Weekly market update : The resilient American economy improves index behavior

Tuesday May  7

Weekly market update

After setting new annual or historical records at the beginning of the week, the main financial centers took a break, in the wake of comments from the Federal Reserve and mixed corporate publications. However, the monthly US employment report, which was much better than expected, allowed the indices to maintain their lead.

Indexes At the end of last week, only the American indices had given way. The Dow Jones fell by 0.4%, the S&P500 fell by 0.1% and the Nasdaq100 by 0.2%. In Europe, the CAC40 lost 0.4%, the Dax gained 0.4% and the Footsie lost 0.6%. For the peripheral countries of the euro zone, Portugal lost 0.7% and Spain 1.1%, while Italy gained 0.16%. The Tokyo Stock Exchange was closed all week until May 7 for the "Golden Week". Hang Seng won 1.66% while Shanghai Composite lost 0.26%. Evolution of the VIX

Commodities Despite renewed political tensions in Venezuela, oil prices ended last week down, led by the strength of US production. This amounts to a new record at 12.3 mbj. Fears of abundant supply are all the more important as Russia did not respect its production quotas during the month of April. The price of Brent crude oil is yielding ground and is trading near USD 70 per barrel. The weekly sequence was harsh for the precious metals sector, penalized by the less accommodating speech of Jerome Powell, Fed President, who does not foresee a possible fall in interest rates in the future. Gold loses 1.1% to 1270 USD while silver loses 2.7% to 14.6 USD. Due to mixed economic statistics, particularly the Chinese manufacturing PMI index, which fell short of expectations, all industrial metal components lost ground over the week. Copper is now trading at around USD 6214 per metric tonne, while nickel and aluminium are bought at USD 12125 and 1800 respectively. Silver and gold are struggling to get back on investors' radar

Equities markets United Technologies: stands up to Apple in the Dow Jones. United Technologies Corporation, an industrial conglomerate listed on the Dow Jones, is organized around 4 business sectors: aeronautics (Pratt & Whitney), climate engineering and safety, air navigation systems (Collins) and elevators (Otis). The American giant has $122 billion in capital and employs 240,000 people. The 2019 route shines with its 32% earnings, which allows it to compete in terms of performance with the tech giants, such as Apple (+33.5%) and Microsoft (+26%). The share has been part of the US portfolio since the MarketScreener methodology detected the right criteria of profitability and positive income revisions. United Technologies Corporation records historical points

Bond market The lethargy of equities has probably pushed up demand for government bonds. The American 10-year rate rose by a few basis points to 2.55%. This recovery is being replicated throughout the international market, particularly in Europe, with the Bund symbolically returning to above zero at 0.04%, while the French OAT is trading at 0.39% of remuneration. On the other hand, Spain's benchmark is down below 1%. The national elections foreshadow the re-election of the current government, which was well received by the "Bono" markets. Also in Southern Europe, the Italian debt yield stabilized at 2.55%. Switzerland and Japan, on the other hand, retain the privilege of negative rates at -0.33% and -0.05% respectively.

Forex market An exceptional US GDP in the first quarter, plus the distant prospects of a decline in Fed rates, strengthen the dollar. The US currency rose against the CHF to CHF 1.02, also helped by a strong rate differential between the two continents. For its part, the EUR/USD parity is gradually eroding to USD 1,116, a two-year low. The ECB should continue its non-conventional monetary policy as long as inflation allows. This environment therefore maintains a speculative trend in the single currency, heralding a further decline. At the same time, the pound sterling appreciated strongly, gaining nearly 200 basis points against the greenback at USD 1,305. This progress is due to the relative good health of the UK economy (expected growth of 1.5% over 2019), despite the uncertainties surrounding Brexit. The yen remains surrounded by tight graphic markers, confirming the lack of interest from traders. The Japanese currency is trading at JPY 111.38.

Economic data Last week in the euro zone, we have seen a lower than expected unemployment rate (at 7.7%), a quarterly GDP and a consumer price index up to 0.4% and 1.7% respectively (the final version of the CPI will be released in two weeks). In contrast, the producer price index fell (by 0.1% from February to March). The PMI manufacturing index came out unsurprisingly at 47.9, very close to the first estimate (47.8). The final PMI Services Index will be released this week, as well as the Sentix Investor Confidence Index and Retail Sales. In addition, the European Commission will unveil its prospects for economic growth. In the United States, household spending increased, as did consumer confidence (CB) and orders to industry. Conversely, household income, the PCE index (the Fed's preferred indicator for measuring price trends) and the ISM PMI manufacturing index declined. The employment report reported 263K job creation, an unemployment rate of 3.6% (181K consensus and 3.8%) but a lower than expected wage growth of 0.2%. The Federal Reserve has decided to keep its rates unchanged at 2.50%. Finally, crude oil inventories stood at 9.9 million barrels (1.3M consensus) and weekly jobless claims were disappointing (230K against 220K expected). Investors will pay particular attention this week to Powell's speech and inflation data (CPI AND PPI). Then, as every week, crude oil inventories and unemployment benefit claims will be released.

The resilient American economy improves index behavior The indices remain at their highest levels, even though volatility has increased following D. Trump's recent intervention on new tariffs. This relative stabilization of prices is taking place with serenity. The recent publication on US GDP (3.2%) shows that "potential" growth has accelerated across the Atlantic. Throughout the corporate results, apart from Alphabet, the major technological stocks have comforted investors. American activity is based on healthy consumption, falling unemployment and also on an increase in productivity, which guarantees low inflationary growth. Following the rare amplitude of index gains, the majority of managers legitimately become neutral in the short term but still bullish in the medium term. In the hope that this broad consensus will not be denied...... as is often the custom.