Weekly market update : A new era for markets

06/17/2022 | 05:00pm
Financial markets have once again face turmoil this week, while US and UK inflation remain at 40-year high levels. A flurry of central banks have decided to raise rates drastically (Fed +0.75%, BoE +0.25%, Swiss National Bank +0.50%). Volatility remains particularly high today, due to Quadruple Witching Day and the clearing that comes with it.
Weekly variations*
29888.78  -4.79%
11265.99  -4.79%
Chart NASDAQ 100
FTSE 100
7016.25  -4.12%
Chart FTSE 100
1841.34$  -1.90%
Chart GOLD
109.98$  -7.45%
Chart WTI
1.05$  +0.04%
This week's gainers and losers

Top gainers:

  • Acadia Pharmaceuticals (14.2%) released encouraging data for its Parkinson's disease psychosis treatment, Nuplazid, which it wants to adapt to Alzheimer's psychosis. 
  • FedEx (+8.3%): The U.S. carrier increased its quarterly dividend by 53% and added two directors to its board after a deal with an activist investor. A positive signal for the company's development.
  • Fresnillo (+8.2%) Risk aversion is benefiting the British precious metals group, even though the ounce of gold is struggling to make a lasting recovery. Fresnillo does about 45% of its business in gold and 40% in silver. 
  • Seagen (+16.0%): The U.S. biotech jumped after reporting favorable interim results for the cervical cancer treatment the company is developing with Denmark's Genmab. 
  • Pearson PLC (+1.2%) ended the week mostly in the red with a timid 1.27% gain after TC Media acquired Éditions Du Renouveau Pédagogique, owned by Pearson PLC. 

Biggest losers:

  • Royal Caribbean (-22.6%): Barely recovered from the pandemic, Royal Caribbean and its cruise line rivals are being hit by fears of an economic slowdown, which may push the middle classes to shun expensive leisure activities. 
  • Block (-20.4%): Square's parent company continues to be pressured by Apple's entry into the deferred payment business. In addition, the backdrop remains very unfavorable for technology stocks, especially for fintechs.
  • Devon Energy Corp(-21.2%): The oil major is down with its peers, as oil prices fall. U.S. President Joe Biden on Wednesday demanded oil refining companies explain why they are not putting more fuel on the market as they reap windfall profits.
  • AMD (-14.1%): The semiconductor business is facing many headwinds: Lockdowns in Shanghai, supply chain shortages and fears of recession after the Fed's agressive rate hike.
  • Halma (-8.3%): The British tech company is down after its chief executive officer Andrew Williams announced he would retire next year after 18 years.

Chart Commodities
Oil: There have been some mid-week sell-offs, and on Friday oil prices fell, as recession fears took hold of markets after the Fed rate hike. Nevertheless, prices should grow at a fast pace in 2023, at least that is the scenario of the International Energy Agency, which recently presented its forecasts for next year. The institute says that the supply/demand imbalance will become more pronounced given the supply constraints. In this context, drawing on strategic reserves in order to increase the supply is only a temporary solution, whose effects will sooner or later fade on prices. In terms of prices, the North Sea Brent is down to USD 113 per barrel and US WTI light crude at USD 110.

Metals: Despite good economic data from China, where production and consumption figures for May came out better than expected, industrial metals prices continued their downward movement. Copper fell to USD 9,100 per metric ton, down nearly 15% from its yearly high in March. In gold, the Federal Reserve's more aggressive tightening of monetary policy has weighed on the gold price, which is trading around USD 1,842.

Agricultural products: The mood in Chicago is one of wait-and-see, with wheat prices showing little movement over the past five days. The amount of export grain blocked in Ukraine due to the war could triple by the end of the year to 75 million tons according to Ukrainian data. On the other hand, corn prices have resumed their upward trend, returning to near 800 cents per bushel.
Chart Commodities
Atmosphere: The austerity push by central banks this week, from the Fed, the Bank of England and even the Swiss National Bank has put investors on edge. The determination of the world's big money makers to turn off the liquidity tap is raising fears of a recession, as the demand shock looms (the latest indicators in the US and Europe are hardly encouraging). In the days and weeks ahead, investors will be keeping their fingers crossed that the fight against inflation does not turn sour. They will also be looking for the inflection point at which central banks will feel that their policies are too restrictive and will start to ease again. But clearly, we are not quite there yet.

Interest rates: There has been a lot of movement in the sector on both sides of the Atlantic this week. In the United States, yields went a bit in all directions as the Fed's intentions were uncertain. By the end of the week, the inversion of the yield curve had disappeared and the 10-year had eased to 3.2%. In Europe, the spread between German and Italian debt reached such a wide gap at the beginning of the week that the specter of 2010 and 2012 resurfaced. The ECB was forced to call an emergency meeting on Wednesday to announce that it was going to draw up a special program to counter the "fragmentation" of the euro zone. In other words, to prevent investors from fleeing southern countries and taking refuge in those in the north, which are considered more robust. The communication operation has been successful: the spread between Italian and German debt has fallen to less than 200 points (1.67% over 10 years for one and 3.61% for the other). Greek bond yields also fell considerably. 

Currencies: Over the past week, the dollar has recovered against the ruble, but the Russian currency remains positioned above its pre-invasion level in Ukraine, which is a small event in itself. The recovery of the Russian currency after Moscow's efforts to make its creditors pay in rubles led the country's central bank to cut rates. It currently takes RUB 55.50 for USD 1. On March 13, it was RUB 133 for USD 1. At the same time, Japan kept its accommodative policy, which keeps the dollar near JPY 135, its best level of the millennium. We end with the Swiss National Bank's surprise rate hike, which brought the franc back to CHF 0.9714 to USD 1, which is down 1.84% for the week.

Cryptocurrencies: Bitcoin had a difficult week. The digital currency is shedding 20% of its capitalization this week and is back to hovering around $20,550. A price zone that represents the peak of bitcoin's price during its 2017 bullish rally. After losing 70% of its capitalization since its all-time high of $69,000 last November, the fall could be extended further in this hyperinflationary environment unseen in the digital asset's short history. 

Calendar: The week starts with a holiday in the United States (Juneteenth). Over the rest of the week, there will be many speeches by central bankers, too many to mention. This will give the Fed, the ECB and the BoE the opportunity to fine-tune their speeches. Thursday will be devoted to the leading PMI indicators for June. They will show how much purchasing managers are affected by the current situation.
Historical Chart
A new era for markets
The prevailing feverishness reminds the veterans of the sector of some of the complicated episodes of the last twenty years. The newcomers have only evolved in a bull market for years, and they are confronted with the kind of crisis they only know from economics books. No need to worry, everyone has already been through it and it is very instructive: there is a big difference between living through events and discovering them in a textbook. Central banks remain more than ever at the center of the game, with several controversies at stake. Is the Fed still on the wrong track after having reacted too late to the arrival of inflation? Macroeconomics will continue to dominate the news; before the return of corporate earnings from mid-July.
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*The weekly movements of indexes and stocks displayed on the dashboard are related to the period ranging from the open on Monday to the sending time of this newsletter on Friday.
The weekly movements of commodities, precious metals and currencies displayed on the dashboard are related to a 7-day rolling period from Friday to Friday, until the sending time of this newsletter. These assets continue to quote on weekends.
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