance. The Peso shared a similar fate to the MMX in the latter half of the week. The currency has fallen to 20.6735 against the dollar since the election, plunging 12% from its level on Tuesday evening. Analysts predict a further fall in the value of the currency, with estimates ranging from 7% at Citigroup, to 18% at Nomura. The Peso is the worst performing currency this year, having fallen 16%.
Looking to the longer term, Mexico also announced new inflation figures this week. The CPI level rose to 3.06% compared to 2.97% last year. Forecasts were slightly more optimistic this time, coming in just above the actual rate at 3.1%. Brazil joined Mexico in revealing it’s latest inflation figures. Inflation year on year came in at 7.87%, below the forecast of 7.90%, and the previous rate of 8.48%. Despite the fact that rates continue to exceed targets, the BCB will be encouraged by inflation consistently edging towards the 2017 goal of 4.5% since January this year. The figures for November were also released, with the m/m at the 0.26% mark, close to the projected 0.28%. News from the smaller economies of Latin America consisted of an optimist outlook by Central Bank of Paraguay’s (BCP) CEO Carlos Fernandez, who stated the possibility of closing the year with an above-forecast GDP growth rate (the current target stands at 4%). Next week, the full effect of the Presidential election will come into focus. The effect on Latin American markets of the upset is uncertain at this time, as investors look to re-adjust risk and exposure worldwide. Mexican industrial output, which was down 0.3% last month will also be announced. Alistair Grant
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NEFS Market Wrap-Up
Africa Positive news this week in Africa, and refreshing too it is, in light of other developments this week. Bloomberg published a brilliant piece of research on the emergence of Kenya, and renowned economist Jeffrey Sachs topped this off with his contention that if South Africa is to reverse its slump, education is the key. Of late, and speaking in general terms so as not to contradict my previous articles, there has been nothing but trouble for much of Africa. This has primarily been a result of the slump in oil - down 55% which, constituting 90% of exports in Nigeria, has precipitated a massive slowdown in growth. South Africa, too, never really recovered from the 2008 crisis and succeeding commodity slump, with next year’s growth forecasts hovering around the 0.5% mark. Kenya, on the other hand, is turning the oil debacle into an energy bonanza. Having suffered too from lower oil prices, the Kenyan economy has adapted, and is now pushing refined petroleum products, in a sense substituting them in for oil - for which the market is dead. This is the kind of innovative economic thinking that should be lauded, and so too it will be as Kenya makes lower energy prices a relative strength. Having
increased their output of RPPs by a multiple of 3 to 12% of total exports, they have made them their second-largest export, and are reaping the rewards: the economy has grown 5.7% in the last year and is forecast to grow 6% between 2016 and 2018. In light of this, it is telling that the fastestgrowing export is still agriculture. This evinces that while the news is good, Africa still has some way to go to modernise and industrialise. For Jeffrey Sachs, the answer to this is education, not only quantity of but most importantly, an improvement in quality of. He proclaims it to be the single most important determinant of future economic growth. To have fully-diversified economy, countries’ need a higher skill level of worker. It was only through a higher quality of education, however, that a correlation to economic growth was birthed. The biggest barrier to this in South Africa is the Democratic Teacher’s Union, a body which does not promote evaluation, and hence improvement, of its teachers. Sachs condemns this, saying that it needs to change from the centre, if economic growth is to be ignited in South Africa. Thomas Dooner
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Week Ending 6th March 2016
Middle East Emirates Airline, based in Dubai recorded a net profit of AED786 million ($214 million) for the first period of its 2016-17 financial year. This was down 75% from AED3.1 billion in the preceding year, where Emirates Airline reported one of its best half year performances. Their struggles can be attributed to growing levels of economic uncertainty and a subdued demand for travel. The strong US dollar is having a negative impact on demand for travel at a time when there is a hard currency shortage particularly in some African countries, where a large proportion of demand for Emirates Airline commerce is based.
money on innovation to compete and improving efficiency across the business.
