Week Ending 18th November 2016
NEFS Research Division Presents:
The Weekly Market Wrap-Up 1
NEFS M arket Wrap-Up
Contents Macro Review 3 Eurozone United Kingdom United States Japan South Korea 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 Technology Financials Oil & Gas
Commodities 21 Energy Agriculturals
Currencies 23 EUR, USD, GBP AUD, JPY & Other Asian
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Week Ending 18th November 2016
MACRO REVIEW Eurozone The ECB’s governing council’s meeting held in October regarding the future of the asset-purchasing programme was finally published this Thursday, shedding new light on the council’s commitment to the issue. As discussed briefly in a previous article, the programme is supposed to end in March 2017. However, Mario Draghi has pointed out that the ECB will give its conclusive decision on a possible extension in December. This is a projection of the positive effect quantitative easing has had on the inflation rate and its gradual increase back to the ‘close to but below 2%’ benchmark. Despite this being only a speculation up to now, the council’s meeting revealed that the likelihood of a six-month extension is big, due to anxiety among the 25 officials regarding the recovery of the bloc. It was pointed out that “the outlook for a continued cyclical recovery was based on exceptionally supportive financing conditions, which benefited to a large extent from the ECB’s monetary policy measures”. Members make note of the risks associated with current recovery levels, particularly discussing (1) the slow level of growth of wages and lack of investment on the economic side, and (2)
protectionism and rise of populism on the political side. Vitor Constâncio, the ECB’s vice-president, has later warned about the effect of the election of Donald Trump as the new US president, and the rising protectionism and political risk the Eurozone will be exposed to. This is coming after the Brexit vote in June, which implies further uncertainties around trade deals for the bloc. He also explains that the recovery of demand and wages must accelerate much faster before policy makers can be certain about the robustness of inflation rising back to its benchmark level. Goldman Sachs has also discussed the issue, stating that by their estimations, even if the QE programme is extended, the Eurozone cannot expect to achieve its inflation targets even by 2018. In fact, they expect an inflation of 1.3% by 2018 – much lower than the ECB’s target. This, in their opinion, is mainly a result of uncertainty caused by rising populism at a point when three of its four big economies are expecting general election in 2017. Election of politicians who oppose the fiscal easing programme could be detrimental to the bloc’s fragile recovery. Desislava Tartova
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NEFS M arket Wrap-Up
United Kingdom Britain’s unemployment rate fell to 4.8% in September - its lowest level in 11 years (shown below) according to the latest labour market report released by the Office for National Statistics. The report showed that the number of people in work rose in the last quarter, alongside a fall in the number of people out of work. The employment rate now stands at 74.5% - the highest since reputable records began in 1971. The government welcomed the reassuring figures, with employment minister, Damian Hinds, pleased at the ‘resilience of the UK labour market’. Nonetheless, ONS statistician lamented at growing evidence of a ’cooling’ labour market, after just 49,000 people found work in the July- September quarter – the slowest rate since March. Average weekly earnings rose by 2.3% in the 3 months to September, unchanged compared with the growth rate a year earlier. Despite exceeding Septembers inflation rate of 1%, a slowdown in employment growth will suppress average earnings, thus curtailing living standards. With the Bank of England predicting a sharp rise in inflation in 2017, households may see higher inflation eroding wage growth – constraining consumer spending growth. The claimant count, a measure of those claiming unemployment benefits, rose by 9,800 in October per the ONS – a much
larger increase than economists had previously expected. Ruth Gregory, an economist at Capital Economics, said this "timelier" measure of unemployment suggested that "employment growth will probably slow further". In other news, a study by the Trade Union Congress on investment spending in public and private sectors shows Britain ranks among the worst performers in the developed world for spending on new technology, industrial machinery and transport equipment. The UK came 34th out of the 34 members of the Organisation for Economic Cooperation & Development for spending on transport equipment. The report attempts to elucidate the UK’s tenuous productivity rate, which remains broadly similar to levels seen in the aftermath of the 2008 crash. Released just over a week before the Autumn statement, the result certainly makes the case for a rise in public & private sector investment more tenable. Philip Hammond is due to give the autumn statement on Wednesday, and is expected to emanate a strong signal that the government intends to act to help families characterised by ‘just about managing’. Hammond will also formally abandon George Osborne’s tax and spending rules, which now look impossible to meet, announcing a new fiscal framework. Usman Marghoob
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Week Ending 18th November 2016
