Market Wrap-Up Week 7 by Nottingham Economics and Finance Society

Week Ending 2nd December 2016

NEFS Research Division Presents:

The Weekly Market Wrap-Up 1

NEFS M arket Wrap-Up

Contents Macro Review 3 United States United Kingdom Eurozone Japan South Korea Australia & New Zealand Canada

Emerging Markets 10 China India Russia and Eastern Europe Latin America Africa Middle East South East Asia

Equities 18 Financials Technology Oil & Gas

Commodities 21 Energy Agriculturals

Currencies 23 EUR, USD, GBP AUD, JPY & Other Asian

Week Ending 2nd December 2016

MACRO REVIEW United States President-elect, Donald Trump, on Wednesday announced Former Goldman Sachs Partner and Hollywood Producer, Steven Mnuchin, as his pick for Secretary of Treasury. This pick has made many speculate about the changes that President-elect Trump may implement on his proposed tax policy and future government spending to manage the Federal Debt. As Treasurer Mnuchin will oversee the IRS in tax collection, this has brought some unwanted controversy. Mnuchin said on Wednesday during an interview on CNBC, that “any [tax] reductions we have in upperincome taxes will be offset by less deductions” which is a stark contrast to the President-elects campaign proposal for tax cuts across the board. Mnuchin went on to say that there still will be large tax cuts for the middle class, however these tax cuts will be paid for by lowered upper-class deductibles, leading many to believe that high-income earners will not see an absolute reduction in tax. In addition to overseeing the IRS, Mnuchin will oversee the Federal Debt. As a key issue during the campaign, Mnuchin must closely monitor the debt ceiling. This may prove a difficult task as the President-elect has promised substantial tax cuts and spending on infrastructure, which the Committee for a Responsible Federal Budget says will increase US debt by $5.3 trillion over the next 10-years.

In other news, Carrier, an air-conditioning manufacturer, agreed on a deal negotiated by the President-elect, which will keep its Indianapolis factory from moving to Mexico, saving the jobs of the 1000 workers currently employed in the factory. The deal, announced on Tuesday, offered Carrier tax incentives to remain in the US. However, though supporters of President-elect see this as a successful deal, notable critiques such as Vermont Senator, Bernie Sanders, view it as though Carrier took “Trump as Hostage”. Sanders criticized the Presidentelect of going back on his campaigns promise to be tough on companies and impose 35% tariffs on those that move their manufacturing overseas. Carrier’s CEO say the deal is just “a drop in the bucket” as over 250,000 jobs will be lost due to plant closing announcements this year. With wages, significantly cheaper abroad than in the US, Chuck Jones, president of the Indianapolis unit of the United Steelworkers Union, says "[they] cannot compete with a $3 an hour wage." As seen in the chart below, since the turning point in 2000, there has been a sharp decline in manufacturing jobs in the US. Disun Holloway

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United Kingdom The OECD revised upwards its growth forecasts for UK GDP and foreign direct investment bounced higher than expected: both positive surely? Consumers do not seem to think so, as the GfK Confidence barometer recorded a -22 drop in sentiment amongst shoppers. Further, Brexit uncertainty abounds, and perhaps those who sleep more than 6 hours a night are the key to economic prosperity. The OECD this week saw fit to increase UK growth forecasts from 1.8% to 2% in 2016 and from 1% to 1.2% in 2017. While this is of course positive, one cannot help but wonder whether all this good economic news is to be short-lived. Indeed, it would seem that Christmas shoppers are massively less confident about economic prospects, having seen a drop in confidence from -7 in September, to -17 in October to a further -22 in November of this year. Surely, then, these growth prospects are unfounded? The very same report predicts higher inflation, induced by the sterling’s depreciation (see graph below), to hit purchasing power in the first half of next year. From here, corporate margins will be slashed, and private consumption and investment will feel a literal and economically figurative freeze. It seems we are facing short term bounce backs, but negative prospects in the long term.

amidst the mess that is Brexit. This week, too, we saw Nick Clegg, Chuka Umunna, and Anna Soubry claiming that not only does every sector benefit from the EU, but also that the EU creates either directly or indirectly, 3.25 million UK jobs. While the gravity of this is not to be ignored, it seems to me that those on the Remain side are ignoring the possibilities to be had outside the EU: instead of creating spin that no one can decipher as true or false (there simply is no way of knowing) they should catch up on sleep. This is exactly what is prescribed by Dr Marco Hafner in his new publication ‘Why Sleep Matters – The Economic Costs of Insufficient Sleep.’ He finds that the UK could be losing up to £40 billion each year; this amounts to 2% of GDP, evincing its significance. If only those of us who sleep 6 hours a night, upped it to 7 hours a night, Hafner estimates £24 billion could be added to the UK economy. Thomas Dooner

Mark Carney has yet again outshone our politicians with his conclusive and convicted action, as he pushes ahead to enact transitional agreements to prevent the UK’s financial institutions from facing a cliff edge following our eventual removal from the EU. This is refreshing: Carney seems to be the only one actually attempting to make tangible progress