Emirates Group (parent company of Emirates Airline) net profit was down 64% to AED1.3 billion ($364 million) and revenue was up 1% to AED46.5 billion ($12.7 billion), reflecting an oscillating operating environment. These figures delineate that lower fares across airlines has resulted in increased market competition and Emirates Airline profits are under growing pressure. Sheikh Ahmed bin Saeed Al Maktoum (chairman and CEO of Emirates Airline and Group) forlornly said ‘The bleak global economic outlook appears to be the new norm, with no immediate resolution in sight’. I suggest Emirates Airline concentrate more of their
Several opposition members have criticised the draconian measures which are sure to lead to increased impoverishment and suffering, but they were rewarded for their efforts with widespread arrests. It is believed police are desperate to kill any protests at their birth as evidenced by the confiscation of the entire print of certain newspapers. Whilst discontinuing subsidies may help to stabilise the country in a macroeconomic aspect, this is not the way to implement such reform. This author believes the Sudanese government should spend less of its budget on war and defence and attend to the acute needs of its nation.
Meanwhile, wide economic repercussions are feared as the intensely corrupt Sudanese government announced it would be ‘liberalising’ fuel and electricity by cutting subsidies. This comes as a hammer blow to the Sudanese people who were already struggling to deal with the effects of double-digit inflation and the repercussions of US sanctions. The announcements triggered an overnight 30% rise in the price of fuel and diesel with Mohammad Osman, a Sudanese taxi driver succinctly noting ‘The Sudanese people are finished.’
Vincent Egunlae
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NEFS Market Wrap-Up
South Asia Inefficiencies within the labour markets in South Asia are one of the major reasons for stagnation in growth rates of its private sectors. Without the presence of a transparent and competitive labor market, it would not be possible for the economies to allocate its human capital resources efficiently among its production sectors, and thereby raise aggregate productivity.
and unpaid family workers) accounts for around 70% of total employment in South Asia. From 2016 to 2019, it has been projected that around half of new employment will be derived from vulnerable employment. Furthermore, 61% of workers in South Asia are earning less than $2 per day, which is the second highest percentage after Sub-Saharan Africa.
Overall, female labour force participation is relatively low in South Asia. This would indicate that around 50% of the labour force is being underutilized. The wage gap has not reduced significantly over the years, pointing towards underlying problems of persistent gender discrimination within the work force. According to research by the International Labor Organization (ILO), women have lower average annual income than men in all the countries.
One of the foremost policy issues that needs to be addressed by the South Asian countries is the provision of adequate labor and social protection for different types of employment, which will encourage further labor force participation. Work opportunities also need to be increased for women, and policies to reduce gender wage discrimination need to be implemented.
Market income inequality has also increased since 2000, with the gap between top and bottom earners widening over time. The share of wage and salaried employment is particularly low in South Asia, with only 2 out of 10 workers working in formal employment sectors. The underwhelming growth in the share of workers within wage and salaried employment over the past decades are the primary reasons for low productivity levels in South Asia, compared to its neighboring regions. Vulnerable employment, (characterized by own account workers
In conclusion, to enhance labor productivity growth within South Asia, which is mainly comprised of developing and low income countries, it is imperative to develop policies targeted towards improving job accessibilities, reducing gender discrimination and promoting skill development programs. The governments also need to address issues surrounding the quality of employment and workers’ income security. Tahsin Farah Chowdhury
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Southeast Asia This week we will assess the economic and political consequences of the US election results for Southeast Asia, as well as Q3 GDP figures for both Indonesia and Malaysia. Donald Trump’s shock victory in the US Presidential elections triggered widespread volatility in Southeast Asian markets this week, as investors tried to gauge the significance of his appointment for the region. The Indonesian Rupiah and Malaysian Ringgit were particularly affected amidst concerns that higher US interest rates, arising from Trump’s inflationary policies, would spark capital outflows to dollar-based assets. Central banks for both countries have since been forced to intervene in currency markets to halt the outflow of money. However, fears of widespread panic selling have abated. Despite all six biggest economies in the region experiencing significant falls in their equity markets on Wednesday, only three finished the week down, as stocks rallied on Thursday and Friday. With a trade-to-GDP ratio of more than 150%, Southeast Asia is particularly dependent on trade, and many experts are concerned that Donald Trump’s protectionist rhetoric will disproportionally affect the region. Indeed, his promise to kill the Trans-Pacific Partnership (TPP) will