United States The US dollar rose to a 13-year high on Wednesday as speculation of a Fed interest rate hike continues to grow. The ICE Dollar Index, which tracks the dollar’s value against the world’s most traded currencies, hit 100.57 on Wednesday. The recent growth in speculation was caused by Federal Reserve Chair, Janet Yellen, who during a testimonial before the Congress Joint Economic Committee on Thursday, said a rate hike “could well become appropriate relatively soon”. She then went on to outline her belief that with unemployment at 4.9%, coupled the expected growth in inflation to the Fed’s target of 2%, her decision not to increase the interest rates after the Fed’s meeting on the 1st and 2nd of November was not due to a lack of confidence in the economy. Instead, she “expect[s] economic growth to continue at a moderate pace”. Yellen’s speech has since driven the demand of the US dollar as other major Central Banks are unwilling to raise their interest rates. Additionally, President-elect Donald Trump promise to heavily increase spending on American infrastructure has played a role in strengthening the dollar. The expected rise in government spending will in turn lead to higher wages and stronger levels of
economic growth. This, alongside low oil prices, as the price of oil and demand for the dollar are negatively correlated, has led to the dollar growing in value. Nevertheless, the rise in interest rates still plays the largest role in the rise in the dollar’s value. As chief U.S. economist at Wilmington Trust, Luke Tilley, says "one of the big impacts on the dollar is the Fed hiking rates especially as other central banks stay pat". A stronger dollar is good news for American consumers. As the dollar rises in value, foreign goods become cheaper. However, there are still concerns for the impact this will have on the manufacturing sector. The concern is due to the adverse effect a rise in the dollar value will have on the demand for American products as they become more expensive abroad. The last time the dollar had a rise of this magnitude was in 2015, and the sharp rise lead to a 5month recession in the US manufacturing. Furthermore, the stronger dollar will result in an import deflation, which holds inflation below the Fed’s 2% target. As seen in the graph, the US economy still falls short by 0.1% in unemployment and 0.31% in inflation of the Fed’s targets. Disun Holloway
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NEFS M arket Wrap-Up
Japan After the turbulence of the week before last in the Japanese market, a good piece of news came last Monday as preliminary Gross Domestic Product (GDP) figures exceeded expectations. However, this usual boon to currency was offset by a selloff of US Government Bonds. The yen continued its slide against the dollar, reaching a five-month low over the week. The preliminary figures for GDP showed output increasing 2.2% in the third quarter, shown in the graph below. The growth in net exports led this rise. Trade contributed 1.8 percentage points to the overall growth relative to the previous year. This export strength came despite the strong yen throughout the quarter, which had led economists to forecast lower growth. The ability of the country’s exporters to overcome the strong yen reflects largely the growing global demand, particularly from Asian countries buying capital machinery. However, imports, domestic demand, and non-residential investment have continued to effect growth only mutedly. Flagging consumer demand has been dogged by inflationary struggles. The core inflation rate hit a three-month low at the end of October. In a low inflation world, demand for increased wages will be low, and
spending power will not rise significantly. Flat business investment also spells gloom for GDP projections. But, the world may still be approaching conditions optimal to revival of the Japanese economy. As the history of the market shows, it could only be a perfect storm that lifts the market out of the doldrums. Trade likely will continue to lead growth so long as the yen remains weak. Rising global bond yields in the wake of the US presidential election manifested in the ten-year yield on Japanese Government Bonds (JGB) closing above zero for the first time since September. The Bank of Japan (BoJ) announced in September that it would peg the ten-year yield at around zero percent via “yield curve control,” and it had the opportunity to act on this policy as bonds rose over the week. It offered to buy two and five-year bonds at slightly above the yields on offer in the market last Wednesday. This caused markets to recoil and, in the end, the bank did not buy a single bond. However, this can be interpreted as the bank testing the limits of its policy tool. Jim Reid at Deutsche Bank called it “the first sign that [the BoJ] are prepared to intervene.” Daniel Blaugher
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South Korea The Bank of Korea (BoK) are holding interest rates firm at 1.25%, the fifth consecutive month at this level, and a record low (see diagram below). This may be a move to bolster stability in an economy that has been rocked by a political ‘cronyism’ crisis, blows to exports (notably Samsung’s combusting Note 7) and the recent U.S. presidential election, which saw protectionist Donald Trump elected as head of the world’s largest economy. South Korea’s ongoing political storm - or, ‘Choi-gate’ – and its consequent uncertainty, are threatening to drag the Korean Won (KRW) down further since last week’s U.S. election, which looks to be falling towards 1,200 (USD/KRW). Changes of attitude in President Park Geun-hye’s hometown, Daegu, are indicative of the political unrest and changes in regional voting tendencies across the country. Daegu benefited greatly from Korea’s boom of the 1970s, still home to factory parks that churn out products for an export-led economy. At the time of her election, Park polled at 80% approval in Daegu. Now, some locals express their disapproval, such as local man, 49 year old Yeo Joon Yeon – “I'm also ashamed of her. She's made a national embarrassment of herself and that angers everyone who cared for her.”
