Weekly market update : FED + GAFA = Risk ON

Monday February  4

Weekly market update

The financial markets have lined up another week of increases in which many quarterly publications were praised, especially those of American tech companies. The more accommodating tone of the Fed, which said it would be more patient in raising its interest rates also had a positive impact. As did the hopes about further progress regarding the trade issues between China and the United States.

Indexes Over the past week, all the main indices continued to catch up amid the optimism about the quarterly earnings. In the United States, the Dow Jones gained 1.5% lining up its sixth consecutive week of increases, a performance of around 11% since its lowest point at the end of 2018 (see chart). The S&P500 has gained 1.7% just like the Nasdaq100, thanks to GAFA. In Europe, the CAC40 gains 1.8% in favour of the luxury industry, the Footsie gains 2.9%, while the Dax loses 1%. In the peripheral countries of the Eurozone Portugal loses 0.8%, Spain loses 1.4% with the wrong orientation of the banks and Italy loses 1.35%. In Asia, the Nikkei scrounges 0.07%, the Hang Seng 1.3% and China gains 0.5% with the resumption of the Sino-US trade negotiations. Dow Jones in weekly data

Commodities The stability lasts on the oil prices which evolve horizontally despite a context of tensions in Venezuela which, let us remind you, disposes of the biggest oil reserves in the world. Data on the American offer are effectively causing trouble, the US production is at a new record level, close to 11.9 million barrels per day. In this context, both the Brent and the WTI haven't moved a lot and trade at respectively 60.50 and 53.50 USD per barrel. The precious metals register a weekly session that's clearly positive, supported by the changing tone of the Fed, which shows itself to be more and more accommodating in its policy, and the falling dollar price that follows as a result. So, gold prices have gone up by 3% since the first of January to 1320 USD, imitated by the silver price that went up by 3.85% over the same period. The base metals compartment rebounds sharply over the week with the players anticipating a progressive dissipation of the Sino-American trade dispute. Copper gains 4.1% to 6148 USD per metric ton.

Equities markets Facebook: Against the theory of decreasing returns No need to introduce the King of the ?likes'. But Mark Zuckerberg's company still managed to surprise the investor universe by presenting a 4th quarter of high quality. The turnover went to 16.9 billion dollars from 12.97 billion the previous year. In parallel, the profit increases by 40% over one year. Never before have so many individuals connected to the social network, with 1 in 3 people connecting every month. Despite a year filled with scandals about personal data, the company's growth is general and on all continents, so much even that the board doesn't hesitate to mention that Facebook doesn't have any more advertising space. However, the family of services: Instagram, WhatsApp and Messenger should still allow to monetise the spaces. Contrary to Apple, which is a traditional company, or Amazon, a global store, Facebook owns a monopoly of increasing returns that's unlike the classical theory where marginal production is meant to be decreasing. For the young Californian company, the more users there are (production factor), the more information and therefore services there are (returns). Evolution of the Facebook share

Bond market The bond market remains in a period of decreasing yields, following the speech of the Fed about staying ?patient' compared to its initial commitment to raise interest rates. The American 10-year notes fall below 2.63% (-11 basis points over one week). This general decline in yields is happening on all the markets. In Europe, the German Bund returns to its historical low at 0.15% and the French OAT to 0.55%. In the UK, the Gilt remains surprisingly at 1.22%. In this global context Switzerland records an additional contraction of its interest rate at -0.30%. Italy on the other hand sees its main interest rate slightly increasing, following the announcement of an additional decrease (-0.2%) of its GDP for the second quarter in a row, which means the country is in recession. But Italy's debt remains the same (2.72%). The central banks therefore remain in control of the low cost of credit.

Forex market The British pound stabilises compared to the dollar at 1.31 GBP while waiting for an advancement of Brexit which looks pretty vague so far. The euro gains a little against the dollar after the speech of the Fed at 1.1470 USD but falls heavily against the Norwegian Krone and the Thai bath. The latter serves as a safe haven in Asia against the American currency which finds itself in the middle of the vagaries of the trade war. Thailands's substantial foreign exchange reserves, its moderate debt level and the surplus on its payments balance are all favorable factors that explain the rise of the currency of the Asian monarchy (see chart). In the southern hemisphere, the strong rise of the Australian dollar, the fifth most traded currency in the world, gains ground against all its counterparties, just like the AUD/USD which trades at 0.727 USD (+150 basis points). This course contrasts with the sharp decline of the US currency. Thai bath

Economic data In the Euro zone, the PMI manufacturing index, the unemployment rate and the consumption price index all came out as expected, at respectively 50.5, 7.9% and 1.4%. In the 4th quarter, the GDP increased by 1.2% (year on year), the lowest rate since 2014 and Italy has entered a period of recession, with a GDP that fell by 0.2%. The PMI services index, the Sentix index, retail sales and producer prices will be revealed next week. In the US, the Conference Board index, the Chicago PMI index and the jobless claims disappointed. The Fed has, as expected, left the interest rates unchanged. Oil reserves totalled 0.9 million barrels, against 3 million expected. The unemployment rate went up to 4% (against 3.9% previously) but 304k jobs have been created while the consensus was only 165k (312k last month). As for the hourly wage, that only increased by 0.1% (against 0.3% expected). Next week we'll find out about the Industry orders, the ISM services index, the trade balance, and, like every week, the oil reserves and jobless claims.

FED + GAFA = Risk ON Optimism seems to be settling in again on the financial markets. The New York exchange has ended January with an historical record, in terms of points (+1653), which is a little more than 7% for the first monthly sequence of 2019. The speech held by the Federal Reserve added to the publications of GAFA encouraged the buyer initiatives. The performances are already high in this period of the year where the majority of portfolios flirt with 10%, all in a still unstable environment. What's next should therefore reason with investors who have returned to a mindset of ?Risk ON' with the speed of light. Because a deterioration of the expectations of the global growth could again strongly affect the morale on the financial markets. The stress of the end of 2018 could then hastily reappear.