end a trade deal that offers huge economic benefits to the region, as noted by the deputy governor of Malaysia’s central bank, Sukudhew Singh. Moreover, according to a study by the Peterson Institute, Vietnam had the most to gain from the deal. They currently provide the US with 34% of its clothing imports, and would be able to do this tariff-free under TPP. With so much at stake, it would not be surprising if China moves to create a replacement deal to further boost ties with the region in the near future. In other news, Indonesia and Malaysia both posted subdued growth figures for the third quarter of 2016. Indonesian growth was below market expectations at 5.02%, down from 5.18% in the second quarter and well below the 7% growth target set by President Widodo in 2014. Likewise, although Malaysian GDP grew by 4.3% – 0.2% above consensus – this is only 0.3% above the seven-year low hit in the second quarter of 2016. Weak global demand and low commodity prices are regarded as the primary causes of these comparatively low growth rates. The Philippines will have to hope that this trend does not continue into next week when they release their GDP figures for the third quarter. Daniel Pettman
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NEFS Market Wrap-Up
EQUITIES Financials This week we look at the market reactions in the financial sector to the highly unexpected result of the US presidential election on Tuesday. Although many on Wall Street were gloomy about the prospects under a Trump presidency, the markets have performed a sharp U-turn after the overnight decline on election day. What investors clearly hope is that President-elect Trump will get to implement some of his policies but not all— in particular the tax cuts for the wealthy and for business, increased military spending and financial deregulation. This has led to a surge in shares of banks across the world, especially those based in the US. Wells Fargo stock grew 7.58% on Thursday as it led the banking sector, performing the best since the election result announcement. The banking sector faced several markets sell-off during the year which have been ruled out. This is the biggest financial sector rally in more than a year. Investors in the banking sector have been patient for a while, as the low interest rate environment and declining oil prices remain major headwinds. Trump was critical over Hilary Clinton’s relationship with Wall Street during the election campaign. He said in a statement during his campaign, “Bureaucratic red tape and Washington mandates are not the
answers”. Therefore, markets can expect less regulated policies in the banking sector during his tenure as President. The Dodd-Frank Act might be changed or eliminated along with the Volcker ruleregulations implemented in the aftermath of the recent financial crisis. Hopes that Mr Trump will introduce a probusiness agenda have blunted earlier concerns about his win. The Dow Jones ended Thursday at an all-time high, 1.17% higher at 18,807.88 points, while the S&P 500 index rose 0.2% to 2,167.48 points. This is primarily because investors have shifted focus to Trump's priorities, including tax cuts, an increase in defence and infrastructure spending, and bank deregulation, as mentioned earlier. However, the FTSE100 fell 97 points, or 1.4%, to close at 6,730 after Friday trading, adding to a 1.2% decline the day before. This is because investors are still uncertain over the trade policies that will be implemented over the coming few months. Federal Reserve is expected to increase rates next month which remains another boost for the banking sector. However, analysts suggest that the financial sector is overbought and may not be the time the optimal time to invest in. Angelo Perera
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Technology Last week I wrote about the dramatic fall of fitness tracking company Fitbit, after their shares fell by almost one third in after hours trading. It was clear urgent action was needed and this week it seems to have come in the form a takeover by a little known Chinese fund in the region of $2.8 billion. The fund in question, ABM capital, processed a filing to the Securities and Exchange Commission on Thursday, with a deal including to buy all remaining Fitbit shares at a price of $12.50 per share. The filing of the takeover led to a spike in the price of Fitbit shares by 5%, however, many questioned the supposed Shanghai based fund which has no web presence. The questionable veracity of the filing was later confirmed, with Fitbit making an official statement which said “Fitbit has not received any communication from ABM Capital, or any other firm, regarding a reported offer” thus, for now it seems Fitbit’s future may still be hanging in the balance.