Maintaining such a low base rate may be risky for the falling Won, yet amid recent scandal it is easy to forget the concerns for South Korean growth as a consequence of previous blows exports and other industrial woes – such as bankruptcies in the shipping sector (notably, Hanjin). The weakening Won could be a blessing in disguise, coming at a time when exports could do with a boost – though they have started to pick up lately. The balance of trade is forecasted to rise to a $10.9bn surplus, up from the fairly stagnant $7.2bn and $7.1bn in October and September respectively. It is probable that the Won’s falling exchange rate is a significant factor in November’s forecasted increase. Of course, President Park’s single-figure approval ratings could spell electoral defeat for her Saenuri party in next year’s presidential election, and a rise of a centreleft opposition who favour moving the country away from its traditional dependence on chaebol. This could in turn precede future deindustrialisation (of a degree) and a transition to more inclusive, consumer-led growth – which would favour a stronger Won. Jamie Peake
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NEFS M arket Wrap-Up
Australia & New Zealand In a speech addressed to the Business Council of Australia, the country’s Prime Minister said on Thursday that fairness is an issue which must be addressed in society now more than ever considering the increasingly protectionist atmosphere internationally. He said, “To overcome the rising disquiet, we must ensure that the benefits of open markets deliver for the many and not just a few… If the results of the recent US presidential election have taught us anything, it is that policy changes must be fair in a very broad sense.” This potentially follows research released this week by the University of Sydney which concluded that there is a tipping point in the country’s cities at which the income gap is vast and clear. Researcher Somwrita Saker said that once Australian cities passed the point of one million inhabitants, “the rich were becoming richer faster” while those on lower levels of income remained so, or had much lower income growth rates. According to data from the Australian Bureau of Statistics, the wealthiest 20% held 61% of total household wealth whereas the poorest 20% held a mere 1% of total household wealth between them. Australia’s largest cities Sydney and Melbourne had the greatest numbers of people earning more than $2000 a week. These cities follow in the footsteps of many
global cities such as London and New York where the city serves the rich and consequently makes it less affordable for all to live there. The red bars on the graph below show numbers of people taking home $400-$600 per week and the black bar shows those taking home more than $2000 per week. The divide between large and small cities is clear. In New Zealand, meanwhile, the ANZ RoyMorgan consumer confidence measure showed that consumer confidence rose in November to its highest point in 19 months. A net 13% of respondents considered themselves to be better off now compared to a year ago. The index measure climbed to 127.2 but the majority of the survey’s results were gathered before the two powerful earthquakes which hit the country earlier this week. The earthquakes have already affected New Zealand’s thriving dairy industry which suffered as farms left without power had to dispose of their milk. This comes despite the good news that there has been a 75-cent rise in the price of milk equating to a $1.3 billion rise in the value of this season’s milk production. Nikou Asgari
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Week Ending 18th November 2016
Canada The main news emerging from Canada over the past week has been that consumer prices increased by 1.5% yearon-year (yoy) for the month of October. This new figure represents a rise from the previous yoy inflation rate from September which was 1.3%. The diagram below demonstrates the annual trend for yoy inflation in Canada where the data has been generated by Statistics for Canada. The most prominent reason for the increase in the inflation rate in October is due to rises in both transport and housing prices. Transport costs rose by 3% which was higher than the figure of 2.3% posted for September. Meanwhile, housing prices rose by a significant 1.7 % which was the highest price rise for housing since a 1.9% increase occurred in January 2015. Furthermore, the trend for gasoline prices was reversed as prices rose by 2.5% which can be contrasted to how prices for this commodity had fallen by 3.2%. However, the upward trend for yoy inflation has been reduced due to the negative pressure of a decline in food prices. The prices of food faced their first decline in Canada since January 2000 as prices fell by 0.7% in October. The decline was largely because
of minimal decreases in the prices of staple food items such as fresh fruit, meat, dairy products and vegetables. In other news, Canadian manufacturing sales rose by 0.3% in September which exceeded the expected gains of 0.1% The increase in manufacturing sales was largely driven by a 1.5% rise in the sale of transportation equipment, as well as substantial gains in the sales of railway equipment of 73%. Conversely, these drivers of manufacturing growth were partly offset by lower sales in metals such as iron, steel and aluminium. Overall however, Dina Ignjatovic of the Toronto-Dominion Bank suggested that the manufacturing industry can have a positive impact on Canada’s sluggish growth rates, as she stated that the manufacturing sector will regain health soon. Meanwhile, new motor vehicle sales rose from 74885 sales in August to 177138 in September which is a sign of consumer confidence rising, as consumption has been encouraged with the persistent low interest rates imposed by the Bank of Canada. Isher Hehar
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NEFS M arket Wrap-Up
EMERGING MARKETS China A series of data including retail sales and industrial production was released over the past week, showing that the Chinese economy remains tepid in the middle of its transition from an economy driven by investment and manufacturing growth to a model of growth led by consumption. The retail sales in China in October rose by 10% year on year, as shown below, missing the market expectation of 10.7%. Whereas the Sales Day of Singles on November 11 of e-commerce giant Alibaba posted record sales of 17.7 billion USD during a day, the national monthly retail sales statistics for October is the weakest since May. The trend is more than obvious if we look at retail sales over a longer time (graph below). That said, the bigger picture is that domestic consumption is now increasingly the driver of China’s economic growth, and the consumers’ preferences are changing rapidly in recent years. A report published on Monday by Deloitte and the China Chain Store and Franchise Association (CCFA) even projected that China, which now accounts for about 20% of the global retail market of 22.5 trillion dollars, will overtake the United States as the largest market in 2019.