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Eurozone This week has seen an array of positive financial indicators awash within the Eurozone. Eurostat, the European Commission’s statistics bureau, has confirmed that September saw the Eurozone’s unemployment rate fall to 9.9%. This is the first time in 7 years that the unemployment rate has been below 10%. Whilst there are many factors cited to be the cause for this gradual reduction in unemployment, one of the largest influences has been the continued action of the European Central Bank (ECB) to stimulate the Eurozone’s economy. This has included cutting the interest rate from 0.05% to 0% in March 2016, and instigating a strict programme of quantitative easing which is expected to be extended for a further six months Unfortunately, there are many countries that persist with above-average unemployment. Greece and Spain have worryingly high unemployment rates, at 23.4% and 19.2% respectively. Youth unemployment also remains excessive, with an average rate of 20.7% throughout the Eurozone. This includes Spain, Greece and Italy with youth unemployment rates circling the 40% mark. Eurozone inflation also hit a 31-month high in November, at 0.6%. This is the highest

level of inflation since April 2014 (see Figure 1). The ECB’s president, Mario Draghi, now predicts that inflation could reach the bank’s target inflation rate of 2% by 2018 or 2019, having been considerably under target for the last three years. Considering the Eurozone’s dangerously low inflation rates that have been verging on deflation, this is excellent news for the Eurozone. There is anxiety however, over the root cause of this inflation. With the Eurozone’s core inflation rate (excluding food and fuel) remaining constant at 0.8%, this is stimulating concern over the sustainability of current acceleration. Finally, confidential proposals released this week by the European Stability Mechanism (the Eurozone bailout fund) have outlined actions that could see Greece’s debt load reduced by a fifth in 2060. This would be achieved by extending some maturities on Greece’s loans from 28.3 years to 32.5 years, as well as locking the interests on some of Greece’s loans. Greece’s debt-toGDP ratio is anticipated to peak this year at 181.6%, with current predictions for the ratio being 104.9% in 2060. It is hoped that the cumulative result of these proposals will cut Greece’s debt-to-GDP ratio by 21.8%. Charlotte Alder

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Japan The Bank of Japan (BoJ) may yet be through with their celebrations, following a dip back into inflation as announced two weeks prior. The decisions reached at last week’s OPEC meetings to cut oil production will likely deliver relief to the Japanese economy – dogged by low- or negative-inflation – from the deflationary pressures of ultra-low oil prices. When the BoJ announced that it would grow the money supply until the inflation rate exceeds 2%, it put blame in part on the low oil prices for preventing inflation. The Bank is measuring this target using the so-called “Core Consumer Product Index,” which excludes fresh food but not oil. This measure will receive a healthy boost as cut in global oil production leads to a rise in the global price of oil. The markets largely reiterated their recent streak of gains last week. The TOPIX measure of the Tokyo Stock Exchange reached its highest level since January last Thursday, before sliding slightly on Friday, capping the strong performance. The yen remains weak against the dollar, falling past the ¥114 mark over the week, and exporters are seeing their shares rise. It is likely that this trend persists. Morgan Stanley is forecasting that the yen will weaken to ¥130 by mid-2018.

Beyond the fading spectre of deflation, a slew of economic data released throughout the week compounded evidence for a turnaround in Japan’s economy. Household spending contracted by only -0.4% in October, shown in the graph below. This decrease was less severe than expected, and was an improvement on the -2.1% reduction seen in September. Retail sales for October improved 2.5% over the previous month. While industrial production shrank in October for the first time in four months by -1.3% year-on-year, this was in line with investors’ expectations. Marcel Thieliant at Capital Economics remained upbeat about this result, stating that Japanese “firms’ expectations point to a strong rise [in industrial production] in the current quarter.” The purchasing managers’ index, a measure of producer confidence, indicated expansion for a third consecutive month. The Cabinet Office publishes its revised gross domestic product data for the third quarter next week, and the estimates are expected to align with their initial figures showing 2.2% growth. Daniel Blaugher

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South Korea Data released on Friday, November 24th, by the central bank’s monthly Consumer Sentiment Index fell from 101.9 in October to 95.8 in November, the lowest value in seven years. Consumer’s confidence has decreased as scandals affect political order and cloud some of the nation’s biggest companies over the future of the economy. Other economic indicators such as the South Korean won and the Kospi Stock Index have also pointed out uncertainties in the South Korean economy as a result of national and international geopoliticalissues. In the past month, the won depreciated 4.1% alongside a 3.7% fall in the Kospi Stock Index. Moreover, exports, which account for around 45% of GDP, shrank 3.2% year on year in October, following a 5.9% drop in September. On a better note, South Korea’s central bank has announced the country’s path towards becoming a “cashless society” by eliminating the circulation of small change by 2020. This would mean the highest denomination would be worth less than $0.5. The promotion of a “cashless society” is part of the plan to promote the use of TMoney cards, an electronic travel cards which can also be used in several connivance stores. Being already one of the least cash-dependent nations in the world (only about 20% of Korean payments are made using paper according to the Bank of Korea), this is the most recent

attempts in making citizen’s lives more convenient in a nation eager for technological innovations. The shift of payment platforms brings several benefits to the BoK who spends more than $40m a year minting coins, on top of additional costs that rise for financial institutions that collect, circulate, and manage them. Therefore, the costs of producing coins create a loss for the bank. Furthermore, there is hope that as individuals become more dependent on electronic payments, this will shrink the informal economy, hence boosting economic growth. A researcher at the Korea Economic Research Institute, Kim Seong-hoon, argues that a “cashless society” could lead to an extra 1.2% GDP growth per year, since it would help “tackle low growth, low inflation and the lowinterest environment”. Lastly, one of South Korea’s largest companies, Samsung, provided the biggest boost to Asian equities gauge since February. Samsung rose 4.1% after announcing it is looking into turning itself into a holding company. Additionally, the Kospi Index rose 0.3% alongside a slight appreciation of the won after President Park said she is willing to resign. Maria Fernandes Camaño Garcia

