Weekly market update : Markets are getting more complex

Monday January  6

Weekly market update

In the absence of many operators during the holidays, the financial markets continued their race to records, following the confirmation of the signature of the phase 1 trade agreement between Beijing and Washington on January 15. In spite of the new historical peaks of Wall-Street on Thursday, this weekend's clearings wiped out the gains of a good number of indices over the last fortnight, as the market feared an escalation of geopolitical tensions after the American raid on Baghdad.

Indexes Since our last point on December 23, Asia has been doing well, benefiting from the easing of trade and hopes for an improved economic outlook. Over two weeks, the Nikkei is down 0.67%, while the Hang Seng is down 2.2% and the Shanghai Composite 2.6%. In Europe, the scores were mixed. At this point, the DAX lost 0.9% while the CAC40 and Foostie rose by 0.1% and 0.3% respectively. For the peripheral countries of the euro zone, Portugal is stable and Spain recorded a loss of 0.4%. In the United States, the S&P500 gained 0.45%, the Dow Jones 0.65% and the Nasdaq100 1.5%.

Commodities At the end of a relatively calm week in terms of news, oil prices have recovered sharply following the American raids on Baghdad targeting Iranian high-ranking officials. This operation, which has further inflamed relations between Washington and Tehran, risks destabilising the situation in Iraq on a lasting basis. Oil ended the week close to the balance at USD 68.4 for Brent while WTI advanced to USD 63. Precious metals are off to a great start to the New Year. Gold remains in high demand, as evidenced by its 2.3% rise to USD 1,545. The same applies to silver, which is advancing strongly at USD 18.2. Performances are more mixed in the hard commodities compartment, whose components are largely flat. Copper is trading around USD 6165 per metric ton, nickel is trading above USD 14,000 and zinc is trading at USD 2300. Recent surge in Brent's prices

Equities markets Alacer Gold Alacer Gold, a Canadian-listed gold producer, was one of the best performers on the Toronto Stock Exchange in 2019 (+173%). The company, with a market capitalization of just over $1.5 billion, enjoyed a remarkable annual performance, thanks to strong gold prices. Its assets are located in Turkey, more specifically in the Copler mine, in which the company holds an 80% stake. Located in the central-eastern part of the country, nearly 500 km from the capital, Ankara, Copler produced more than 170,000 ounces of gold in 2018, to be put into perspective with the 290,000 additional ounces announced at September 30, 2019 during the presentation of the quarterly results. The company thus enjoys a strong increase in its mining production, coupled with an increase in the price of gold per ounce. This combo allows it to generate positive cash flow, placing Alacer Gold in a comfortable position to seek acquisitions in other regions of Turkey, with the goal of gaining size and achieving economies of scale. Alacer Gold share performance since 2019

Bond market The gradual recovery in yields, which began in the summer of 2019, is beginning to fade. As we enter 2020, the strong performance of equity markets seems to have temporarily relegated the bond market to the background. However, geopolitical risk coupled with the accommodative policies of central banks is refocusing attention slightly on bonds. On Thursday, the German Bund's yield reached a September high of -0.157% but is now down to -0.29%. In the United States, the decline is even more marked, with the yield on treasury bills hitting a low of around 1.80% on December 13. The French OAT continues to flirt with 0% but is holding firm in positive territory at 0.01%. For its part, the Swiss yield lost some ground at -0.57%, against a backdrop of geopolitical tensions in the Middle East and after having risen gradually since August (-1.2% at that time). In Italy, the month of January promises to be very busy on the political front. The current coalition is very fragile and regional elections in the Emilia-Romagna region are fast approaching. Negative since August 2018, the Fitch agency could lower its rating to BBB- at the beginning of February. Nevertheless, the underperformance of construction and public works over the end of 2019, impacted by profit-taking, is beginning to fade, with a return of 1.34% compared with 1.42% at the end of December.

Forex market The foreign exchange market was hectic in the first week of January. The Euro, which had appreciated well against the Dollar on the 27th session, ended the week lower at USD 1.113. The German unemployment figures left doubts about an economic improvement in Europe. In addition, the escalation of tensions between the United States and Iraq did not play in favor of the greenback. Investors preferred to take refuge in the Swiss franc, like the USD/CHF at 0.9715, but above all in the yen, which appreciated by 1.26% against the dollar (see chart). For its part, the Pound Sterling, which has experienced some turmoil in recent times, began a cycle of lateralization and finished at 1.309 against the USD. Finally, the Yuan continues its upward movement that began in early September, with a week in the green. It is trading at 6.97 against the dollar. Appreciation of the yen against the dollar

Economic data Over the last fortnight, statistics were few and far between, with the successive closure of several places for the festivities. In Europe, import prices in Germany exceeded expectations (0.5% against 0.1% expected), as did consumer prices in France and Germany, at +0.4% and +0.5% respectively. Manufacturing PMI indices were also better than expected, coming in at 46.3 in the euro zone (consensus 45.9). In the US, durable goods orders, new home sales, home sales pledges, Richmond Manufacturing Index, Conference Board Index (126.5) and ISM Manufacturing Index (47.2) disappointed, while weekly jobless claims and Final PMI Manufacturing Index were just as expected. This week will be more full in terms of macroeconomic publications, including the PMI Services indices on both sides of the Atlantic and all the employment data from the US.

Markets are getting more complex The financial centres are entering the year 2020 in a very special atmosphere. The first trades followed on from the end of 2019, which was marked by euphoria thanks to the progress of trade agreements, but the resurgence of geopolitical risk has suddenly put the world's stock markets under pressure. The more than precarious situation in Iraq, which crystallises the exacerbated tensions between Washington and Tehran, opens a window of opportunity for profit taking on the markets. Although it is too early to measure the impact of the American raids on regional balances in the Middle East, it is certain that this new unknown reinforces the degree of complexity of the markets.