Weekly market update : A contrasted first half

Monday July  1

Weekly market update

Driven upwards in the past weeks by the prospect of rate cuts in Europe and the United States, the main financial centers took a break last week, as a precautionary measure before the G20 summit. The main stock exchanges rose sharply on Monday, after the truce concluded on Saturday between the United States and China.

Indexes Over the past week, the financial markets have consolidated without any real intensity. In Asia, the Nikkei grabbed 0.08%, the Hang Seng gained 0.31% and the Shanghai Composite lost 0.77%. In Europe, the CAC40 gained 0.2%, the Dax 0.5% and the Footsie 0.1%. For the peripheral countries of the euro zone, Portugal remained stable, Spain lost 0.4%, Italy 0.8%, while Greece continued to catch up, with a weekly performance of +3.5%. In the United States, the Dow Jones lost 0.6% over the past week, the S&P500 fell by 0.7% after its historic record of June 21 and the Nasdaq100 lost 1%. Graph of the CAC40 GR The CAC40 GR index (Total returns) rose to its highest level ever.

Commodities Oil prices have risen slightly last week. Operators' attention is still focused on the Straits of Hormuz, in a context of escalating tensions in the Gulf region and concerns about compliance with the Iranian nuclear agreement. Opec is expected to stay on course with the oil production restrictions endorsed by the Russia and Saudi Arabia. Aimed at supporting crude oil prices, an extension of the current production cuts was already announced on Friday by Vladimir Putin at the G20. The Brent barrel is trading at USD 65.9 while the WTI is trading at USD 59.6. Gold is on the rise and progresses over the week to USD 1412, supported by geopolitical tensions as well as by the orientation of bond rates. Note that this is not the case for money, which is losing ground over the week at USD 15.27 per ounce. As for base metals, they ended the week in a scattered order. The nickel and aluminium rose by 4.3% and 2.2% respectively to USD 12,665 and USD 1,782, while zinc and tin posted a negative weekly performance at USD 1,8875 and USD 2,518.

Equities markets It's moving on the gold values. The Canadian index has the particularity of being highly exposed to gold values. More than 11% of the components of the TSX Composite (Canadian index) are involved in the precious metals market. Since the upward crossing of the USD 1400 on the ounce side, after six years of lethargy, arbitration has been made in favor of the sector specializing in gold metal. While the TSX stabilizes over a sliding month (-0.2%) and all sectors are in graphic declines, mining companies' shares are at the top of the performance list, just like a company that deserves its name: Eldorado Gold (see graph). This Vancouver firm is earning 58% over a sliding month. The particularity of this Canadian company is that its mines, mainly gold mines, are located in Turkey, Greece, Canada and Brazil. Strong growth in the Eldorado Gold share

Bond market Since the beginning of 2019 and even more so in June, pressure on the yield curve of the main European economies has remained constant. It would not be impossible to see the entire German yield curve go into negative territory for the first time, which is already the case for Switzerland, whose 30-year bond is traded on a yield basis of -0.04%. With regard to 10-year benchmarks, sovereign bonds remain close to record highs. The Bund stood at -0.31% while the French OAT was trading at zero. The Italian debt shows a decrease in yield to 2.08% and that of Spain to 0.38%. Japan, the Netherlands and especially Switzerland keep their negative rates on this maturity, while the US TBond is at 2%, i.e. only 26 basis points from the US two-year period (1.74%).

Forex market The main pairs have changed little, with traders waiting for the end of the G20 to arbitrate their positions. Nevertheless, during this week, better than expected economic indicators, including the PMI index in Germany, supported the euro, which is trading at USD 1,138. In return, the greenback has been ceding ground since the Fed indicated its intention to lower rates. The USD/CHF exchange rate is 0.97. The Swiss currency continues to be favored, as is the EUR/CHF pair, which is at a two-year low of CHF 1.11. For its part, the pound sterling remains stuck in the depths at USD 1.27, with a total absence of volatility for two months. The British currency is also at its lowest annual level against the euro (GBP 0.898). Volatile for several weeks, the Turkish lira has just jumped to 5.75 per dollar, following Erdogan's defeat in the Istanbul elections. In the southern hemisphere, despite recent rate cuts, currencies are rebounding. The AUD rose to USD 0.70 and JPY 75.5 (+150 points for both couples). The same upward trend was observed for the New Zealand dollar, which gained 250 points against the greenback of USD 0.67. Consolidation of the dollar index The Dollar Index shows signs of weakness, after the Fed's accommodating comments and the prospect of a rate cut, materialized by the breach of a green bullish slant on the chart.

Economic data Last week, the Ifo Business Climate Index for Germany came out as expected at 97.4, as did the 1st estimate of the Consumer Price Index for June at 1.2%. Economic sentiment in the euro zone fell to its lowest level since 2016, at 103.3 points. In the United States, the Richmond Fed's manufacturing index fell from 5 to 3 (consensus 7). Consumer confidence, revealed by the Conference Board, was also disappointing at 121.5. Orders for durable goods fell by -1.3%, whereas they were expected to be stable. Quarterly GDP remains in line with expectations at 3.1%. The Michigan index, on the other hand, beat the consensus (98.2 versus 97.4 expected). Finally, crude oil inventories contracted by 12.8 million barrels, against only 2.7 million anticipated and weekly jobless claims proved to be higher than expected (227K against 220K). This week, investors will be informed about the PMI indices, the unemployment rate, the producer price index and retail sales in the euro zone. Across the Atlantic, ISM indices and ADP job creation will be published at the beginning of the week, before the employment report on Friday (average hourly wage, job creation and unemployment rate).

A contrasted first half The recent rebound fueled by the very accommodating tone of central bankers has brought the indices back to their 2019 high valuation. But the trade conflict has obstructed visibility on global economic growth for months. What will it take to see the market continue to grow? In the meantime, investors can look back on an excellent first half of the year, with record indexes. Nevertheless, this celebration is confronted with concerns expressed by massive purchases of sovereign debt (at negative rates) and intensive hedging strategies on the equity market. The first six months of the year could therefore be summed up as a happy market, but a little... worried.