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Australia & New Zealand This week we will cover updates on New Zealand. The topics that are covered include the country’s buying power changes in Q3 and the value of the New Zealand dollar in the foreign exchange market. Last Wednesday, New Zealand released Q3 terms of trade. The terms of trade observes the country’s buying power based on prices of importable and exportable goods. New Zealand’s terms of trade fell 1.8% since last quarter. This means that New Zealand can buy fewer imports for the same amount of exports. Importable goods prices are down 1% and exportable goods prices are also down 2.8% compared to last quarter. The country’s primary imports are vehicles, mechanical appliances, and fuels. New Zealand’s primary exports are dairy products, accounting for 24% of total exports. The prices of importable and exportable goods provide insight to the country’s buying power, which can also be observed through the exchange rate. The New Zealand dollar (NZD) trades under a floating regime. The current NZD/USD exchange rate, also known as the ‘kiwi-dollar’, is 0.714. From January to May, the NZD/USD exchange rate was on

a strong upward trend; however, strengthening demand for U.S. currency has many speculators feeling bearish on the kiwi-dollar. According to the Reserve Bank of New Zealand governor, Graeme Wheeler, it is not likely that the government will take significant action to influence the exchange rate in 2017. New Zealand depends on competitively priced goods to attract international trade partners because roughly 30% of the country’s GDP are exports. Australia, the EU, and China are the country’s primary trading partners and account for roughly 19.3%, 15.3%, and 12.0% of total exports, respectively. Next week, New Zealand will release data on the Global Dairy Trade Price Index. This data is significant because dairy prices are a leading indicator for New Zealand’s trade balance due to the country’s heavy export presence in the global dairy market. Since the 2008 recession, New Zealand has fluctuated between trade surpluses and deficits with the outcome largely dependent on dairy prices. The country hopes for continued improvement after last auction’s prices increased 4.5%. Dan Minicucci

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Canada Canada’s unemployment rate fell to 6.8% in November, down from 7% the previous month, as almost 11,000 jobs were created, many part-time (see diagram below). At the end of the same month, quarter on quarter (QoQ) GDP growth for the third quarter (Q3) came in at 0.9%. As suggested last week, this was quite short of the optimistic 1.5% forecast. However, the widely reported annualised figure came in at 3.5%, an improvement on both the -1.6% growth for Q2 and the 3.3% forecast. The services sector saw the greatest increase in employment, with more jobs in finance, real estate, and leasing and agriculture. There were some lost jobs in manufacturing and construction, significant of a struggling primary sector that has traditionally been the Canadian forte – a result of falling commodity prices and a decline in global trade. The growth of the services sector is backed by Bank of Canada (BoC) governor, Stephen Poloz, who says that "most of the employment growth seen in Canada since late 2014 has been in service industries that pay aboveaverage wages, helping to support national income." This may heed a move of the Canadian economy away from its ‘staples trap’, where its growth was driven by strong exports of goods such as oil and lumber.

The improving growth figures have largely been attributed to a 2.2% rise in exports of goods and services, especially after the detrimental impact of May’s wildfires, which shut down the Fort McMurray oil flats, on growth in Q2. Though it is likely that a C$120bn stimulus package - from the Liberal government, under PM Justin Trudeau - is an underlying driving force. In a low-interest world economy – the BoC base rate is 0.5% - there have been calls from many economists for governments to take advantage of cheap borrowing and increase their fiscal spending – as opposed to the austerity currently enforced in the Eurozone. Indeed, Canada is in an especially strong position to exercise some fiscal free-will, having dedicated to three decades of fiscal restraint. Poloz supports this, also, acknowledging that “Canada is in a very good fiscal situation, so we shouldn’t be worrying about [going into greater deficit or debt] at this time”. He also remarked that this kind of spending “is very likely to pay off very well.” With its improving performance, it seems Canada may be setting an example for other developed economies, yet clinging to austerity. Jamie Peake

EMERGING MARKETS 9

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EMERGING MARKETS China The past week saw the release of the latest non-manufacturing Purchasing Managers Index (PMI) (shown below) which measures the performance of the nonmanufacturing sectors, (i.e. services) and is derived from a survey of private enterprises. The result was indicative of growth of the services sector, and was emblematic of China’s enduring economic vigour. Growth in the services sector expanded at a faster pace than in October; the non-manufacturing PMI stood at 54.0 in October, and now stands at a considerable 2 year high of 54.7 – well above the benchmark for growth. The services sector appears to be under unusual scrutiny, as growth is required to offset a persistent weakness in export growth - currently at risk of curtailing China’s. The survey also alluded to building inflationary pressure, as the property bubble and reduced industrial capacity have initiated a long-term fall in Chinese commodity prices. A sub index for raw material prices rose to 68.3 in November, from 52.6 in October, and the drop-in inventories is indicative of factory restocking and prospective growth in the near future.

