Weekly market update : The Christmas rally may not be a smooth ride

Monday December  9

Weekly market update

The risk aversion at the beginning of last week, linked to renewed trade tensions, was quickly forgotten on Friday, allowing the major indices to clearly limit their losses as early as Wednesday. Reports suggest that the United States and China are still very close to an agreement and the better-than-expected monthly US employment report served as a pretext for a further upward acceleration of the indices on Friday.

Indexes Over the past week, financial markets have lost ground overall, but the declines appear very limited despite the sharp decline recorded on Monday and Tuesday. Asia is doing well. The Nikkei managed to achieve a weekly performance of +0.26%, the Hang Seng gained 0.56% and the composite Shanghai recovered 1.4%. In Europe, the CAC40 lost 0.6% over the week, the Dax 0.5% and the Footsie 1.5%. In the peripheral countries of the euro zone, Spain grew by 0.4% and Portugal by 0.7%. In the United States, at the time of writing, the Dow Jones and the Nasdaq100 lost 0.2% over the week while the S&P500 gained 0.2% symmetrically.

Commodities Oil markets remain highly focused on the OPEC+ summit, which is expected to refine the Organization's policy in the coming years. Although no formal agreement has been signed at the time of writing, the members of the extended cartel would have opened the door to a further reduction in production to offset the rise in US production. Crude oil prices have therefore recovered over the last few sessions, reflecting the increase in WTI prices by nearly 5% to USD 58.2. The stagnation also characterizes the weekly trajectories of gold and silver, which are struggling to find powerful buyer relays, despite the renewed volatility on the equity markets. Gold metal gains some ground at USD 1475 while silver stagnates at USD 16.9. In the absence of major progress on the commercial front, industrial metals recorded negative weekly scores. Only tin stands out, rising to USD 16,900 per metric tonne. Dynamic rebound of the CAC40 After a brief incursion below 5700 points, the Parisian index is currently making a technical recovery in V-Bottom, with the highest annual theoretical targets.

Equities markets ALIBABA: prosperity and eternity The Chinese company has just successfully listed on the Hong Kong stock exchange (investment of 11.3 billion dollars plus an over-allocation of 1.6 billion). This IPO represents the largest deal of the year ahead of Uber and its $8 billion. 20 years after its creation by Jack Ma, the group is listed simultaneously on two financial markets after a first IPO on Wall Street (2014) for 25 billion dollars (an absolute record for an IPO). Alibaba wanted to succeed in a financial centre that is being shaken by protests. The operation was a real success, perhaps thanks to its lucky mnemonic code (9988), the number 9 meaning eternity and the 8 meaning prosperity. The e-commerce specialist boasts 785 million users and aims to reach one billion by 2024 and two billion by 2036. To satisfy its customers qualitatively, Alibaba employs more than 100,000 employees, an average growth of 9,000 hires per year over the last decade. The group led today by Daniel Zhang owns more than 50% of the national market and is deploying its strategy of expanding its fields of action with AliPay, used by a large majority of Chinese to pay at home but also abroad. Alibaba goes even further than Amazon in eliminating intermediaries to offer ultra-competitive prices and rare products. In addition, like its American competitor, the Asian company has super-powerful servers to serve its customers in real time. Due to diversification, the unused potential of this technological capacity becomes profitable, by leasing it to its customers (cloud). Strong growth in Alibaba shares since its IPO in 2014

Bond market The main bond markets have spent much of the weekly sequence weighing the pros and cons of the latest developments in the various international trade disputes in which the United States is involved. The trend over the past few days has been towards higher yields. In Europe, the Bund rose to 0.29% and especially the French ten-year, symbolically exceeding the zero mark of +0.02% (see graph). On the Italian side, the political risk premium reflected in the Italian ten-year period (1.37%) has increased significantly in recent days. The spread with the Bund is currently trading at around 166 basis points, about 15 basis points higher than a week ago and 40 basis points higher than the year's low at the end of October. The French 10y passes the symbolic threshold of 0

Forex market In the United Kingdom, the latest polls show the Conservative Party is more than 10 points ahead of the Labour Party, boosting the British Pound. A clear victory for B. Johnson's party would secure a majority in parliament and reduce the prospects of leaving the EU without an agreement. The British currency is trading at its highest level at 143 JPY or 1.32 USD. The dollar lost some ground against the euro and increased its losses against the yen and the Swiss franc after contradictory comments on the trade dispute front. The EUR/USD exchange rate varies between 1.10 and 1.11 USD. Against the yen, the decline also spread to JPY 108.7 (-100 basis points), as Japan has just announced an impressive recovery plan. Among the currencies of the southern hemisphere, the New Zealand dollar emerged as the big winner of last week after the Governor of the Central Bank commented that the rate cut program should slow down. The kiwi appreciated to its highest level in four months against the greenback at USD 0.65.

Economic data In the United States, the non-manufacturing ISM index stood at 53.9 in November (compared to 54.7 in October). This index, published by the Institute for Supply Management, measures non-manufacturing activity, which represents 80% of the American economy. Services are progressing overall in Europe (51.7 in Germany, 52.2 in France and 50.4 in Italy), statistics in line with the good performance of this part of the economy. Operators note a slight improvement in Germany where the IHS Markit composite PMI index rose to 49.4 for November (after 48.9 in October), although the level below 50 once again confirms the contraction in activity. In China, the indices of purchasing managers for the industrial and services sector of the National Statistical Office were significantly higher than the consensus and figures of the previous month. The Caixin MIP for the manufacturing sector is 51.8 points, which is higher than analysts' estimates at 51.5 points. The U.S. Employment Report was the most important meeting of the week. Investors were not disappointed when reading the job creation figures (266,000), with the unemployment rate falling to 3.5%, without any risk of inflation since the hourly cost rose by only 0.2%.

The Christmas rally may not be a smooth ride A tweet, a statistic on employment across the Atlantic... and it starts again. The route of the indices over the week is more like a roller coaster than a long, quiet river. Indeed, while volatility has fallen sharply over the past month, stress levels have risen sharply during Donald Trump's recent interventions on customs duties. The United States' trade policy is deeply destabilizing trade already weakened by weak global growth. The system based on multilaterally agreed standards is therefore being undermined by American protectionism. Investors have finally kept their cool and will continue to do so because this "trade war" will last. The world's second largest economic nation wants to become first, while the United States wants to maintain its leadership position.