Weekly market update : The waiting game continues on trade

Monday November 25

Weekly market update

Despite new records on Tuesday, financial markets have suffered some setbacks last week, with the return of uncertainty over the Sino-American trade agreement. Conflicting signals are multiplying: no deal by the end of the year, "cautious" optimism but threats to raise tariffs and retaliation, if discussions do not progress. However, markets were up this morning.

Indexes Over the past week, the various geographical areas have lost ground. In Asia, the Nikkei lost 0.8% and the composite Shanghai fell by 0.2%, while the Hang Seng regained 0.85% (after dropping 4.7% the previous week, due to demonstrations in Hong Kong). In Europe, the declines appear to be insignificant. The CAC40 lost 0.7%, the Dax 0.5% while the Footsie was almost stable. For the peripheral countries of the euro zone, Portugal fell by 1.4% and Spain gained 0.5%. Concerning Wall-Street, at the time of writing this point, the Dow Jones recorded a weekly loss of 0.6%, the S&P500 only lost 0.5% and the Nasdaq100 0.8%.

Commodities Oil prices have gone up last week, as the main producers are expected to agree to vote on an extension of black gold production restrictions until mid-2020 at the OPEC summit on December 5. The WTI is trading at USD 58.4 per barrel (USD 56.5 last week) and the BRENT is now trading around USD 64 against USD 61.5 last Friday. Gold gained a few dollars, as equity markets declined, and is currently trading at USD 1465. The money goes back to USD 17.1. In the industrial metals segment, performance was mixed. Aluminium rebounded slightly after its sharp drop the previous week to trade at USD 1753, while zinc continued its slide to USD 2328.

Equities markets With 52% performance, MTU Aero Engines is leading the DAX for 2019. A real performance in a climate where international trade is being affected by the Sino-American conflict. The Munich group divides its activity into two divisions. The manufacture and marketing of modules and components for civil and military aviation engines (56%) and maintenance services (44%). The history of MTU (Motoren and Turbo Union) is shared with that of BMW until 1965 when the car brand separated from its initial aircraft engine business, merging with Man and Daimler-Benz in 1969, hence MTU. 2019, a great year for the share price but also the year of the 85th anniversary of the creation of the original company. The company can be summarized in a few figures: more than 10,000 employees, 4.6 billion euros in revenues and a presence in some fifteen countries. Well rated by the Outperformance methodology, the group stands out for its sound financial situation, attractive profitability and positive revisions of BNA over a rolling year. Graph of the MTU Aero Engines share

Bond market Over the past three months, government bond yields have risen despite continued accommodative policies by central banks. The yield on US 10-year bonds briefly approached 2% (last reached in July) before falling again to around 1.75%. The German Bund stabilizes at around -0.35%. The French 10-year OAT fell back above 0% on 6 November before falling back into negative territory at -0.04%. Italian construction companies offer a return of 1.17% after having again suffered signs of political instability linked to the result of the recent regional elections. On the other hand, Spanish debt generates a yield of 0.43% and Swiss bonds stabilize at around -0.6%. The yield on Greek 10-year debt continues to fall, driven by a gradual reduction in risk, and remains at a historic low of 1.36% (see graph). Graph of the Greek 10-year rate

Forex market Volatility has disappeared in the major currencies. The euro is once again stagnating, trading at USD 1,104 against the dollar or 120 against the yen. The euro nevertheless recovered against the Swiss franc, trading at CHF 1.1. Unlike the previous week, the yen has changed only slightly. It still ranks 108.7 against the greenback, despite a Japanese manufacturing PMI flash index slightly below expectations (48.6 versus 48.7 expected). As for the British pound, it is losing some ground against its main counterparts, which are weighted by the PMI manufacturing and services indices below expectations at 48.3 and 48.6 respectively (against 48.8 and 50.1 anticipated). The cable (GBP/USD) is traded at USD 1,285. The pound also traded at 0.86 against the euro.

Economic data The past week was not very busy in terms of statistics. The PPI index in Germany was below expectations (-0.2% vs. expected 0%) but the country is narrowly escaping the recession, with GDP up 0.1% in Q3. The PMI manufacturing index also rose to 43.8 (42.1 last month) and it is the PMI services index that is disappointing, standing at 51.3 against 52 expected. The same index also disappointed in the euro zone (51.5 compared to 52.2 last month). In the United States, the PMI manufacturing and services indices were pleasantly surprising (at 52.2 and 51.6 respectively) but weekly unemployment claims were higher than expected (227K) and existing home sales slightly missed the consensus. This week, the European macroeconomic agenda will focus on the German Ifo Business Confidence Index and November's inflation estimates in Germany (Thursday) and then in France and the euro area (Friday). Thanks to Thanksgiving, American statistics will be concentrated on the beginning of the week. Trade balance, wholesalers' stocks, house prices and consumer confidence index on Tuesday. Then on Wednesday alone: orders for durable goods, GDP, employment figures, PMI Chicago index, household income and expenditure, oil stocks and publication of the Fed's Beige Book. Evolution of PMI indices in Germany Despite a slight recovery, the PMI manufacturing and composite indices remain below 50, reflecting the contraction in activity.

The waiting game continues on trade Indices are clinging to their highs while waiting to learn more about a hypothetical minimum trade agreement between Beijing and Washington. Nobody can say whether a compromise will be found before the end of the year. Investors do not seem traumatized by this endless wait. They will let themselves be carried until Thursday for Thanksgiving. Friday will be devoted to a Christmas shopping spree: it is the now famous "Black Friday", which will be followed the following Monday by "Cyber Monday". It is a barometer that investors are particularly interested in to understand American household consumption.