levels of debt. In fact, a recent report referred to levels of Chinese household debt rising at ‘alarming rates’, with looser credit and soaring property values the salient contributors. As a proportion of GDP, household debt has surged from 28% to 40% in the past 5 years. This surge has prompted some fears that a sudden drop in property prices would ‘cause a domino effect’ on interest rates, exchange rates and commodity prices that ‘could turn out to be a global macro event’, according to ANZ analysts. The Paris-based Organization for Economic Co-operation and Development (OECD) published its bi-annual Economic Outlook on Monday, and forecasted growth to curtail to 6.4% and 6.1% in 2017 and 2018 respectively. Leading Chinese policy insiders said the OECD predictions were reasonable as growth fluctuations were acceptable in the process of restructuring the economy and China "enjoys more advantages than disadvantages" in keeping its annual economic growth rate at 6 to 7 percent in the 2016-20 period. Usman Marghoob

The Chinese economy expanded at a steady rate of 6.7% in Q3 – in line with expectations and Beijing’s 6.5-7% target, although one must consider the underlying causes of growth. Fuelled by government spending, soaring levels of lending and a dilating property market, many view current growth rates as unsustainable due to rising 10

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India India’s gross domestic product (GDP) annual growth rate figures were released this week and the figures show that there has been a year-on-year 7.3% increase for the third quarter of 2016. This represents an improvement from the second quarter where GDP growth was recorded at 7/1%. However, Indian officials could perhaps be disappointed that the actual figures for the third quarter did not match the market expectations of 7.5%. The diagram below shows the trend for the Indian Annual GDP growth rate over the past two years. India’s growth rate also surpassed that of China, who recorded a 6.7% growth increase for the same period. The main driver behind the faster rate of growth has been the increase in private consumption and other forms of spending within the Indian economy. Statistics illustrate that private consumption has risen by 7.6%, which was higher than the previous quarter, showing a 6.7% increase. Meanwhile, the Indian government has continued to take an active role in providing fiscal stimulus with government spending rising by 15.2%. Moreover, with India currently maintaining a substantial and widening trade deficit of 10.16 billion for October 2016, the positive news regarding India’s exports and imports was welcomed by the Indian government, as they aim to become more internationally competitive.

Exports rose by 0.3% to continue an upwards trend established in the second quarter, while the level of imports plummeted by 9%. The combination of increased consumption and government spending, accompanied by an improvement in India’s trade positon, has been beneficial in enhancing aggregate demand which has in turn translated into better GDP growth for the third quarter. However, the main limitation on GDP growth for the third quarter was gross fixed capital shrinking by 5.6%. Nevertheless, there are concerns that this could be the last occurrence for some time where India’s growth rate exceeds 7%, due to potential negative effects deriving from the Indian government’s decision to withdraw 86% of India’s cash from circulation. In an economic system which relies heavily on cash for transactions, there are considerable fears that consumption could decline substantially in the near future. Despite the positive sentiment resulting from the latest growth statistics, future growth rates remain uncertain for India, with Prime Minister Modi downgrading growth forecasts for March and June next year to 6.6% from 7.5% respectively. Isher Hehar

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Russia & Eastern Europe Russia, the world’s biggest energy exporter, has pledged to decrease its oil output after a push from Organisation of Petroleum Exporting Countries (OPEC) to decrease the global oversupply of oil. The group has agreed on production cut of 1.2 million barrels a day in total on Wednesday. Russia’s Energy Minister Alexander Novak has taken a bold decision to decrease the country’s output by as much as 300,000 barrels per day. Mr Novak’s plan includes Russia making a gradual reduction throughout the first half of 2017, with output reduction split proportionally between companies. The decision comes after November’s near post-Soviet record in oil production, shown in the figure below. Crude and condensate oil production averaged at 11.21 barrels a day, according to the Energy Ministry’s CDU-TEK statistics unit. This is likely to remain the record high for some time, considering the pledged reduction in production. The two companies which led to the November output growth are Novatek OJSC and Gazprom Neft PJSC, whose main focus is natural gas.

border. For energy-hungry Germany, this decision has been met with open arms. However, Poland and Ukraine, through which most major pipelines connecting Russian energy to Germany and other European countries pass, have been on the fence; the two countries face substantial losses from transit fees. In addition, the EU’s energy chief, Maros Sefcovic, has been pushing his Russian counterparts for a three-way meeting between the EU, Russia and Ukraine to discuss the resumption of gas supplies to Ukraine. The talk is supposed to be held in the following days. Ukraine’s exclusion has been a result of Moscow annexing the Crimean Peninsula in 2014. Last week, Mr Novak confirmed that Russia will be willing to resume gas supplies if Kiev agrees to pay for the fuel upfront. The funds for this are already negotiated with the World Bank, which, if approved, would provide $500 million to Ukraine to pay for gas supplies. Desislava Tartova

For Gazprom, future gas exports are also experiencing uncertainty. The European Commission’s decision to allow Gazprom an increased access to the underused OPAL pipeline has been met with mixed feelings from Western and Eastern Europe. OPAL (Ostsee-PipelineAnbindungsleitung) is a natural gas pipeline alongside the German eastern

