Weekly market update : Volatility around quarterly results

Sunday October 27

Weekly market update

The financial markets have mostly recovered this week, driven by some good corporate results and the lower risk of a no-deal Brexit. Boris Johnson was finally forced to ask Brussels for a new deadline and to propose early parliamentary elections on December 12. While a postponement seems to have been granted by the European Union, the 27 have not yet agreed on the duration, thus maintaining a climate of uncertainty.

Indexes Over the past week, the major indices recorded positive weekly performances. In Asia, the Nikkei gained 1.4%, evolving to one-year highs. The Hang Seng crumbles by 0.12% while Shanghai Composite grabs 0.5%. In Europe, at the time of writing this point, the CAC40 gained 1.4% and the Dax 2%. As for the Footsie, it increased by 1.8%. For the peripheral countries, Portugal gained 2.2%, Spain 1%, as did Italy. In the United States, the Dow Jones rose by 0.6%, the S&P500 and the Nasdaq100 by 1.1% and 1.7% respectively.

Commodities Oil posted a positive weekly sequence, supported by the unexpected drop in inventories in the United States and possible supply pressures. OPEC+ is concerned about the weak growth in oil demand in 2020 and is expected to tighten its supply further in the near future. Brent rose in this context to USD 61.4. Bullish underlying trends are returning to their rightful place in the precious metals segment, which is once again being sought by investors. Gold is trying to get out of the USD 1500 line while silver is once again testing the USD 18 per ounce threshold. Base metals, on the other hand, ended the week in dispersed order. Copper and nickel gained ground at USD 5869 and 16950 per metric tonne, while aluminum stagnated at USD 1715.

Equities markets Air Canada is taking off. The Montreal group has just completed a quality run in 2019, with a cumulative increase of 78%, confirming its powerful 10-year upward trend. The share has gained more than 3200% over this reference period. On the brink of collapse in 2003, then recovered to re-enter the market at CAD 21 in 2006, the stock fell back to the bottom of the crisis in 2008, at CAD 0.75. These erratic movements have therefore given way to a lasting trend over the past decade. The stock has an excellent Surperformance rating, highlighting an attractive level of valuation, despite its upward trajectory and profitability that is subject to positive revisions. The majority of the operating indicators are brilliant compared to last year: passenger growth, load factor at 84.1% compared to 83% and higher fleet utilization at 10.7 hours per day compared to 10.1 hours. The market has therefore largely welcomed these good figures. Air Canada stock soars

Bond market The Bund trades with a yield of -0.39%, above the ECB deposit rate. The reference should therefore find a buyer current. The French OAT also shows a balance on the basis of -0.1%. This stability is also true for Spanish (0.24%) and Italian (0.9%) debts. Showing the opposite behavior, the Greek 10-year rate has once again reached a low of 1.2% (see graph), at a time when the S&P rating agency is considering raising its credit rating. Swiss debt remains well below the symbolic zero, at -0.64%, while in the United States, the Tbond remains unchanged at 1.7%. It should be noted that China intends to borrow in euros, in order to be able to borrow at more attractive rates. The last time it issued debt denominated in European currency was in October 2004. New low of the Greek 10-year rate

Forex market Tossed around according to expectations, the pound continues its erratic course. The British currency has lost ground to major currencies as a result of Prime Minister Boris Johnson's call for early parliamentary elections, creating new uncertainties. Trajectories become bearish in the very short term with more than 100 basis points lost against the yen at JPY 139.6, a movement replicated against the dollar at USD 1.2850 and against the euro (0.865 GBp). Forex traders will remain focused on the GBP, which should keep it volatile. For its part, the single currency, although quite dependent on Brexit, remains firm against the Swiss franc at CHF 1.106 and against the dollar above USD 1.11. The decline in Japanese exports in September for the tenth consecutive month weighed on the Japanese currency, which traded at JPY 108.50 to the dollar. The greenback continues its gradual decline in the analysis of the "dollar index", going from 99.4 points to 97.6 in a few weeks.

Economic data Without a doubt, the week's news was marked by Mario Draghi's last conference. The former ECB boss starts with the rare distinction of never having raised interest rates during his eight years at the helm. He can be credited with helping to save the euro zone from disintegration, in parallel with the willingness of the states in the zone to remain in solidarity. On the other hand, the inflation target (2%) will not have been achieved and the economic outlook for 2020 seems rather mixed. Recent statistics still show a gloomy picture of the euro zone economy, such as the Flash PMI manufacturing (41.9) and services (51.2) indices published in Germany. The new President Christine Lagarde will be bound by the measures recently announced, which will limit the monetary levers and tools for the future. However, it will also give it time to resolve the differences in the Governing Council that have emerged at recent ECB meetings, as opponents have publicly expressed doubts about the need for a strong monetary policy response. Regarding this week's macroeconomic figures, it will be necessary to follow the "advanced" US GDP. There are, in fact, three versions of GDP, published one month apart: Advance, Preliminary and Final. The "advanced" version is the oldest and therefore tends to have the most impact. The announcement will precede the FED committee meeting before the weekend employment figures and especially the US manufacturing IMP published by the ISM Institute. The last aggregate, published a month ago at 47.8 points (see graph), had led to a sharp fall in financial markets. Fall in the US ISM Manufacturing Index

Volatility around quarterly results Investors continue to wander through the different chapters. The political disagreements of the previous weeks gave way to a window on corporate results. While volatility has eased at the index level, it has not spared companies that are unfortunate enough to report numbers below expectations. It is therefore important not to make mistakes in the stocks because the slightest disappointment is paid for in cash, with gaps that are difficult to recover over time.