showing that upgrading demand remains a key feature of Chinese consumers. However, with slower overall economic growth, it would not be surprising for consumption growth to trend down in the future. Industrial output in the month of October rose by 6.1% from a year earlier, slightly shy of analysts’ estimates of 6.2%, according to statistics released by the National Bureau of Statistics. Separately, foreign direct investment in the first ten months of the year rose 4.2% to hit 666.3 billion yuan (96.9 billion dollars). Fixed asset investment in September grew by 8.3% year on year, slightly higher than the 8.2% expansion in August. The Shanghai Composite Index closed at 3,192.86 on Friday, representing a loss of 0.1 % from the previous week’s close of 3,196.04. Next week the focus is expected to be on the PMIs, including the breakdown for the manufacturing and the services sectors. Michael Chen
Retail sales grew the most in October for office supplies (12.7%), building materials (12.3%), furniture (11%), automobiles (8.7%), personal care (9.5%), home appliances (7.6%) and garments (7.5%),
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Week Ending 18th November 2016
India Narendra Modi’s decision last week to replace 86% of Indian currency, which has been declared illegal tender, has unleashed a furious debate amongst economists. The government’s intention behind demonetarisation is to weed out illegal money in the market. This accounts for 20% of GDP, funds nearly 80% of employment and is a major contributor to tax cheating, counterfeiting and corruption. However, now that the dust has started to settle and economists have had a chance to assess the decision, opinions are extremely mixed. Many organisations, such as the International Monetary Fund (IMF), have declared the decision as a ground-breaking stand against the Indian informal sector, which is currently stifling growth and keeping tax revenues minimal. It is also argued that the short-term pain of stifled business growth and weak real estate (which has seen share prices this week fall 30%) will be worth the long-term benefit of a larger formal sector, which will increase tax revenues and GDP growth. Furthermore, with large currency notes a notorious contributor towards the informal sector, even the US and the Eurozone have been considering getting rid of their larger currency notes. Yet the Chief Minister for Utter Pradesh (a large state in northern India) holds the
opinion that it was India’s black market that cushioned the blow of the 2008 Financial Crisis in India, by generating income in the informal sector, which is significantly less affected by banks and the government. By targeting the informal sector, the Chief Minister believes that demonetarisation will simply reduce the safety net that has protected so many citizens. Furthermore, the Financial Express (a leading investment research agency) and the Indian Statistical Institute have stated that demonetarisation will have minimal impact on the informal sector. As illegal money is only part of an individual’s wealth, targeting unlawful income fails to target other ways that cash could be stored, such as abroad or as foreign currency. Additionally, the policy will not stop the flow of illegal money or income. This is a constant process of transferring assets, that will continue to function despite the policy. They consequently predict minimal impact on the informal sector, whilst honest businesses and citizens, who rely heavily on cash transactions, will be hit hardest. As seen above, the opinions surrounding the recent policy are highly opposed. It is yet to be seen the overall effect of the policy on the Indian economy. Charlotte Alder
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Russia & Eastern Europe Today we will analyze data releases by Russia on its shrinking balance of trade surplus and Slovenia on it’s improving labor force. According to the World Bank, roughly 30% of Russian GDP is generated though exports. Compared to the United States, with exports accounting for only 13% of GDP, Russia is heavily dependent on exports to drive its economy. On Friday, November 11th, Russia announced September’s balance of trade at a surplus of $7.38B, which is actually down from $9.5B a year ago. The balance of trade is the net difference between exports and imports, so let’s take a look at these two factors. Russia’s primary exports are fuels and energy products, which account for 63% of total exports, and metals, which account for 10% of total exports. Compared to a year ago, oil prices and the Commodity Metal Price Index are at nearly identical levels of $48 and $120, respectively, only making a small contribution to the overall 3% fall in total exports. Russian imports are primarily composed of machinery and equipment, accounting for 45%, and foodstuffs, accounting for 15%. The Machinery and Equipment Price Index is at all-time highs of 107 compared to last year’s 98 levels. Foodstuffs Price Index is up about 17 points to 172 for September compared to last year. The 9% year-onyear rise in Russian imports can be
illustrated quite clearly through these two sectors. Moving on to positive news in Slovenia. The country posted a 10.3% unemployment rate for September, which continues its eight-month streak of improvement since the 12.9% highs in January. Checking the falling unemployment rate against an increasing labor force participation rate implies that more people are entering the labor force, coupled with proportionately more people are getting hired. Hopefully the strengthening workforce will be able to guide the country towards the increasing GPD growth forecasted at 3.2% for Q3. Next week Russia will release year-on-year GDP data, which compares the value of the goods and services against to the corresponding month in the previous year. Russia is forecasted to produce -0.4% for October, down from September’s -0.7%. Slovenia will release data on both consumer confidence, which is projected to decline, and business confidence, which is projected to improve. Dan Minicucci
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Latin America The past week has been turbulent for emerging markets in general as many central banks look to compensate for the bullish outlook on the US dollar postappointment of President-Elect Trump. The Chilean Central Bank (BCCh) made several announcements with regards to the current account, GDP growth rate and key interest rates. Argentina, Brazil, Mexico and Columbia all offered updates on significant indicators. Separately, Latin America’s principal markets have found resistance after taking a beating following last week’s news. Looking to the medium and long term, all eyes were on the BCCh this week. On Thursday, the BCCh decided to hold the nation’s benchmark interest rate at 3.5% (where it has been since January) and continue with its neutral stance, defying the expectation of a 25 basis point cut that has been widely anticipated since last month. The decision comes as a counter to the falling inflation rate in Chile. The nation’s inflation rate has fallen in 10 consecutive months from a high of 4.8% in January to the current 2.8% (within the BCCh’s target of 3% +/- 1%). This month’s decision will only increase the likelihood that the rate will receive at 25 bp cut shortly. On Friday morning, Chile announced the latest current account figures. The deficit (for the year to date), stands at c. $2.77
billion, slightly lower than the $2.87 billion posted this time last year. Also on Friday, Q3 GDP data was released. Chile’s economy grew by 0.6% in Q3 compared to Q2, in seasonally adjusted terms, and 1.6% y/y according to the BCCh (as shown in the graph below). Although the figures prove that economic growth remains sluggish, they were slightly above forecast (1.4% y/y) according to a Reuters poll which will likely postpone the possibility of the rate cut discussed earlier. GDP was boosted by strong growth in the transport and retail, but weighed down by manufacturing, construction and utilities, reflecting the internal bearish outlook for Chile’s economy. The Mexican IPC (.MMX) index and the Brazilian IBOVESPA market finally bottomed-out this week, at c. 44900 and c. 59100 points respectively following significant losses in the past 10 days. The IBOVESPA rallied mid-week only to drop back down to previous levels by Friday. In other news, Mexican industrial production for September was down 1.5% y/y at 1.3%. Brazilian business confidence was down 0.6 points to 51.7 in November. The rating remains relatively high however, making Brazil one of the most attractive emerging markets of 2016. Alistair Grant
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NEFS M arket Wrap-Up
Africa Slow news for Africa this week; interesting prospects on Namibia, and technological potential yet to be unlocked, are, however, stories of note, and stories of great optimism. An independent socio-economist drew attention to Namibia, a relatively young and emerging market economy. Choosing the correct direction that the country should pursue, however, in search of economic growth, is of the upmost importance – especially considering the vastly differing growth rates of African economies (see graph). The economist drew attention to the recent geopolitical changes not only in Britain and the US, but the political weakening of the African National Congress (the social democratic party) in the recent South African local and regional elections. In all three examples, it is clear that the emphasis is moving from interdependent to complete independence: taking a step back from globalisation. While this is arguably a negative effect for the nation which just hosted its first ‘Invest in Namibia Conference,’ it actually is reflective of the two paths it can take, and indeed, in a world where what African economic growth that exists is largely dependent on super states, an encouragement for one to ‘go it alone,’ may be revelatory. Perhaps this incentive for Namibia to formulate and implement strong economic development policies, enabling less dependence, will set the stage for a new era of African economic growth.
