Weekly market update : Between fears and hopes

08/17/2020 | 10:39am
August 17
Weekly market update
intro Markets are mixed, amid a resurgence of Covid-19 infections, poor Chinese statistics, Sino-American tensions and the lack of consensus between Democrats and Republicans on a stimulus plan.

Nevertheless, Last week's results remain positive for most of major indices.
In Asia, the Nikkei recorded a weekly performance of 4.3%, the Hang Seng gained 2.7% and the Shanghai composite 0.2%, despite rising tensions between Beijing and Washington.

In Europe, after having approached 5100 points, the CAC40 lost more than half of its gains on Thursday and Friday, affected by the quarantine imposed by the British government on travellers from France. but the CAC40 is still 1.5% ahead of the weekly sequence. The DAX followed the same trajectory, with a gain of 1.7%, while Foostie gained 0.9%. Spain gained 2.6%, Portugal 1.7% and Italy 2.5%.

The same pattern can be observed in the United States, with +1.3% for the Dow Jones, but only 0.5% for the S&P500, which came close to its absolute record in mid-week. The Nasdaq100 gained 0.2% over the last five days.

Hard blow last week for precious metals. After hitting an all-time high of USD 2075 at the end of last week, the yellow metal is back below USD 2000. Tuesday's session proved to be particularly intense, with a 5.8% drop. A rebound on the 50-period moving average allowed gold to stabilize around USD 1950, losing 7.1% over the week.

Silver, on the other hand, failed to migrate over the 30 dollar border. Recalled back to its levels of 15 days ago, the metal subsequently rebounded, ending the week close to the USD 26.60, a loss of -13.90% (see chart). Platinum and palladium were also down over the last 5 sessions, dropping -5.90% and -4.80% respectively.

In contrast to precious metals, oil's performance remained relatively mixed last week. WTI gained 0.70% against Brent crude, which lost 0.1%.

The biggest increase is attributed to lumber, which rose 13% this week, gaining 78% since the start of the year.


Equities markets

Let's go to the Hong Kong Stock Exchange to highlight the journey of Yihai International.

With a market capitalization of more than CNY 99 billion (about $12 billion), the Chinese holding company operates in the food industry. It develops, manufactures, distributes and sells sauces, flavours and condiments mainly for "hot pots", a Chinese cooking method based on broth in which a variety of ingredients are steamed.

The company saw its sales grow by 160% between 2017 and 2019. In addition, it is in a healthy financial position, with a net cash position of CNY 1.5 billion (€180.8 million) and a free cash flow of CNY 693 million (€84.6 million). Shareholders benefited from a 31.1% return on equity in 2019.

On the stock market, the recent upward trend is such that the Yihai International share does not seem to have been affected by the plunge in the global indices following the health crisis. Over 2020, the holding company has achieved a +131% progression. As part of its ASIA portfolio, MarketScreener bought the stock, posting a 150% latent gain to date.

Strong push for the Yihai International share

Bond market

Sovereign bond yields took an upward trajectory over last week. The majority of stocks experienced this trend. In addition to the more optimistic economic outlook, profit-taking probably contributed the most to the rise in yields. Indeed, if the prospect of a U.S. agreement is still lacking, which should make it more difficult for bond prices to cool further, consolidation seems appropriate in the meantime.

In Europe the Bund is trading on a -0.41% basis. The rise in rates also applies to the OAT (-0.12%) as well as to Italian (1.03%) and Spanish (0.38%) debt. Even the major Swiss bond is experiencing a rate increase to -0.47%.

The situation remains the same on the other side of the Atlantic, where the US 10-year yield reached its highest level since the beginning of the month at 0.648%. One of the reasons for this rise is also due to the large volume of supply. No less than USD 38 billion of a new 10-year bond was put up for sale on the capital market during the weekly sequence. Another likely trigger is the latest figures for consumer price inflation in the United States, which have far exceeded the expectations of market participants.
Forex market

The EUR is on track for its fourth monthly advance against the Dollar, the longest string of gains in three years. A key factor in favor of the rally is the greenback's declining returns. While the spread between nominal 10-year bond yields in the U.S. and Germany has remained stable in recent months, the narrowing spread between inflation-adjusted yields partly explains these movements in the parity. The single currency is trading at 1.18 against the greenback.

In the southern hemisphere, the kiwi weakened after the chief economist of the national central bank said he would like a weaker exchange rate. The New Zealand dollar weakened against all its major counterparts, as did the NZD/USD parity (0.655). It has now become the worst performing currency in the G10 for the year, losing 2.5% against the greenback.

In Asia, the yen experienced a week of consolidation, due to a risk-dominated environment. The Japanese currency declined to 126 per euro and to 106.50 against the greenback.

YEN gives up ground in the short term

Economic data

Chinese statistics were mixed. The CPI index rose by 2.7% (consensus 2.6%) while the PPI index fell by 2.4% (-2.5% expected). On the other hand, industrial production disappointed, stabilizing at 4.8% and retail sales fell by 1.1%, whereas they were expected to rise by 0.1%.

Macroeconomic publications were scarce in Europe. The German Zew index largely exceeded expectations (71.5 vs. 57 expected). Industrial production in the Euro-Zone rose by only 9.1% (consensus 10.1%). As expected, GDP was down 12.1% and the trade balance rose to 17.1B (consensus 18B).

In the U.S., the data was generally good, with the PPI and CPI indices up 0.6%, both exceeding expectations. Oil inventories also fell more than expected to -4.5M and weekly jobless claims fell to 963K (1120K expected and 1191K previously). Retail sales, on the other hand, rose by only 1.2% (consensus 2%) and industrial production by 3%.
Between fears and hopes

The weekend marks the resurgence of a spike in volatility, mainly in Europe, with fears of a resurgence of the pandemic. Worried by a rise in Covid-19 cases, but hoping for vaccines, investors remain cautious.

While signs of recovery are evident even if the fundamentals do not reach pre-crisis levels, it will take time.

In the U.S., New York indexes are still on an upward trend, with hopes of a forthcoming announcement on a stimulus plan, which is essential for the recovery of the US economy. The stakes remain high, between fiscal and monetary intervention, with no limit to the harmful effects of the pandemic. A fierce battle that could last beyond the summer...
Patrick Rejaunier
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