Elsewhere, e-commerce firm Alibaba reported extraordinary revenues for yesterdays ‘Singles day’ in China – the worlds biggest retail event. The Hangzhou based company reported sales of $1 billion in less than five minutes and hitting $13.7 billion in the first 16 hours. The total $14.3 Billion in sales translated to roughly $357 million in revenue for the company as about 710 million payment transactions were processed. Finally, the news of the newly elected President in the US came as a hit for the big players in the technology industry. Thursday saw a drop in stock for nearly every major tech company meaning that Apple, Google, Microsoft and Amazon were all in red after worries that inflation may be higher under Trump. The biggest hit of all was Netflix, with its stock tumbling by 5.54% after the announcement (as shown on the diagram below). William Bunnis
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NEFS Market Wrap-Up
Oil & Gas The recent election of Donald Trump has had a major impact on the oil and gas industry. Oil and gas share prices increased throughout the week as Trump’s policies would benefit oil, gas and coal companies due to the promised regulation cuts, new areas for drilling, and eliminating the Clean Power Plan implemented by the Obama administration. US coal companies such as Foresight Energy and Peabody Energy rose 24% and 50% respectively. Exxon (XOM) saw an increase by 0.936% in share prices, while Chevron (CVX) saw an increase by 0.758%. However, both Valero Energy and Marathon Petroleum experienced an even sharper rise in share prices. Valero Energy saw a $5.16 difference between oil prices, translating into an 8.81% increase. Lastly, Marathon Petroleum Corporations experienced a 4.015% increase through the rise in share prices from $42.59 to $44.30 per share. Other winners in the industry included Energy Transfer Partners, whose shares rose 11%, despite their controversial plan to build a crude pipeline from North Dakota to Illinois. Additionally, US oil company Exxon, issued a statement expressing their interest in “working constructively” with Mr. Trump, intending to focus on areas such as tax, trade policies in the energy sector, and
improving accessibility to US oil and gas products, amongst other issues. Moreover, Trump’s promise to make resources available for further oil and gas production is especially beneficial for US companies focused on exploration and production of oil. Furthermore, global oil share prices also experienced a favorable week, as support for the new US president was expressed by several oil companies. However, Royal Dutch Shell’s CEO, Ben van Beuden, expressed the concern that it is important for the sector to maintain high industry regulatory standards, since lowering them could affect the industry’s reputation. The Royal Dutch Shell PLC (RDSA: LSE) saw an increase in share prices by 1.143%, from $2055.50 to $2079.00 per share. Furthermore, Norway’s Statoil ASA (STL: OSL) also experienced an increase in share prices by 3.195%. Lastly, OPEC members have expressed their concerns over the reduction of oil demand by 2040, but the reduction may come sooner if the deals such as the Paris Accord come into effect. Although the election of Donald Trump has instilled optimism into the oil and gas industry, the extent to which this will persist in the longrun is questionable. Maria Fernandes Camaño Garcia
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COMMODITIES Energy The energy markets were highly impacted this week by the US Presidential election. Oil prices fell as much as 4% on Tuesday following the surprise victory of Donald Trump. The initial panic sell - part of a broader market reaction that was moving away from riskier assets – was reversed on Wednesday following Trump’s pro-growth victory speech. Brent Crude, the global benchmark, rose by 0.7% to $46.36, whilst US benchmark, West Texas Intermediate (WTI) closed at $45.27, up by 0.%, as shown below. Oil fell once again on Thursday after the markets turned their attention back to OPEC following the election. The International Energy Agency (IEA) released its monthly report, stating a rise in global supply of 800,000 barrels per day in October, which comprised of record output from OPEC and increasing output from non-OPEC producers. Another contributing factor to the decline was the expectation of a more-likely FED rate hike in December, which caused the dollar to rise to an eightmonth high, putting downward pressure on oil, a dollar-denominated commodity.