rejuvenation. By the end of 2015, nearly half of the 1.17 billion strong African population had a mobile phone plan, amounting to 12% of all individual subscribers in the world, making up 6% of global revenue. This represents a 70% increase from the same source five years earlier; if this growth continues, 730 million individuals should be mobile phone subscribers by 2020. In addition, the African market still is dominated by 2G packages, though high-speed connections i.e. 4G are becoming more common. With this set only to increase, we can expect there to be massive productivity increases in Africa in the coming years. Moreover, the staggering fact is that only 23% of mobile phones in Africa are smart phones; when we think about the productive functions smart phones allowed for, at their birth in around 2008 in the UK, we can only be optimistic about the economic capacity in Africa. Thomas Dooner
Team this with technological progress surges, and Africa really could be set for
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Middle East On Tuesday, Turkey’s state finance ministry begrudgingly announced a budget deficit of 12.1 billion Turkish liras ($3.88 billion) from January to October. One of the founding members of the OECD publicised last month that revenue stood at 36.1 billion (£11.63 billion) Turkish lira, representing an 11% year-on-year fall. Budget expenditure was also up 18.9% from last year at 53.5 billion Turkish lira ($17.1 billion) -damning figures for the Turkish government. One of the reasons for this dramatic increase in expenditure can be found in increased government attention to welfare. Spending on health and pensions rose 38% in the first ten months of this year, a move that has its ethical merits, but has had a profoundly negative knock-on effect to Turkey’s economy. However, whilst it is clear the economy has been adversely affected by the Turkish government’s wayward fiscal policies, the everyday Turkish citizen has benefited in the short run. The effects of spending on health and pensions has trickled down to those who are most in need in society: the elderly and the poor. In addition, tax revenues have risen nearly 10.3% from January to September marking a 13% increase from the same period last year,
indicating an increase in disposable income in Turkey. This author commends the Turkish government’s efforts to restore a sense of equanimity to its people in dark economic times, but would suggest they rein in public spending to avoid sleepwalking into an uncertain future. More macabre news follows! On Thursday, the UN Economic and Social Commission for Western Asia (ESCWA) published their long-awaited report on the Arab Spring – the first of its kind – and the announcement that the incident cost the region £600 billion in growth has shocked the globe. ESCWA’s economic development director, Mohamed el Moctar Mohamed el Hacene pleaded for support in the region, claiming that the support Latin America and the Balkans received after their conflicts has ‘not been seen in the Arab region’. A demonstration aptly named ‘The Revolution of the Poor’ will take place in Cairo this Friday and security forces are on red alert. If the world does not want a repeat of the disgraceful events in Syria, then they should act swiftly to remedy the worsened debt, unemployment, corruption, poverty refugee crisis caused by the Arab Spring. Vincent Egunlae
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South Asia Due to its geographic location, South Asia is one of the most vulnerable regions to be impacted by climate change. Furthermore, the region has high levels of poverty and population density. With its rural economies closely tied to climate sensitive sectors such as agriculture, fisheries, etc. the poor are likely to be disproportionately affected by climate change. Projections of climate change reflect a grim future, as sea levels are expected to rise at least 40 cm higher than its present level by the end of the 21st century, which will increase the number of people affected by flooding in coastal regions annually from 13 million to 94 million. Almost 60% of this will occur in South Asia, along the coasts of Pakistan, India, Sri Lanka, Bangladesh and Burma. With a rapidly increasing population, an estimated 600 million of which is currently subsisting on less than $1.25 a day, even small climate shocks are expected to cause irreversible losses to the region.
