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Weekly market update : The Fed holds the key to a peaceful summer

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07/22/2019 | 11:02am EDT
July 22
Weekly market update
Throughout this weekly sequence, there were no significant weaknesses in index behavior. Admittedly, progress has found technical obstacles on annual peaks for Europe or on historical peaks for the United States, but without the slightest appearance of a strong selling current. This stabilization is logically justified as investors analyse the flood of macroeconomic results, at the same time as they slow down their initiatives in anticipation of the much-awaited monetary easing of the FED.

Most of the indices ended the week in the red, like the EuroStoxx 50, which lost 0.5%. The CAC 40 fell by 0.4% to 5552 points. The DAX fell by 0.5%, the IBEX by 1.3% and the Italian MIB by 2.4%, penalized by the tensions within the coalition. The FTSE 100 is stagnating and the AEX (+0.8%) is on the rise.

Across the Atlantic, the stock markets should also close in negative territory. Over the week, the Dow Jones fell by 0.3% (at the time of writing this item), the S&P500 by 0.7%, as did the Nasdaq 100.

In Asia, the Nikkei lost 0.8% and the Shanghai Composite 0.2%, while the Hang Seng won 1%.

Tensions are rising daily in the strategic area of the Strait of Hormuz. After the capture of a third-country tanker by Iranian naval forces, the United States announced that it had also shot down an Iranian drone threatening the USS Boxer, a helicopter carrier that had strengthened the US presence in the region. This could be further intensified, in particular by sending American soldiers to Saudi Arabia.

Despite these frictions, oil prices are falling over the week, driven by fears that the excess supply will continue in 2020. The WTI thus sells nearly 7% to USD 55.8.

Silver has been particularly sought after this week, as evidenced by its increase of more than 8% to USD 16.43 per ounce. The entire precious metals sector appreciated this week, as did gold, which posted a new annual high of USD 1452.

On the base metals side, while copper stagnated at USD 5948 per metric tonne, nickel accelerated to USD 14685. Indonesia, the world's largest producer, may ban ore exports in 2022.


Equities markets

Founded in 1846 under the name of its founder Carl Zeiss in the city of Jena (ex: GDR), the company first started out in microscopes and a few decades later moved into the public eye. Historically, the German company remains proud to have participated in Operation Apollo 11, where the first step on the moon was photographed with a brand lens. It quickly became the world leader in high-tech optics after its merger with Asclepion-Meditec. To date, the group is just behind Essilor in the ophthalmic lens segment.

The stock stands out at the fundamental level, which makes it possible, thanks to the Greattor methodology, to detect it and integrate it into the European portfolio. The week highlighted this DAX resident with a 14% gain. According to its first estimates, Carl Zeiss Meditec generated sales of approximately €1,028 million over the first three quarters of the year, an 11% increase compared to the previous year (€926.3 million). Graphically, the performance is obvious with a surge over the last ten years of 820%.

Carl Zeiss Meditec

Bond market

The situation is easing as the various bond benchmarks are trading at the lowest level. The Bund remains on course with a return down to -0.32% despite some concerns about the upcoming rating revisions of Germany by Moody's and Fitch. The bond market barometer is becoming even more popular with the OAT, whose remuneration falls below the symbolic zero. The global 10-year rate table reflects a unique trend.

The debt of the Netherlands and Japan also showed a negative return. Switzerland with -0.66% has all its maturities sought because even the 30 years provides a negative rate of -0.08%.

Taking advantage of this exceptional environment, the new Greek government quickly took advantage of the sharp drop in borrowing costs in Europe and investor support for its tax reform, issuing a 7-year issue with a 1.9% yield for a total amount of €2.5 billion.

In the United States, the Tbond generates 2.04%, a rate that could stabilize as Fed members are no longer expected to make press releases until the end of July.

Powerful downward trend in yield

Forex market

Forex traders did not show much conviction over the week, except on the British pound which is keeping the downward trend. The British currency is trading at a lower level against the yen at JPY 134, as is the greenback trading in London at USD 1.25. The fears of a Brexit without agreement weigh on parity. On the other hand, the Swiss franc continues to be sought, as a result of a strong Swiss economy. The EUR/CHF pair trades at CHF 1.11, despite Swiss rates that are significantly lower than European benchmarks.

For its part, the single currency is in default. The recent disappointing statistics on German investor sentiment pushed the EUR into a low range of USD 1,122. The parity still remains above 1,1200 but in a negative trend.

The European currency also traded against the yen, which is trading at a two-year low of JPY 121. The Japanese currency serves as a safe haven and is gaining ground against most major counterparties.
Economic data

The latest estimate of the euro area consumer price index was 1.3% over one year (1.2% previously). Nevertheless, the ZEW index of German economic sentiment was disappointing at -24.5 (consensus -22.1).

In the United States, retail sales exceeded analysts' expectations at 0.4% (consensus 0.1%) and the PhillyFed index jumped from 0.3 to 21.8 points (against 5.0 expected). On the other hand, building permits (1.22M) and housing starts (1.25M) were lower than expected, as were industrial production (0%) and the production capacity utilization rate (77.9%). Oil inventories fell by 3.1 million barrels (3.6 expected) and weekly jobless claims came out as expected at 216K.

This week in the euro zone, the PMI manufacturing flash indices will be unveiled, as well as the Ifo business climate index for Germany. Above all, however, the ECB will communicate its monetary policy and rates.

In the US, operators will be informed of quarterly GDP, orders for durable goods and PMI flash indices (services and manufacturing). Sales of new and existing homes will also be expected, as will weekly unemployment data and crude oil inventories.
The Fed holds the key to a peaceful summer

Summer seems quite calm and all professionals or financial market enthusiasts know that the summer period does not necessarily mean peace and quiet.

The episodes 1990, 2011 and more recently 2015 remain in the history of world stock exchanges for their high volatility scenario.

For the season under review, all indices are at record levels, driven by expectations of preventive action by central banks. The configuration is ideal, with a low volatility. In short, expectations are high, markets are at their highest, while trade disputes weigh heavily.

All we can do now is hope that investors will not be dizzy in the coming weeks.
Stocks mentioned in the article
ChangeLast1st jan.
CAC 40 0.57% 5610.05 Real-time Quote.17.91%
CHINA-SHANGHAI COMP 0.24% 2944.54 End-of-day quote.17.88%
DAX 0.47% 12419.9 Delayed Quote.17.62%
DJ INDUSTRIAL 0.19% 27192.45 Delayed Quote.16.57%
EURO STOXX 50 0.41% 3524.47 Delayed Quote.16.95%
FTSE 100 INDEX 0.28% 7234.11 End-of-day quote.0.00%
HANG SENG -0.71% 28375.25 Real-time Quote.9.79%
IBEX 35 -0.69% 9225.5 End-of-day quote.8.78%
NASDAQ 100 1.10% 8016.952771 Delayed Quote.25.28%
NASDAQ COMP. 1.11% 8330.211117 Delayed Quote.24.16%
NIKKEI 225 -0.45% 21658.15 Real-time Quote.8.70%
S&P 500 0.74% 3025.86 Delayed Quote.19.82%

Patrick Rejaunier
© 2019
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