Weekly market update : Too many unknowns

Monday September 30

Weekly market update

A volatile week for financial centres, operators had to deal with US political tensions, with the threat of Donald Trump's impeachment and contradictory information on the front of trade negotiations between Beijing and Washington. The risk aversion at the beginning of the week has faded somewhat and the indices are beginning to rebound technically, 15 days before the resumption of Sino-American talks.

Indexes Over the past week, it is in Asia where the declines are most significant. The Nikkei lost 0.9%, the Hang Seng -1.9% and the Shanghai Composite -2.5%. In Europe, the major indices limited losses, the CAC40 recording a weekly loss of 1.1%, the Dax of 0.9%, while the Footsie rose by 0.3%. Portugal fell by 1.9%, Italy by 0.8% and Spain was almost stable. In the United States, the S&P lost 0.5% over the week, the Nasdaq100 0.9% and the Dow Jones stagnated.

Commodities Oil prices have almost recovered following the price surge linked to the temporary paralysis of Saudi production (see graph). Two weeks after the attacks by Houthi forces, production has fully recovered, much earlier than expected. This resumption of Saudi supply, coupled with a surprise increase in US crude oil stocks, tends to overshadow the rise in geopolitical tensions in the region, as the Pentagon has announced that it will send soldiers and missiles to Saudi Arabia. The WTI is losing ground at USD 56, while the Brent is trading around USD 62. It is time for profits to be taken in the precious metals segment, which has been penalized by the good performance of the equity markets and the rise in the US dollar. An ounce of gold is traded below USD 1500, silver is traded around USD 17.5 and palladium is trading below USD 1670. Base metals, on the other hand, ended the week in dispersed order. Copper and nickel stabilized at USD 5757 and 17365, tin rose to USD 16700, while aluminum sank to USD 1724. Brent chart Fall of the Brent after the attack of drones on Saudi oil installations.

Equities markets Altice Europe, French billionaire Patrick Drahi's holding company, which includes several media brands, is the undisputed leader in 2019 performance in the extended European index, the Stoxx Europe 600. Created in 2001 by its current manager and based in four countries, France, Portugal, Israel and the Dominican Republic, the company has been subject to major upward revisions of its revenues by analysts. With 145% of gains since the beginning of the year, the stock quickly found itself in the investors' radar, thanks to the improvement of its fundamentals. The return of fixed-line growth in France, combined with ongoing debt reduction and margin growth, have provided a solid new basis for building a quality stock market performance. Altice Europe has rebounded significantly since the beginning of the year and the stock is still far from its best levels (see graph). However, in the meantime, the debt has been significantly reduced. The deleveraging phase is therefore fully underway. Chart of the Altice share

Bond market There was a continued lull in rates, despite the turmoil created by the tensions on the repo market in the United States, which forced the New York Fed to print cash. The American 10-year yield was 1.72% at the time these lines were written, while the German Bund stagnated at -0.58% over the same period and the French OAT was around -0.28%. The prize always goes to Switzerland: -0.84%! In the rest of Europe, you have to go to Greece (1.32%) or Italy (0.83%) to find correct remuneration. The Spanish 10-year rate is 0.14%, one week after S&P raised the country's sovereign rating from "A-" to "A".

Forex market The euro is losing ground against the greenback and is now trading below the USD 1.10 line, driven down by the easing of the ECB's policy. The latter is increasingly being criticised, particularly by some "hawks", who are firmly opposed to relaunching the debt buyback programme to boost economic activity. There is still a misunderstanding in the United Kingdom after the Supreme Court ruling overturning Boris Johnson's suspension of Parliament. The latter is in a series of disappointments, which should, if no agreement is reached with the European Union, seal a new postponement of Brexit beyond October 31. As a result, the pound is weakening against the euro and the dollar, as is the rise of the EUR/GBP pair (to GBP 0.89) and the decline in the cable (to USD 1.22). On the safe haven side, the yen and Swiss franc stabilized against the greenback, with one dollar trading against JPY 108 and CHF 0.99.

Economic data Macroeconomic indicators are gloomy in Europe, reflecting the slowdown in European SMIs unveiled earlier this week. Manufacturing activity continues to suffer in Germany, where economic barometers are falling to 7-year lows (see graph). The PMI in services reached 52.5 in September (consensus of 54.3) while the manufacturing PMI stands at 41.4 (consensus of 44). In the United States, US GDP grew by an unsurprising 2% year-on-year rate, confirming the deceleration in US growth, compared to the rate of 3.1% in the previous quarter. On the other hand, consumer sentiment deteriorated sharply in September, with the consumer confidence index falling to 125.1 from 134.2 in August (133.5 consensus). Next week, investors will be looking at Chinese manufacturing indicators (PMI, Monday) and U.S. employment figures, which will peak on Friday with October's monthly statistics. German Manufacturing PMI Index The German manufacturing PMI Flash index has just hit a low since 2012. (source: Forexfactory)

Too many unknowns After a fortnight filled with monetary policy decisions, the week that is coming to an end was much calmer. Public interventions by central bankers at various congresses and meetings have not provided much information to investors. In any case, the markets have well integrated that the ECB, the Fed or the BoJ will continue to play a flexible role. In this context, while the major European and American indices may move at nearly one percent of their annual highs, operators still struggle in a market tinged with complexity. If not fading, the unknowns tend to multiply, implying sometimes erratic market movements and a certain feverishness among investors. In addition to the impending Sino-American trade saga and the endless Brexit in Europe, there is also a precarious situation in the Middle East and a new political drama in the United States. Global stock markets are thus preparing to start the last quarter of the year with many challenges to overcome in order to perpetuate the bullish dynamics, which have so far been unshakeable.