Week Ending 2nd December 2016

Latin America As we move into December, Latin American economies show signs of both strength and weakness. In recent weeks, analyst predictions have been slightly off the mark: this was not the case this week, however. What is becoming evident towards to end of 2016, is that Latin America continues to be exposed to economic shocks across the globe, especially in the America’s. Clear also is how the region is continuing to struggle (similarly to the rest of the world economy) to find her previous levels of sustained economic growth. To Brazil: this week came the widely anticipated 25 basis point reduction in Brazil’s Selic benchmark rate. The rationale is to bring inflation back to within target in the confused circumstances of late. The nation’s recovery from recession is weak and under pressure, whilst political turmoil over the past months has created uncertainty in already volatile markets. On Wednesday, the latest Q3 data exhibited the uncertainly faced by Brazil in the future. The Brazilian economy shrank 0.8% in Q3 of 2016, bringing year-on-year (yoy) growth to -2.9%. These figures make this the 7th consecutive quarter of negative economic growth for Brazil (see graph). The contraction is being led by falls in both consumer and

government spending, and investment. The latest data demonstrates the fragile state of the world’s 9th largest economy. Good news for Brazil and Mexico, the worlds 11th and 12th largest oil producers cam on Wednesday as OPEC president Mohammed Bin Saleh Al-Sada announced the first cut in overall production by the organisation for the first in 8 years. OPEC will cut production by 1.2 million barrels a day starting in January and the announcement caused Brent Crude and WTI to soar to over $50 a barrel by Thursday evening. Additional news came from Mexico this week who, like Brazil, amended interest rates. The five BdeM members voted unanimously to hike interest rates by 50 bp to 5.25, its highest since 2009. Mexico’s currency, the peso, has taken beating in the past fortnight and the rate cut moves to support the value. The calendar for next week looks quiet, so it will be a time to step back and assess the health of Latin America’s volatile markets in the run-up to Christmas. Alistair Grant

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Africa Oil and gas reserves in Eastern Africa have for years been an attractive business opportunity. However, in the last two days, an East African crude oil pipeline has been announced, taking advantage of the regions untapped reserves. In spite of a sharp fall in the oil price, Africa remains an attractive prospect for investors. A study by a PwC team based in Cape Town revealed that the continent produced 8 of the top 20 discoveries globally in 2015, and 9 out of the top 20 in the first eight months of 2016 – the majority of these coming from the east of the continent. It is clear to see that there is incredible potential for growth in this region, but only if these resources are utilised for sustained growth rather than quick economic bursts that could cause further inequality. Consequently, the UK has been heavily involved in the process. British High Commissioner to Kenya, Nic Hailey, spoke on the 4th East Africa Oil and Gas Summit on the 16th of November, pledging aid from the UK – a contribution of £25m. Hailey justified Britain’s controversial involvement inside its old colonies to say that “managed well, it can have a transformative impact;

boosting economies and fuelling inclusive growth across the board”. However, many are sceptical about Western involvement. The programme focuses on Kenya, Uganda, Tanzania and Mozambique, working closely with the private sector and government to equip local populations with the skills needed to seize job opportunities in the sector. In particular, Uganda is blessed with over 6.5 billion barrels of proven oil reserves, of which about 2.2 billion barrels are recoverable, indicating this to be a large scale project for the nations. Employment is a major benefit, for it is estimated to create around 32,000 local jobs, of which approximately 15, 000 will be in constructing. Nonetheless, according to Oslo-based consulting firm Rystad Energy, capital spending on East African oil and gas projects fell from $4.6 billion in 2012 to $2.5 billion in 2015. Hence this new project hopefully represents a change of fortune, and commitment to develop Africa’s oil and gas industries. Mikun Olupona

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Middle East On Thursday, the US Senate unanimously passed a vote to extend economic sanctions against Iran, in order to ensure that it does not violate the nuclear deal between the two countries that was accepted in 2015. The Iran Sanctions Act was first implemented in 1996 and has since greatly affected Iran, particularly in regards to its $483 billion, oil dominated economy, making it difficult to both export oil and access products and materials required to improve the efficiency of the oil and energy industries. With the Senate having voted 99-0 in favour of renewing sanctions for a further ten years, the Iranian government are concerned with its potential violations of the historic nuclear deal which was struck between Iran and the US in July 2015 and relieved sanctions on Iran in return for Iran’s nuclear facilities to be monitored and to reduce its stockpile of enriched uranium. More years of economic sanctions could further hurt the country’s economy, whose inflation rate is currently at a 25 year low of 9.3%. In response to the vote, Iran’s foreign ministry spokesman said, “the recent bill passed… against Iran is against the nuclear deal. Iran has proved that it sticks to its international agreements but it also has appropriate responses for all situations."