“taking the lead in combating climate change and the adverse effects thereof”. The convention considers the development needs of the countries in South Asia, thereby not putting a cap on emission levels, but encourages them to identify and implement other mitigation actions. This has led to the adoption of Climate Financing. The term is associated with public finance grant-based support for climate change actions. According to reports by the UN Environment, total bilateral and multilateral finance for climate change adaptation had reached $22.5 billion for water management projects in South Asia. To protect their people against climate— induced natural disasters and economic collapse, it is important for the government bodies to identify and implement the right projects that will build resilience in the vulnerable regions within South Asia. Tahsin Farah Chowdhury
Between 1990 and 2008, more than 750 million people, i.e. 50% of the region’s total population, were hit by at least one weather-related disaster, resulting in around $45 billion in damages. Approximately 70% of South Asians live in rural areas and depend on agriculture for their livelihoods. Agriculture is the most vulnerable sector because most of the cropped areas lie in lowlands, prone to floods. In order to mitigate and adapt to the impacts of climate change, South Asia will require substantial levels of financial support, as well as technical support. The United Nations Framework Convention on Climate Change (UNFCCC) was signed in 1992, to undertake the responsibility of 16
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Southeast Asia This week we turn our attention to a major international investigation into Vietnamese metal exports, alongside the implications of record palm oil prices for Indonesia and Malaysia. Vietnam has found itself at the centre of a trade dispute this week, as both the EU’s Anti-Fraud agency and the US Department of Commerce have opened high-profile investigations into whether Chinese metals producers are shipping steel and aluminium via Vietnam in order to avoid paying Western tariffs. US producers have alleged that Chinese steelmakers have been transhipping their cargo through Vietnam in order to disguise its origins, and avoid US anti-dumping tariffs on Chinese metals. Worryingly for Vietnamese producers, these allegations appear to be supported by trade figures. In the first six months of 2016, steel shipments from Vietnam to the US increased by a massive 1100% to reach 312,329 tonnes, as Chinese steel exports to Vietnam increased to 6.3 million tonnes over the same period. In the past year, the USA has imposed tariffs as high as 266% on Chinese steel, and there is a risk that similar duties could be levied on Vietnamese metals if the investigation concludes against them. For a country so dependent on trade – trade as
a percentage of GDP was 179% in 2015 – a limited access to Western markets could have significant long-term ramifications for Vietnam’s growth rate. Moreover, FT’s Michael Peel argues that these developments could “bring Hanoi into conflict with Beijing”, as they come at a time when Vietnam is embroiled in a territory dispute with China. In other news, palm oil futures jumped to a four-year high on Friday, after Donald Trump’s shock victory resulted in the Malaysian ringgit falling roughly five percent against the dollar. Prices peaked at MYR 3089 a tonne, the highest level since 2012, and represent a valuable boost to a sector that has been struggling with low prices in recent years. Indonesia and Malaysia account for almost 90% of global palm oil production, with it forming over 12% of the former’s exports. Thus, a price increase of this magnitude could provide a significant lift to the Southeast Asian economy. Provided there are no major macroeconomic developments in the region, next week we will focus on the future of ASEAN and its relationships with the major world powers, alongside any data releases of note. Daniel Pettman
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NEFS M arket Wrap-Up
EQUITIES Technology It has been a relatively quiet week for tech companies, with most now already having released their quarterly results. However, there have been notable advancements for two of the largest companies in the field. Californian based social media start-up Snap Inc., owner of Snapchat has privately filed for an initial public offering which could come into fruition as early as March 2017. The valuation is expected to be between $20 - $25 billion which would make it the biggest social media IPO since Facebook’s $81bn valuation in 2012. With current company revenue at less than $1 million, it has meant that Snap Inc. can privately file the paperwork, leading to some confusion over the matter. However, in the coming year it is expected for this revenue to rise to more than $1 bn. Updated company charter has shown that the JP Morgan and Goldman Sachs led IPO will have three
classes of stock, leading to greater autonomy for its CEO, 26-year-old Evan Spiegel and co-founder Bobby Murphy. Elsewhere, it has been reported that Tesla Motors CEO – Elon Musk has won shareholder approval for the acquisition of Solar City (US provider of solar energy services), moving the company closer to a clean energy company. The takeover is valued at $2.6bn, with Musk claiming that it could add $1bn of extra revenue to Tesla, which was operating at a loss until now. The announcement, voted unanimously by the share holders at 85% in favour, led to a spike in Tesla’s stock, increasing by 2.6% at market close on Thursday to $188.66 (as demonstrated on the diagram below) whilst Solar City gained 2.9% to $20.40. William Bunnis
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Financials This week we look at the how major financial stocks have been fairing since a market moving U.S. election, and move on to analyse the performance of some major global market indices.
A growing perception that Trump’s economic policies will push up consumer prices helped put the dollar on track for its biggest two-week rise against Japan's yen in almost 30 years.
Since the U.S. Presidential Election on November 8, Citigroup is up 12%, Goldman has risen 16%, Morgan Stanley 18%, JPMorgan Chase and Co. 12%, and Bank of America Corp. 18%. This rally is shown in below. Also, they are all in the top 10 stocks in terms of points added to the S&P 500.
The dollar's rise against the yen raised hopes of an earnings boost to Japanese exporters, helping lift the Nikkei average to a 10-month high. The blue-chip Japanese stock index closed 0.6% higher.
However, it could be argued that this rally has gotten ahead of itself. Whilst the incoming Trump administration, in tandem with the Republican-controlled Congress, are likely to push to improve the pace of U.S. economic growth and reduce some of the regulatory burden on banks, investors appear to have already taken this into consideration, and large-cap bank valuations now appear to be at levels that are somewhat ahead of historical longerterm levels. Therefore, a greater level of caution on financial stocks is warranted for the near-term, especially large-cap bank stocks, as they may have been overbought already.
The FTSE 100 fell on Friday, with miners leading the market lower after base and precious metals prices slipped due to a stronger dollar, which made metals costlier for holders of other currencies. The bluechip FTSE 100 index closed 0.3% lower at 6,775.77 points. The index, however, posted a small rise for the week, its second week in a row of gains. The markets are not expected to move much over the week and American markets will closed for Thanksgiving on Thursday. The U.S. International Trade in Goods report due to be released on Friday will potentially be market moving and will primarily affect the value of the dollar in the FX market. Angelo Perera
The U.S. dollar climbed on Friday to its highest level since 2003, on continued bets of faster inflation and higher interest rates.