prices up. However, a more protectionist America under Donald Trump is likely to lead to weaker global economic growth and weaker oil demand. In addition to this, Trump’s pro-domestic energy approach could result in the revival of US shale oil, which will further add to the global supply and contribute to weaker oil prices. Given all the ways that a Trump administration can impact the oil markets, there is now increasing pressure on OPEC to take decisive and much needed action. Meanwhile, natural gas prices are still struggling to find a price floor as its downward trend continues. Prices fell by 6.5%, to $2.633 per million British thermal units (mmBtu) on Tuesday following more mild weather forecasts. Losses were extended when the Energy Information Agency (EIA) released its weekly inventory reports on Thursday, showing a largerthan-expected build on US natural gas inventories by 54 billion cubic feet for the week ending November 4. Bunyamin Bardak
Significant uncertainty surrounds the oil markets following Tuesday’s election result and the markets will now look at what direction of policy Donald Trump will follow. A possible revoke of the nuclear accord signed with Iran last year can reverse the increase in Iran’s oil production, helping
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NEFS Market Wrap-Up
Agriculturals Tokyo benchmark rubber prices soared by over 17% this week (as shown below) to reach 208.50 JPY/KG – the highest since September 2015. Key drivers of the current bullish run include growing demand from the Chinese auto industry, increased activity from speculators, and a weaker Yen relative to the US Dollar. Rubber’s turn of fortunes began in October, when the Chinese government slashed the 10% purchase tax for small cars in half, spurring tyre demand in the world’s largest rubber import market by more than 13% compared to last year. However, the Chinese government also responded to the high prices this week by suggesting that they could intervene in the futures markets by increasing transaction fees to control speculator activity. Such action could have significant implications for rubber prices in the short term. A recent report from the International Rubber Group predicted that natural rubber demand would increase by a further 3.2% in 2017, but also cautioned that producers appear ready to respond to the current high prices by increasing production levels in the medium term. As a result, investors should not expect prices to continue rising in line with demand growth.
growing market consensus of stagnant consumption growth, with the International Cocoa Organisation predicting demand to be just 0.19% higher in the coming harvest season. On the supply side, West Africa, which grows the vast majority of the world's cocoa, is experiencing significantly improved weather conditions. Production conditions are also favourable in Asia, with the Cocoa Association of Asia reporting that regional production has increased by 12.5% since last year. Many analysts now expect a global supply surplus of more than 250,000 tons towards the end of the current harvest season. In other markets, orange juice and coffee futures fell by 6.15% and 3.74% to settle at $2.12/LB and $1.59/LB, respectively, in response to the weakening Brazilian real relative to the US dollar. Oat, corn and wheat also posted moderate losses, with each falling by approximately 2% amid concerns of historically high stock levels and improving weather in major production regions. Aidan Dominy
Meanwhile, cocoa prices fell by almost 6% to a three-year low as expectations of bumper harvests in West Africa and Asia sent futures markets tumbling to $2,482/MT. The drop comes amid a
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CURRENCIES Major Currencies The challenge this week will be trying to avoid giving the elephant (in this case the Republican elephant) in the room too much limelight, which will be inherently difficult as all major currencies have basically been injected with a nice bit of Donald Trump volatility. Starting with the euro, it had a sluggish week opening at 1.1104 and closing lower at 1.0849 (against the dollar). Aside from a short-lived rally post US elections to $1.277, the euro faces downward pressure as the ECB accelerated its bond purchasing programme. ₏2.54bn of corporate paper was purchased this week – the highest weekly purchase since midSeptember. This drives yields down, thus putting downward pressure on the currency. With a longer-term perspective, the Trump victory reduces the Feds chance of a December hike, which means the dollar will not be as strong against the euro, helping the ECB, as European exports are supported and inflationary pressure rises. The sterling space has had a very pleasant week as investors now view the sterling more sympathetically following the US elections. Closing 1.03% higher (against the dollar) at 1.2598 and with the best gain