Meanwhile, in Sudan this week, protests sprung up as discontent grows at the government for not doing enough to solve the country’s economic problems. Small pockets of unhappy citizens, such as the 150 lawyers who took part in a sit-in in central Khartoum on Wednesday, are protesting the Sudanese government’s austerity measures which have caused inflation to rise to 19.6%. The graph below shows how the inflation rate has been rising constantly this year. This combined with a cut in the fuel subsidy programme has increased the price of fuel by an estimated 30%, has led to many Sudanese citizens to be unable to meet basics such as food and housing costs. Furthermore, sanctions have made it difficult for firms to obtain dollars from banks, resulting in the creation and increasingly widespread use of the black market to obtain foreign cash. The financial officer at an agricultural firm said that his firm buys currency from the black market in some Gulf state countries as “US sanctions prevent transfers into Sudan.” Unless the government implements appropriate fiscal and monetary policies, the risk of a worsening economic situation and rising discontent is great. Nikou Asgari

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Southeast Asia This week we focus on a number of data releases for Thailand, as well as inflation figures for Vietnam and Indonesia. Thailand has been faced with slowing global trade and political instability in recent months, so this week’s disappointing data releases come as little surprise. On Monday, it was announced that the country’s trade surplus had narrowed sharply to $0.25 billion – the smallest surplus since January, and significantly below market expectations of $1.9 billion. This figure was largely due to exports unexpectedly declining by 4.2% year-onyear, particularly in relation to shipments of gold and oil products. Along similar lines, on Wednesday it was announced that private consumption fell by 5.5% over the month – the largest drop since October 2011. In these conditions, it is hardly surprising that manufacturing activity for November declined at its fastest rate since December 2015. These findings run in contrast to the performance of Thailand’s markets, as the country’s stock prices and currency have emerged largely unscathed from recent political setbacks. Indeed, when compared to Indonesia and Malaysia, capital outflows in response to Donald Trump’s shock victory have been minimal, and the country’s benchmark stock index has

rebounded since King Bhumibol’s death on 13 October. However, as noted by Nikkei’s Hiroshi Kotani, this stability “is more a symptom of the economy’s lack of vigour than a sign of its strength.” In the face of weakening domestic demand, and the fastest-ageing population in the region, Thailand has relied on strong exports to prop up the economy in recent years. With access to global markets looking increasingly precarious, and the prospect of politically destabilising elections next year, the 5% growth target proposed by the Finance Secretary is likely to prove an impossibility unless there are significant improvements in the global economic outlook in the near future. In other news, both Vietnam and Indonesia announced inflation figures for November 2016. Vietnamese consumer prices rose 4.52% year-on-year – the highest inflation rate since July 2014, and 0.43% increase on the previous month. Prices in Indonesia rose 3.58%, which was 0.15% above consensus and the fastest rate since April. Rising food and health product prices were the primary drivers behind these figures. A clearer price trend for the region should emerge next week when the Philippines releases its inflation figures for November 2016. Daniel Pettman

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EQUITIES Financials For the last twenty years, China’s economy has made unprecedented leaps and bounds, but there are imminent signs that bubble may be about to burst. Whilst growth is at a commendable 6.7%, that rate is buoyed by Chinese authorities’ incrementally funnelling cash into the real estate, financial and state owned enterprise sectors which are showing gaps at the seams. China’s debt-to-GDP ratio has soared from 150% of GDP in 2008 to a mammoth 280% of GDP today. The Remnibi – China’s official currency – stands at an 8 year low at Rmb6.95 to the dollar. China’s continuing willingness to funnel non-existent funds into state owned enterprises in steel, coal and shipbuilding amongst other sectors carries a sense of foreboding. The risks of operating a command-economy type policy are substantial and will eventually have an adverse ripple effect on the world’s financial markets. Authorities are cursorily considering the conversion of non-performing bank loans – which have steadily piled up in Jenga-type fashion- into debt for-equity-swaps before reality comes tumbling down. However, I believe it is at best a means to postpone brutally tough measures which must be introduced eventually. It seems as if President Xi is aiming to consolidate his

power. As he enters the second half of a decade-long term in office by postponing measures, this is sure to be received badly by the electorate, who are being put on hold until his successor can take office. In news closer to home, European stocks ended lower for the first time since Monday as investors adopt a cautious outlook as Italy’s weekend referendum looms ahead. The Stoxx Europe 600 SXXP – representing large, medium and small capitalization companies across 17 countries in Europe – fell 0.3%, closing at 340.86. Richard Perry, market analyst at Hantec Markets asserted ‘a mix of factors including oil, China and concern over the Italian referendum is leaving traders in a state of caution’. The Italian people’s vote on political reform is projected to have as big an impact as the Brexit vote and it is natural for investors to be cautious. Although Italy’s FTSE MIB index 1945 closed 1% higher on Thursday at 17,098.33, if Italians vote ‘no’ in the referendum, this author is of the opinion that it will herald an unprecedented era of low business and consumer confidence, an unsettled Italian bond market and the exacerbation of Italian banking issues already close to disarray. Vincent Egunlae