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NEFS M arket Wrap-Up
Oil & Gas On Tuesday, November 15th, the United States Geological Survey announced that a part of West Texas, known as the Wolfcamp shale, consists of 20 billion barrels of oil and 16 trillion cubic feet of natural gas. Following this announcement, oil and gas price shares continued to increase, relative to last week’s boom caused by the US election. Wolfcamp’s oil and natural gas supply is nearly three times more petroleum than the USGS discovered in 2013 in North Dakota’s Bakken shale, where the controversial North Dakota pipeline is currently under development by the Energy Transfer Partners. Following this announcement, investor’s enthusiasm caused share prices to rise. Exxon (XOM) saw a 1.38% increase, closing on Monday at $85.28 a share to $86.46 this Thursday. Furthermore, Chevron (CVX) saw an increase by 2.51% as share prices rose from 106.59 to 109.27, while Valero Energy (VLO) saw an increase of 2.72% throughout the week. BP PLC (BP: NYSE) also experienced an increase in the US market as its share price rose by 2.40%. One of the biggest winners included Marathon Petroleum (MRD) who saw share prices increase
from $14.93 to $15.85 a share, totaling a 6.16% difference. Moreover, in Europe, oil and gas companies such as the Royal Dutch Shell and BP also saw increases in share prices. The Royal Dutch Shell (RSDA: LSE) closed on Monday at $1928.00 and rose to $2000.00 on Thursday, amounting to a 3.73% in share prices. On the other hand, British Petroleum (BP: LSE) saw an increase in share prices from $433.45 to $449.75, totaling a 3.76% difference. Lastly, WTI prices rose 6.27% to $44.91 a barrel. The OPEC nations are gathering towards the end of November in order to discuss a decrease in production in order to drive prices up. However, the extent to which member states, including Iran and Iraq, will agree to this deal is still uncertain. However, if oil prices rise, shale producers are able to quickly produce more oil in the market, creating a see-saw movement. Increasing uncertainty has led to declining investments that are essential in maintaining demand and replacing declining output in the industry. Maria Fernandes Camaño Garcia
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Week Ending 18th November 2016
COMMODITIES Energy Natural gas prices continued its month-long decline as former hedge fund manager, Jim Cramer, noted this as “one of the largest natural gas collapses in recent history, a crash of epic proportions that no one is talking about.” The US Energy Information Administration (EIA) reported on Thursday that supplies grew by an additional 30 billion cubic feet for the week ending November 11. Although weather forecasts are starting to show signs of colder temperatures, this wasn’t enough to outweigh the inventory build-up. As a result, natural gas prices dropped 6.8 cents on Thursday, closing at $2.696 per million British thermal units (mmBtu). Meanwhile, oil prices continued its volatile nature throughout the week. As I mentioned in previous articles, an initial agreement from OPEC to bring production down, increased optimism in the market and oil prices climbed above $50 per barrel. However, growing scepticism about finalising the deal, especially with complications coming from Iran and Iraq, brought prices back down to the $40 per barrel mark. As you can see from the chart below, initial gains from September have been completely eroded.
of the OPEC meeting in Vienna on November 30. As a result, Brent Crude, the global benchmark, rose 5.6% to $46.95, whilst US benchmark, West Texas Intermediate (WTI) closed at $45.81, up by 5.7%. The rally of oil prices reversed on Wednesday when the EIA released its weekly report, showing an increase in US crude oil inventories by 5.27 million barrels for the week ending November 11, this was well above analyst expectations who were predicting an increase of just 1.5 million. Prices briefly climbed on Thursday when the Saudi Energy Minister, Khalid al-Falih, said he was optimistic that OPEC will formalise the preliminary output deal that was reached in September. However, this reversed again after the dollar rallied to a nine-month high, following Federal Reserve Chair, Janet Yellen, signalling a high probability of a FED rate hike in December. As the oil market continues to face extreme volatility, investors are looking increasingly to the outcome of the meeting on November 30 for more clarity. Bunyamin Bardak
Oil prices surged on Tuesday, the most in seven months, as OPEC members led by Qatar, Algeria, and Venezuela, were reported to be making a final diplomatic push to finalise the production cuts ahead
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NEFS M arket Wrap-Up
Agriculturals Oat prices continued to defy the negative trends set in grain markets by rising 6% this week to $2.34/BU, extending monthly gains to as much as 15% (as shown below). While wheat, rice and corn have all suffered significant losses in recent months as a result of bumper harvests and increased supply from Russia, oat prices have risen due to increased demand from farmers (who have been switching from buying corn to oats as a feedstock for animals) and because of reduced supply, with many producers exiting the market and switching to more profitable grains. Meanwhile, rice, wheat, and corn futures suffered losses of 2.6%, 1.2% and 1.0% this week to settle at $9.56/CWT, $3.98/BU, and $3.40/BU respectively, as stocks continue to swell due to the ongoing positive weather in major production regions. Sugar prices fell 6% further this week, from the multi-year high of $0.238/lb reached on 5th October to settle at $0.231/lb. This sudden shift in sentiment can be partially attributed to the recent weakness of the Brazilian real relative to the US dollar, which has resulted in producers flooding markets with additional supply to capitalize on the sudden shift in the currencies’ value.
