Weekly market update : It's time for the 2021 challenge

12/14/2020 | 06:02am
Monday
December 14
Weekly market update
intro After five consecutive weeks of gains, financial markets have experienced some profit-taking last week, caught up by disappointing statistics, persistent uncertainties about Brexit, the American recovery plan and the health situation, which remains worrying. The extension of the ECB's asset repurchase program was greeted with little enthusiasm, leading to a withdrawal from risky assets.

Indexes

Over the past week, in Asia, the Nikkei dropped 0.37%, the Hang Seng 1.13% and the Shanghai Composite 2.8%.

In Europe, the CAC40 recorded a weekly loss of 1.8%, the Dax fell 1.3% and the Footsie was stable, despite the lack of progress in post-Brexit negotiations.

For the peripheral countries of the euro zone, Spain lost 2.9% while Portugal gained 0.7%. Italy lost 2.1%.

In the United States,the weekly loss was about 1% for the Dow Jones, 1.4% for the S&P500 and 1.9% for the Nasdaq100.
Commodities

The optimism brought by the coronavirus vaccine is driving oil prices. The European benchmark has reached the US$50 per barrel mark, a first since March 6. As a result, the increase in crude oil inventories in the United States has taken a back seat, with operators preferring to be positive about the evolution of the supply/demand ratio in the coming months. As for WTI, it is trading close to USD 47.

Precious metals were flat last week, with Gold hovering around USD 1830, silver at USD 23.8. Industrial metals continue to rise inexorably. Nickel recorded the strongest weekly performance, earning nearly 5% at $16,800.
Equities markets

Maximo Corp.'s main activity is to check blood oxygenation rates non-invasively via its Masimo SET (Signal Extraction Technology). More generally, it develops and sells patient monitoring systems.

Since January, the share price has grown by more than 71%, certainly driven by the WHO's recommendation, which in March called on healthcare professionals to acquire this type of technology in order to detect respiratory insufficiencies due to COVID-19 infection at an early stage. At the end of March, the company announced, in partnership with Ohio State University Hospital, the development of the Masimo SafetyNet system designed to help clinicians care for patients remotely.

Our screeners give MASIMO CORPORATION the highest investment grade. The projected operating margin for 2020 is 23% and the net margin is 19.5%. EBITDA has been growing steadily in recent years, from USD 217 million in 2017 to USD 248 million in 2019. In addition, analysts forecast USD 294 million at the end of fiscal year 2020 and USD 329 million in 2021. The company is expected to generate Free Cash Flow of $152 million in 2020 and $226 million in 2021, which should leave it a good financial margin. The only downside is that the company has a PER of 71.5.

Masimo Corp.

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Bond market

The US 10-year rate remains in the 0.95% range following renewed hopes for a new fiscal stimulus package. In Europe, "core" yields ended the week in balance. The German bund remains in demand with a rate of -0.60% and the French OAT at -0.35%.

Portugal joins the countries whose debt generates negative returns, with the major rate symbolically falling below zero. Spain should follow suit in the coming weeks.
The "safe haven" criterion for the Swiss currency perpetuates Swiss debt yields in the deep negative at -0.62%, while Italy benefits from the ECB measures. The cost of its 10-year debt falls sharply to 0.59%, as does Greece with the same remuneration benchmarks.

It should be noted that the High Yield segment continues to catch up, outperforming the Investment Grade indices on the US bond market, a sign of a more assertive risk exposure.

Catching up of high yield valuations compared to Investment Grade valuations

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Forex market

Progress on the stimulus plan front in the United States has favored risky assets, to the detriment of the dollar. The euro is benefiting from this despite the recent dovish speech by the ECB. As a result, the parity has risen to USD 1.21, with the 1.25 USD line being the new chart target.

Forex traders are also turning to the Swiss franc. Against the Euro it rallied 150 basis points to CHF 1.075. The Swiss currency also advances against the yen, with the JPY/CHF returning to test a relevant support at CHF 0.85.

Despite a last minute "minimalist" agreement that could be reached to avoid a hard divorce with the United Kingdom, the pound has appreciated towards the 1.34 dollar from where it seems to find an anchor. This level corresponds to a one-year high.
In Asia, the yuan accentuates its hegemony against the greenback by grabbing a few more points to reach the parity of CNY 6.52, a new low of two years.

Breakthrough of the euro against the dollar

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Economic data

Chinese statistics were generally better than expected last week, as was the trade balance at 507B (against 373B expected). The PPI index fell by 1.5% (consensus -1.8%°) and the CPI index fell by 0.5% when it was expected to be stable (+0.5% last month).

In the euro zone, in addition to the GDP which just missed the consensus (+12.5% against +12.6% expected), the statistics were better than expected. For Germany, industrial production rebounded by 3.2%, the Zew index rose to 55 and the CPI index fell by 0.8%. In France, the trade balance stood at -4.8B, with industrial production up 1.6%.

On the other hand, macroeconomic data was more mixed on the other side of the Atlantic. Disappointments came from wholesale trade stocks (+1.1%), oil stocks (15.2M against -0.9M expected), and weekly unemployment registrations, up to 853K (consensus 723K and 716K last month). The CPI index nevertheless exceeded expectations at +0.2% and productivity was up 4.6%. Finally, Michigan's confidence index jumped to 81.4 (against 76.1 anticipated by the market).
It's time for the 2021 challenge

Investor initiatives are experiencing a real downturn. What could be more logical after the strong rise in November? While U.S. IPOs saw valuation counters explode in a few hours of quotation, index movements are more hesitant.

One thing seems certain, the economy will continue to be supported by unconventional central bank measures. The ECB confirmed this again this week by delivering a more qualitative plan (duration, flexibility, earnings target) on the two programs TLTRO (bank financing) and PEPP (market financing).

The market, failing to over-react positively, already seems focused on the balance that will have to be found in 2021 between public health, economic normalization and individual liberties. A vast challenge.
Patrick Rejaunier
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