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Weekly market update : Lost in transition

07/15/2022 | 05:00pm
There was some turmoil on financial markets again this week. The decline in growth prospects in the eurozone and new inflation peaks in the United States (PPI and CPI indexes) led to fears of an even steeper Fed rate hike. A few bargain buys are nevertheless limiting the damage this Friday, in this clearing session, but the volatility could persist as the quarterly earnings season has just kicked off.
Weekly variations*
DOW JONES INDUST...
31288.26  -0.16%
Chart DOW JONES INDUST...
NASDAQ 100
11983.62  -1.17%
Chart NASDAQ 100
FTSE 100
7159.01  -0.52%
Chart FTSE 100
GOLD
1706.47$  -2.04%
Chart GOLD
WTI
97.57$  -6.53%
Chart WTI
EURO / US DOLLAR
1.01$  -0.79%
Chart EURO / US DOLLAR
This week's gainers and losers

Top gainer:

  • Williams-Sonoma (+15,65%): The home goods retailer is having a great week after Amazon's successful Prime Day. The retailer is taking advantage of this buzz around online shopping and its stock price is soaring.
  • Centrica (+9,17%): The energy services and solutions company is up nearly 10% this week after commodity and energy prices rose. 
  • Texas Pacific Land Corporation (+5,75%): The Texas state landowner is set to see its share price rise after the release of its second quarter results.
  • Molson Coors Beverage Company (+5,58%): The beer production and marketing specialist is up this week after executives declared a regular quarterly dividend on its Class A and B common stock.
  • The Boeing Company (+5,09%): The US aircraft manufacturer is slightly up this week after it delivered 51 aircraft in June – the highest monthly volume since March 2019.

 

Top losers:

  • Unity Software (-27,72%): The technology sector is down despite late support from chipmakers. Unity Software's merger with IronSource is not enough to reassure investors, and the stock plummeted.
  • Playtech (-21,33%): The online gaming software provider in the gambling sector ended in the red this week after Hong Kong's TTB Partners abandoned its planned bid.
  • Zoom Communication (-18,98%): The specialist in teleconferencing services is down sharply after being fined in Russia over allegations of data storage violations.
  • Admiral Group (-18,56%): The company, which is among the first British car insurers, is down after Sabre Insurance's profit warning made it lose 40% of its market capitalization.
  • Dynatrace (-14,88%): The software intelligence company is down after an announcement on board changes. A former board member is stepping down, but the decision was not well received by other members.
Chart Commodities
Commodities
Oil: Oil prices plunged this week, weighed down by growing recession fears that weigh on the outlook for demand for black gold. The latest US inflation data is expected to prompt the Fed to raise rates by at least 75 basis points, a strong move that could push the US economy into recession, which means less demand for oil. Yet, in reality, oil markets remain extremely tight and OPEC has reiterated this in its latest forecast, which is now for 2023. Despite fears of recession, the cartel expects demand to grow next year by around 2.7 million barrels per day (mbpd), while at the same time there is little or no room to increase global supply. This has not prevented oil prices from breaking through the USD 100 per barrel barrier for the two global benchmarks, Brent and WTI.

Metals: The industrial metals segment continued its downward trend, as concerns about base metal demand took their toll. The latest economic data from China has weighed on investor sentiment as Chinese GDP contracted by 2.6% in the second quarter compared to the previous quarter. A ton of copper is now trading around USD 7,200. In precious metals, gold is approaching the USD 1,700 per ounce line, its lowest level since August of last year.

Agricultural products: Wheat and corn prices declined this week in Chicago to 790 and 600 cents per bushel respectively. In its latest report, the U.S. Department of Agriculture revised production estimates for the European Union and Ukraine downward by 2 million tons each to 134.1 million tons and 19.5 million tons, respectively. However, the estimates were raised by similar amounts in Russia and Canada.
Chart Commodities
Macroeconomics
Atmosphere: Bad week in Beijing. Due to the impact of multiple lockdowns, the Chinese economy is slowing down sharply in the second quarter. The GDP of the world's second largest economy fell by 2.6% over the period April-May-June, well below the consensus forecast of a decline of around 1.4%. This presents the People's Bank of China with a difficult choice: to lower interest rates or not. The first solution would risk fueling inflation, which has remained relatively low until now. The latter could plunge the economy into stagflation, caused mainly by the sluggish growth. The 4.0% GDP expansion expected for the year as a whole remains weak for the Chinese economy.

Rates: In terms of bond yields, the US yield spread widened this week to a record high dating back to 2000. Ten-year US debt is currently paying 2.96%, which is 0.10% and 0.17% less than the 2 and 5-year maturities respectively. As a reminder, a rate inversion is traditionally a harbinger of a recession and in any case always illustrates the fears of one. In Europe, the downward trend continues, with the French OAT falling back to 1.68% over 10 years after rising to 2.4% less than a month ago. The German bond is back to the levels of the end of May with a yield of 1.14% for the 10-year maturities. Finally, the Italian 10-year has stabilized since the beginning of the week at 3.35%, nearly 1% below the mid-June peak.

Currencies: The European single currency fell below parity - $0.9998 - against the dollar on Wednesday. This is the first time in nearly 20 years. At the time of writing, the euro has recovered slightly and is trading at $1.006. But it is still down nearly 12% since the beginning of the year. A decline caused in large part by growing fears of recession in addition to the war in Ukraine. Same trend against the Swiss franc - 0.9871CHF. The only positive point is that the euro has regained some color since the beginning of the week against the pound sterling - 0.8507GBP while the departure of Boris Johnson was rather in its disadvantage.

Cryptocurrencies: Complicated period also for crypto-investors. Like OpenSee, which is reducing its workforce by 20%, due to the "unprecedented combination of crypto winter and macroeconomic instability", it is a good part of the industry that is currently in turmoil. Between cost-cutting in spades after glittering club sponsorship and stadium naming deals, operational difficulties are appearing at some key companies in the ecosystem - Celsius Network, 3AC... Bitcoin, which has hit the $21,600 mark for a second time since mid-June, is not helping this complex situation.

Calendar: The next week looks to be rather quiet in terms of economic statistics. The only event on the horizon, but not the least, is the ECB meeting next Thursday. A 25 basis point hike, its first in over a decade, should be announced. The next day, the U.S. manufacturing PMI is also expected.
Historical Chart
Lost in transition
Remember when the Fed was talking about transitory inflation last year? Well, it seems that we're still in the transitionary period. Inflation still shows no signs of stopping and on Wednesday posted a 9.1% year-on-year increase. We also had some pretty bad initial results, but not as bad as expected for US banks. We will have to wait until next week to see a significant acceleration of corporate results reports, with some stars of the technology sector. Have a good week-end!
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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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