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Technology Samsung Electronics saw its share price rise to its highest level since going public in 1975 after announcing on Wednesday that it will consider restructuring. As you can see from the stock chart below, Samsung shares rose by 4.1% to a record 1,746,000 South Korean wons. For decades, the Samsung Group has been controlled by the founding Lee family with a complicated web of cross-holdings which has been criticised in recent years for stifling competition and undermining corporate governance. However, by turning Samsung Electronics into a holding company, the group aims to make the business more transparent, simplify the ownership structure and provide tax benefits. The split would also benefit the shareholders, who will have a clearer and higher valuation of the company’s assets. Meanwhile, action-camera producer GoPro, announced that it will cut 15 per cent of its workforce (approximately 200 full-time positions) and shut down its entertainment division in an attempt to cut costs and refocus its business on its core

action-camera products. GoPro founder and chief executive Nicholas Woodman said in a statement that: “Consumer demand for GoPro is solid, and we’ve sharply narrowed our focus to concentrate on our core business.” GoPro shares have lost more than half of its value this year, however, news on the restructuring increased share prices by 1.73 per cent to $9.98 on Wednesday. Moving on, entertainment company, Netflix has announced on Wednesday that it will be making some of its TV shows and movies available to watch offline. This news has been welcomed by users in developing markets, such as Asia and Africa, with patchy internet access, as well as American binge-watchers on the go. By allowing a “download and watch later” option, Netflix aims to match its biggest rival, Amazon, and increase its subscriber base. As a result, Netflix share prices rose as much as 2.4 per cent to $120.37 on Wednesday. Bunyamin Bardak

Week Ending 2nd December 2016

Oil & Gas Oil and gas producers turned out to be the biggest winners over the past week, after representatives of OPEC members delivered their first agreement in eight years to curb daily oil production at a meeting on Wednesday, which analysts say were a bag of surprises given the difficulty of negotiating such an agreement. British Petroleum (BP: LSE) jumped 3.82% on Wednesday and gained another 2.31% on Thursday. It finished the week with a gain of 2.4% at 465.87 pounds after pulling back from its recent peak on Friday. Royal Dutch Shell (RDSA: LSE) closed at 2,036.98 pounds on Friday, gaining 1.29% over the past week. Exxon (XOM) closed at $87.24 on Thursday, close to its recent peak of $87.30, while Chevron (CVX) finished at $113.29 on Thursday, its highest in 12 months to date. With most of the oil and gas stocks at, or near their peak in months, the NYSE Energy Index (chart below) finished at 11,269.13 on Thursday, up 2.92 % from the end of the previous week. Total (FP: EPA) closed at 44.9 euros on Friday, making a weekly gain of 1.81%.

cartel are expected to cut an additional 400,000 barrels a day, too. “We considered all aspects and we came to the understanding that the market needs to be rebalanced,” Qatari Energy Minister and OPEC President Mohammed Saleh alSada said on Wednesday in Vienna. “Rebalance in the market would need courageous decisions from OPEC and with the support of some key countries of nonOPEC.” West Texas Intermediate (CLF7) and Brent Crude futures (LCOG7) were both trading near their 12-month highs on Friday at $51.36 and $54.14 a barrel, respectively. However, the outlook for international oil prices is not free from uncertainties given the possibility of shale energy producers quickly ramping up their production once international oil prices edge above their cost of production, which is estimated to be roughly between $30 and $60 depending on the condition of their reserves. Michael Chen

The OPEC agreed to cut daily production by 1.2 million barrels from the current 33.6 million barrels, fueling hopes that the persistent global oil supply glut may soften. Even more surprisingly, the organization said other oil producers from outside the

NEFS M arket Wrap-Up

COMMODITIES Energy Last week I wrote about the anticipation of the OPEC meeting in Vienna scheduled for this week. There were some positive gains when speculation of a cut in oil production increased prices of the global benchmark, Brent Crude Oil. On Wednesday, details emerged of a “successful” meeting between worlds the biggest oil producers, where it was agreed to reduce production by 1.2 million barrels per day to roughly 32.5 million per day. Combining this with other major non-OPEC members such as Russia agreeing to also lower production, (by 600,000 barrels per day) led to large gains for Brent Crude as well as US Crude. The announcement saw Brent Crude increase by $3.80 to $50.16 per barrel with continued progress into Thursday and Friday of $52.42, and a further gain to $54.19 per barrel. The meteoric rise of Brent Crude can be shown on the graph below. US Crude also saw continued gains, increasing 4.3% on top of the 9% rise it had on Wednesday, to $51.54. The deal hopes to recover the oil market from the longest downturn in

a generation, however doubts still remain, with analysts stating that the prices had only returned to what they were two months previously when the announcement of the Vienna meeting was announced. Thursday saw forecasts of cooler temperatures for the winter months, leading to an expected increase in demand for natural gas. The prices rose by 15.3 cents (4.56%) which settled at 3.505 million British thermal units due to the increase in demand for natural gas when people need fuel for heating their homes. The prices demonstrate continued growth for natural gas, with the highest prices for nearly two years after steadily increasing for 9 of the past 11 sessions. Analysts at Gelber & Associates commented on the market steadily pulling back on Friday, as the market “finding its feet”. The news comes after it was announced this month that the US has become a net exporter of natural gas for the first time in more than 60 years. William Bunnis

