Weekly market update : A relative serenity

Monday June 17

Weekly market update

After the sharp rise of the previous week and a peak last Tuesday, against the backdrop of hopes of lower rates in the United States, the main indices suffered some setbacks at the end of the past week's sequence. The reason for this is the lack of progress on Sino-American trade negotiations affecting global growth and tensions in the Gulf of Oman following the attack on two oil tankers on Thursday. Nevertheless, the balance sheet remains positive for most financial centers.

Indexes Over the past week, in Asia, the Hang Seng grabbed 0.48%, Nikkei gained 1.1% and the Shanghai Composite rebounded by 1.9%. In Europe, the CAC40 lost 0.05%, the Dax gained 0.4% and the Footsie 0.3%. For the peripheral countries of the euro zone, Portugal lost 0.2%, Spain 0.4%, while Italy rose by 1.2% and Greece by 0.6%. In the United States, the Dow Jones rose by 0.2%, the S&P500 gained 0.3% and the Nasdaq100 0.7%.

Commodities Despite the escalation of geopolitical tensions in the Middle East following the alleged attack on two oil tankers in the Gulf of Oman, oil prices are dropping. Fundamentals remain subdued in the face of the further increase in US inventories and persistent concerns about a possible slowdown in crude oil demand. In this context, the U.S. Energy Agency and OPEC have jointly revised down their forecasts for growth in world oil demand for 2019. The Brent barrel is trading at USD 61.3 while the WTI is trading at USD 52 (see graph). Stabilization of the greenback, increased geopolitical friction and central bank shopping go hand in hand with an increase in gold. The gold metal wins nearly 6% in nearly two weeks, to familiarize itself with key graphic levels near USD 1360. Silver is standing still at USD 15 per ounce. As for base metals, they ended the week in a scattered order. Copper and nickel rose slightly to USD 5897 and USD 11920, while zinc and tin posted a negative weekly performance at USD 2604 and USD 19500 per tonne. WTI hourly chart over the week The WTI lost 4.2% over the week, despite the 4% jump on Thursday in reaction to attacks by supertankers, near the Strait of Hormuz, through which a fifth of the world consumption passes.

Equities markets Nasdaq Composite, a highly volatile universe Analyzing the performance of the components of the Nasdaq Composite can be tricky. This index, which is characterized by an extreme broadness regarding the profiles of the 2500 companies that make up the index to date, brings together exceptional individual career paths. It is enough to analyse the most significant advances to see that the top 20 stocks in the 2019 ranking are gaining more than 200%. The leader of this successful group is Conformis, which is now more than 1200% powered. This small-cap company ($300 million) specializes in medical technology for customized knee implants. Created in 2004 and introduced in 2015, its stock market career was nevertheless very chaotic. If we look at the gains by sector, it is insurance (including the eHealth value and its 97%) that positioned itself as the leader over the year, progressing by 24% ahead of telecoms (22%), a situation far from the prejudices of investors who would tend to list the biotechnology or digital sectors as the most efficient. Graph of the title Conformis

Bond market The bond market continues its underlying trend, marked by historically low yields on a majority of sovereign debt. This is the case for European securities such as the Bund at -0.26% or the French OAT at 0.08%. References from southern countries are also processed, on prices unknown until now. Spain has a yield of 0.49% on its 10-year bond, while Portugal has its debt traded on a 0.60% basis over the same period. Despite the persistent tension between Rome and Brussels, the Italian rate shows a certain resilience at 2.32%. On the other side of the Atlantic, the Tbond is also traded in a low zone at 2.06%, proving investors' growing interest in defensive assets. In an original way, four countries see their 10-year reference provide negative returns. In addition to Germany, Switzerland (-0.51%), Japan (-0.13%) and the Netherlands (-0.08%) are also included. This clan may soon be strengthened by other countries, such as France.

Forex market The euro benefited from a less accommodating central bank than expected. The latter pushed back the timetable for a potential rate hike, but as the consensus expected a future decline, this announcement rather had a positive effect for the single currency, which exceeded USD 1.13 over a day to return to USD 1.124. The currencies down-under have declined further, affected by a weaker economic and monetary outlook. The AUD returns to its lows below USD 0.69. The market is expecting 2 rate cuts from the Australian central bank this year. The NZD also fell against the greenback to USD 0.65 (see graph). The trade situation raises fears of a marked impact on its two exporting economies. The Pound Sterling remains at the bottom of its trajectory around USD 1.27. For its part, the Canadian dollar took advantage of the soaring oil prices to gain ground and the parity rose to USD 1.33 (+300 basis points). Among the exotic currencies, the peso has returned to its levels of MXN 19.2 per dollar since Trump backtracked customs measures with Mexico. Evolution of the AUD and NZD against the dollar

Economic data The Sentix index (-3.3 against +2.3 expected) and industrial production (-0.5% against -0.4% expected) were disappointing in the euro zone last week. On Wednesday, Mario Draghi delivered a speech in which he warned of Central Europe's vulnerability to trade conflict. On Friday, an agreement was reached on the future budget of the euro zone. This week, this budget will be presented to the heads of government in Brussels. We will also look at the final consumer price index, the ZEW index of economic sentiment, the trade balance and finally, the PMI flash indices. In the United States, inflation is slowing and the deficit is widening. The consumer price index rose by 0.1% in May, compared with 0.3% in April. The deficit reached $208 billion ($160 billion previously). Weekly unemployment claims (222K) and retail sales (0.5%) were also disappointing. Finally, crude oil inventories amounted to 2.2 million barrels, while a decline of 1 million barrels was expected. Traders will focus this week on the Fed meeting, as well as the results of commercial banks' stress tests. Building permits, housing starts, sales of existing homes and the PhillyFed index will be unveiled. Then, as every week, it will be necessary to monitor the publication of oil stocks and unemployment benefit claims.

A relative serenity Investors neutralize their positions a few days before the G20 summit in Japan. The situation is reflected in a temporary decrease in volatility on equity indices or, more precisely, in a reduction in risk aversion. This behavioural situation must, however, remain measured by the pressing interest in sovereign securities. The orientation of capital on the debt market gives rise to residual uncertainty, leading the bond market to break new records in terms of returns, since to date, most rich countries can borrow under 10 years with zero or even negative rates. While equity markets are strengthening through the support of accommodative central bank policies, at the same time, they are still facing headwinds from the trade dispute. Winds that could weaken considerably by the time of the big meeting in Osaka at the end of June... Or, on the contrary, strengthen.