The net long positions held by hedge funds and other speculators have fallen from 32% of the total sugar futures market to 26% this week, as some traders left the market after the U.S. Election. However, this 26% is still worth approximately $5.35bn and any sudden moves from these traders could still result in significant price swings. Christian Gerlack at Global Asset Management believes many of these speculators remain in the market to observe the impact of droughts in Asia, which could impact on exports from India in the next harvest season. He suggested earlier this week that prices could go “much higher” if this was to be the case, as India’s already low stock piles could see them become a net importer of sugar for the first time in 4 years. In other markets, rubber added 3% to last week’s gains, while cotton also appreciated by 3.7% as the International Cotton Committee cut its estimate of world stocks to the lowest value in 5 years. In the coming week, the impact of a stronger US dollar will impact on many agricultural markets, particularly those with close trading links to the United States such as coffee and wheat. Aidan Dominy
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Week Ending 18th November 2016
CURRENCIES Major Currencies So much for last week’s euphoria. The reversal of last week’s short lived excitement of a rising sterling is over, the euro is taking a solid beating and the US dollar has admirably recovered and is surging now, bringing the sterling down. Starting in the sterling space, it opened at 1.257 (against the dollar) before closing 1.83% down at 1.234. The slip in the sterling is partly driven by the slightly lower than expected CPI figure (1% actual against 1.1% forecasted). The labour market figures did not help support the pound either as Claimant Count Change shifted to -9.8k in October against -5.6k in the prior month. Unemployment was slightly less that consensus at 4.8%. However, post-referendum UK consumer activity has been notable for its resilience, with retail sales volumes up 7.4% in October year-on-year. However, with sterling weakness likely to feed through to higher import costs, rising cost pressures may dampen consumer appetite if income growth remains subdued, a trend likely over the course of 2017, as the BoE’s Ben Broadbent has mentioned. This is further compounded as Goldman Sachs identified the sale of the sterling as its top trade for next year, expecting the sterling to slump to $1.14 by the end of next year, 1 cent lower than previous forecasts.
comments that an increase in short-term interest rates could “become appropriate relatively soon”. The Fed’s signal allowed the dollar to hit a fresh 13-yr high at 0.945. The dollar has also been putting pressure on the euro as the single currency is suffering its longest losing run since becoming an accounting currency in 1999 and has slipped below $1.06 for the first time in nearly a year. With a bleak outlook on the euro economics and lack of evidence of a sustained rise in inflation, Mr Draghi has suggested that tapering the fiscal stimulus will not be happening anytime soon. Despite annual consumer price rises hitting a two-year high of 0.5% last month, inflation remains far below the ECB’s target of just below 2% . Next week we wait on the UK’s GDP growth rate data and further inflation data in the euro area to solidify the market’s belief of further stimulus. In the US, as Trumpflation takes hold, the long end of the yield curve continues to sell off and we await to see if the currency continues its winning streak. Robert Tse
With the bond sell-off in the US continuing, the yield on the US 10-yr treasury bonds is up 3 basis points to 2.25%, from Yellen’s 23
NEFS M arket Wrap-Up
Minor Currencies The recent Greenback rally has been detrimental to currencies worldwide, causing particular havoc in the East Asian currency markets, as on Wednesday the 15th, the Chinese yuan weakened to its lowest level in 8 years, whilst the Japanese yen faced its worst trading fortnight since 1988. Despite being pegged within a daily two percent range to a central parity rate against the dollar, the Chinese yen is still highly susceptible to movements in the American dollar, a feature clearly visible in the last week. The recent strength of the dollar has led to a fall in the central parity rate by 204 basis points to 6.8495 against the dollar on the Wednesday 15th. However, this comes as part of a recent trend of a strengthening dollar battering the yuan, a trend that has resulted in 8 consecutive days of central parity rate falls. Consequently, these regular devaluations have created a cloud of pessimism about the yuan, for it appears to be one of the biggest victims of a massive selling in the emerging markets currencies. Similarly, the yen has also been a victim of the dollar’s recent strength, falling around 7 percent in the last two weeks against the greenback to hit a six-month low. The
situation worsened this week with the yen falling 0.55% to trade at 110.71 on Wednesday, before falling yet again to 110.925 by Thursday, a figure that represents its weakest showing since January 1988. Nonetheless, the Yuan and Yen are arguably only the highest profile of the recent declines seen in Asian currencies against the dollar. For example, both Malaysia and Singapore’s currency fell by 0.4% in the last week, whilst the Indonesian rupiah declined by a similar 0.3%, all with respect to the American dollar. The recent fragility in these emerging market currencies has been summarised by Olivier Korber, Societe Generale currency strategist, who said that "With lasting policy uncertainty and potential protectionism, there are probably enough ingredients to consider the risk of massive new dollar appreciation�, a confidence boost that is evident in the markets. Unfortunately, whilst the recent trend is negative for these Asian currencies, it is expected to continue, with investors suggesting a further 3% fall in the yuan by the end of the year. 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 knowninas NFS2011 and and UNIS). consists teams of analysts closely The Research Division was formed early is aIt part of theofNottingham Economics monitoring particular markets and providing insights into their developments, digested in our NEFS and Finance Society (NEFS, formerly known as NFS and UNIS). It consists of teams of Weekly Market Wrap-Up. 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 knowledge, providing NEFS with quality them up date with The goalasofwell the as division is both themembers development of the analysis, analysts’keeping writing skills andtomarket the knowledge, most important financial news. 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. 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 For any Yours, queries, please contact Josh Martin at jmartin@nefs.org.uk. Sincerely Yours, Director of the Nottingham Economics & Finance Society Research Division Homairah Ginwalla, Josh Martin, Director of the Nottingham Economics & Finance Society Research Division
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