Week Ending 2nd December 2016

Agriculturals Coffee, cocoa and sugar prices all fell this week as supply-side fears fade and hedge funds exit their net long positions. Coffee prices suffered the most, falling over 6% to settle at $1.46/lb. Recent rains in Brazil and Vietnam appear to have eased investors’ concerns of a supply crunch, while consumer demand continues to disappoint. Improved weather in the Ivory Coast has also impacted on Cocoa markets this week, as New York futures sank to the lowest level since 2013 (as shown below) with expectations of a production surplus in the coming harvest season continue to grow. The 30% slide in benchmark prices since the start of the year has also been a result of weak consumer demand. On Tuesday, the International Cocoa Organisation (ICCO) reduced their predicted demand surplus from 212,000 tons to 150,000. New York futures ended the week 2.6% lower at 2,395USD/MT. Sugar prices also sank to a multi-month low this week, finishing 3.1% lower at $0.192/lb. The market appears to be in pricing in expectations of a supply surplus in the 2017/18 season following 2 years of excess demand. The additional supply is

expected to come from the EU - where production quotas are set to be scrapped and from Asia, where recent rain has boosted expectations of a bumper harvest. Price Futures Group analyst, Jack Scoville, added that “good demand reports remain hard to find”. However, the recent surge in crude oil prices gives sugar bulls a reason to be hopeful. A rising oil price increases the incentive to convert more sugar cane into ethanol, which can be used as motor fuel. Data released by UNICA on Tuesday showed that more sugar cane has been used for ethanol production this year, with 46.7% used for ethanol production in 2016, compared with 41.7% in 2015. The weak Brazilian real and abundant stocks also remain key factors in the continued price slide. Meanwhile, wheat prices fell to a threemonth low on Thursday as news of a big Australian harvest exacerbated the supplyglut across global markets. In other markets, oat prices fell 7.6% to $1.99USD/BU and rice registered a 1.9% increase from last week to settle at $9.62/CWT. Aidan Dominy

NEFS M arket Wrap-Up

CURRENCIES Major Currencies A highly choppy week for all the major currencies, the pound rises on the back of Brexit developments, the euro continues to struggle and the dollar loses steam. Opening at 1.2437, closing at 1.2625 and highs of 1.2670 (against the dollar), the momentum of the pound continues as the so-called Brexit secretary, David Davis, made a rare public comment regarding Brexit. He told MPs that the UK would consider paying for access to the single market after it left the EU. The markets jumped on this, climbing to its highest level in three months against the euro and 1.5% up on the dollar, at one stage being worth $1.2695, and taking it higher than its 50day moving average. The raucous victory in Richmond Park in South West London further added to the anti “hard Brexit” sentiment. Pro-European Liberal Democrat Sarah Olney overturned a massive majority and defeated Brexit supporter and ex-Tory opposition, Zac Goldsmith, to indicate volatile sentiment in the UK right now.

productivity growth concerns in the long run. A volatile week for the dollar closing down at 0.9389 against the euro and down at 0.7920 against the pound. Mainly driven by the strengths of the other currencies, as opposed to dollar weakness, as the US dollar index is up 0.2% to 101.16, (which is just below last week’s near 14-year peak of 102.05) it was also supported by Tuesday’s economic data, which included year-onyear Q3 GDP growth of 3.2% and US consumer confidence hitting a nine-year high in November. Next week it is all about the euro as the political situation in Italy should have a result and Draghi should finally let the markets know about the ECB’s decision on their asset purchasing programme. On the run up to seasonal cyclicality, it will be interesting to see what happens to the pound and dollar. Robert Tse

In Europe, things are not so good. Closing lower at 0.8431 (against the pound), political uncertainty is driving the currency and it has suffered its worst slump against the pound since November 2009. Losing 4.5% on the sterling this month, European investors are shaken by Italy’s Renzi threatening to leave in the constitutional reform referendum and uncertainty in Austria and France’s elections all make the euro an unappealing currency right now. This is further compounded by Draghi’s 22

Week Ending 2nd December 2016

Minor Currencies Rising oil prices in the wake of OPEC’s production cut could hit demand from Asia, where weakening currencies have already led to higher prices, and is the primary focus of this week’s news on minor currencies. China and India, the world’s second- and third-largest oil consumers after the US, have each seen declines in their currencies versus the US dollar in recent weeks. The Indonesian rupiah and Malaysian ringgit have also followed suit. The currency declines compound the effect of the surge in oil prices following this week’s decision to cut production by 1.2 million barrels a day by the Organisation of the Petroleum Exporting Countries. Since oil is priced in dollars, it makes crude more expensive in local currencies that have weakened against the US dollar. In terms of Indian rupee, for example, the price of a barrel of oil has risen 8% last month. “You have the negative compound effect of a weaker currency and higher oil prices,” said Virendra Chauhan, oil analyst at the research firm Energy Aspects. “It could dent demand at the margin.”

Emerging-market currencies have fallen sharply in the past month against the dollar, with investors placing bets on higher interest rates in the US and the prospect of reduced global trade under a Donald Trump presidency. The rupee fell 2.7% in November against the dollar, while the Chinese yuan lost 1.6%. The Malaysian ringgit is down 6.1% and the Indonesian rupiah is off 3.9%. In other news, the Australian dollar got a lift on Friday as official retail sales figures beat expectations for a third straight month. October’s sales rose 0.5% on-month in October, to A$25.62 billion. That’s also the highest monthly total ever recorded. The Australian dollar rose quite sharply after the figures. AUD/USD got as high as 0.74300, from around 0.74200 prior to the release, as seen in the figure below. I expect this momentum to carry on until the end of the Christmas and New Year season. This week’s US Energy Information Administration (EIA) petroleum status report is certainly bound to add to emerging currency fluctuations and will be discussed in the next article. Angelo Perera

of the Nottingham Economics & Finance Society Research Division 23

NEFS M arket Wrap-Up

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