in 16 months against the euro to 1.158 (a staggering 3.1% increase), the pound is comparatively a stronger currency now. UK gilt yields are also rallying, with the 10yr gilt up to as high as 1.34%, due to the sell-off in the US bond market amid fears of Trump’s tax cuts and fiscal stimulus creating inflation. Aside from the political and economic turmoil this week, the biggest aftershock of the recent sterling slump is the much loved Toblerone being criminally deformed. The faltering sterling has caused cost issues for manufacturer Mondelez International, forcing them to literally reshape their product. Now onto the unfortunate news that Trump is now, somehow, the President of the United States has caused little in the way of affecting the dollar, aside from a colossal short term collapse. Opening (against the euro) at 0.901 and closing at 0.92 with a midweek collapse to 0.885, which only lasted until late afternoon. Next week, we wait on the Trump aftermath in the US bond markets, further inflation data in the Euro area and as for the sterling, aside from inflation data releases, it can bask quietly in its rare rally this week. Robert Tse USDEUR
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NEFS Market Wrap-Up
Minor Currencies The result of the American Presidential election has sent shockwaves right across the world and its markets, with arguably the biggest shock seen in the market for the Mexican Peso, as the uncertainty surrounding the impact of a Trump presidency has led to 20 year lows. Being a neighbouring country, tied in a major trade agreement such as the North Atlantic Trade Agreement, Mexico is very much locked economically with the United States. However, the peso is in particular danger as Trump's statements against trade and NAFTA during his campaign have left it vulnerable to being cut off by its major trading partner. Hence, with confirmation that Trump is to be the new President comes questions as to whether the businessman turned politician will act on his anti-Mexican policies, or whether the sense of the White House can prevent this. Regardless, this lack of confidence in the peso’s future demand in terms of trade has led to a massive fall off, plunging more than 12% to record lows of around 20.51 per dollar on Thursday. Such fears have been summed up by Athanasios Vamvakidis, head of G10 FX strategy in Europe at Bank of America Merrill Lynch, who says "A Trump victory increases uncertainty, which is bad for emerging markets until we get
some clarity on his policy plans," an argument the markets are demonstrating. However, this is far from an isolated variation as the peso has faced a difficult few weeks and months, suffering from volatility as a direct result of its neighbours. Regular swings in the markets that directly correspond to major developments in the election race has left the peso as an unattractive currency, so much so that in the run-up to the election, a Reuters poll had forecast a Trump victory would knock the peso to around 21 per dollar. Though surprisingly accurate, the prediction does not bode well for confidence in the currency, as investors essentially expected the current weakness. The extent of the fluctuations can be seen in the fact the peso was trading at a 2 month high this Tuesday at around 18.607 per dollar, yet only 72 hours later had reached record 20 year lows. Though the movements seen in the peso have now lasted months, hopefully, the volatility will subside as we find out whether or not Trump will act on the Mexican impacting policies he spoke about during his campaign. Mikun Olupona
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About the Research Division The Research Division was formed in early 2011 and is a part of the Nottingham Economics and Finance Society (NEFS, formerly known as NFS and UNIS). It consists of teams of analysts closely monitoring particular markets and providing insights into their developments, digested in our NEFS Weekly Market Wrap-Up. The goal of the division is both the development of the analysts’ writing skills and market The Research Division was formed in early 2011 and is a part of the Nottingham Economics knowledge, as well as providing NEFS members with quality analysis, keeping them up to and Finance Society (NEFS, formerly known as NFS and UNIS). It consists of teams of date with the mostmonitoring important particular financial markets news. and providing insights into their developments, analysts closely digested in our NEFS Weekly Market Wrap-Up.
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