Weekly market update : Volatility subsides

Monday February 15

Weekly market update

With their eyes glued to corporate earnings, while waiting for the validation of the massive support plan in the United States, investors eased their activity last week. Risk appetite has dissipated somewhat in Europe, despite new absolute records in the United States.

Indexes In Asia, the Nikkei has gained 2.5% over the last five sessions, following on the heels of well-received corporate earnings. The Hang Seng gained 3% with a shortened session on Friday, as the Lunar New Year vacation began. The Shanghai composite rose by 4.5%. In Europe, the CAC40 ended the week with a weekly gain of 0.6%, the Footsie gained 1% while the Dax gave up 0.2%. For the peripheral countries of the euro zone, Italy gained 1.2%, Spain and Portugal fell by 2% and 2.5% respectively. In the U.S., the good quarterly results enabled the indices to set new records last week. The Dow Jones, the S&P500 and the Nasdaq100 were all up 0.9%.

Commodities Oil markets remain well oriented, as evidenced by the evolution of the Brent price, which has symbolically moved away from the USD 60 per barrel line. However, the International Energy Agency (IEA) has dampened the mood with a warning since the institution notes a "fragile" rebalancing of the market. In the United States, WTI is trading around USD 60. Precious metals were flat last week. Gold and silver fluctuated only slightly at USD 1820 and USD 27, respectively. Only platinum is in demand, supported by the prospect of a recovery in the automotive sector. Platinum is trading at its highest level in 6 years at USD 1300. A fall in the greenback often rhymes with a rise in industrial metals. This is indeed the case this week, as the entire base metals compartment recorded weekly gains. Copper thus climbs to USD 8290, aluminum advances to USD 2075, nickel regains USD 18,600 and tin continues its rise to USD 28,500.

Equities markets West Fraser Timber is one of the world's largest timber operators. The recent rise in wood prices has put the spotlight on this Canadian company, which has just acquired Norbord, the largest producer of wood chipboard. The bill is $4 billion. It's not just technology values that have seen their share price soar in 2020. Lumber grew by more than 100% to $958 per thousand board feet thanks to a strong increase in demand combined with a supply that did not follow. Indeed, the health restrictions observed this year have led to an increase in the sale of new and old houses: big cities are less and less sought after. At the same time, the western forest regions were heavily affected by fires, forcing some Canadian sawmills to close. Returning to West Fraser Timber, the company took advantage of this situation to see its results explode: +18% in sales, an EBITDA multiplied by 4 and a NBI that went from CAD -2.18 to CAD 9.72! In a word, all is going well and the company will take advantage of the acquisition of Norbord to expand its product line and access new markets in Eastern Canada and Europe. This synergy will also save no less than CAD 80 million in costs per year over the next 2 years. With the current wood market environment still positive, analysts are very optimistic about West Fraser's future, with sales expected to double again in 2021. The share's progression on a sliding year basis is 47.6%. The West Fraser Timber stock returns to its 2018 high points

Bond market Risk has been the watchword in recent sessions. The yield of the 10-year Bund has moved sideways (-0.46%) as well as the OAT (-0.25%) while riskier assets, such as the US High Yeld market, have been sought after. The remark applies to Italy where it seems that a Mario Draghi effect is being felt. Construction yields and its differential with that of the Bund reached their lowest level for several years, with the hope that the former president of the ECB will succeed in pacifying Rome's policy. The transalpine debt is trading at a historic rate of 0.43% (see graph). In the south of Europe, sovereign debt references are also easing as Portugal and Spain are paying their creditors with positive rates close to zero. On the other side of the Atlantic, one of the Fed's biggest challenges this year will probably be to convince market players that the monetary policy stance is not going to become more restrictive, given the potential for rising inflation. To date, this possibility is putting some pressure on bond yields, as the US 10-year bond market has been trading in the upper end of the last 6 months at 1.15%. Italian sovereign reference 10 years at a historical level

Forex market Risk-sensitive currencies resumed their upward trend, which prompted traders to hedge Australian and kiwi shorts in a context of low volumes. The currency used in Sydney is trading at a two-year high against the Yen at JPY 81 and a three-year high against the greenback. The Brexit boosted the pound sterling, which increased its dominance against the euro to 1.14. This lead is confirmed against all major currencies. The Swiss franc did not escape this global movement and declined to 1.23 against the British currency. The dollar even fell to a three-year low against the pound at 1.38. The Swiss franc was not spared this global movement and fell to 1.23 against the British currency. The single currency recovers to USD 1.212 after testing relevant chart levels. On the other hand, the dollar fell back against the renminbi, trading on the basis of CNY 6.53, a level not seen since the beginning of 2018. The greenback weakened gradually over the week, with a fifth consecutive session of declines. Forex traders question the sustainability of its recent rebound following comments by Federal Reserve Chairman Jerome Powell that the U.S. labor market remains far from a full recovery. AUD/USD

Economic data The week was not very full in terms of statistics. In China, the CPI index declined by 0.3% (consensus 0%) and the PPI index rose symmetrically by 0.3%, as expected. For Germany, industrial production was stable, the CPI rose 0.8% and the trade balance was above expectations (16.1B vs. 14.2B expected). In France, on the other hand, industrial production fell by 0.8%. In the United States, macroeconomic data were mostly disappointing. The Core CPI index was stable (consensus 0.2%), wholesale inventories rose 0.3%, and weekly jobless claims were 793K (755K expected and 812K the previous week). Only oil inventories declined (-6.6M against -0.9M expected).

Volatility subsides On equity markets, volatility has disappeared. Europe is characterized by a certain trampling, unlike the United States, where indexes are recording a host of records. The acceleration of vaccination allows investors to see a small light at the end of the tunnel by the end of the second quarter. It is well known that they prefer to stick to deadlines rather than be monopolized by uncertainty. The fact that Science, for once, is moving faster than Industry explains the current logistical difficulties. Beyond this hope, recovery plans are the pillars of confidence among investors. Massive support will be implemented in the United States, for at least one thousand billion dollars (depending on the Senate). In Europe, there will also be a vast stimulus package (NextGeneration for 750 billion euros) and in Japan as well. These interventionist policies should be deployed in the coming months.