Weekly market update : The market takes a wait-and-see approach

Monday March 25

Weekly market update

Prompted by fears of an economic slowdown, with the Fed lowering US growth forecasts and keeping rates unchanged at least until 2020, financial markets ended up in scattered order last week. The high point was Friday, with PMI indices clearly below expectations in the euro zone, revealing a contraction in activity in the manufacturing sector but also in services. These poor statistics, combined with the uncertainties surrounding Brexit, have resulted in some legitimate profit taking in Europe.

Indexes Over the past week, only Europe has really lost ground. The CAC40 yields 2.5%, the Dax 2.7% and the Footsie 0.3%. For the peripheral countries of the euro zone, Portugal fell by 1.2%, Spain dropped by 1.4%, and Italy won 0.2%. In the United States, the Dow Jones currently recorded a weekly loss of 1%, the S&P500 lost 0.3% and the Nasdaq100 returned 1%, with technology and semiconductors. In Asia, Nikkei won 0.8% and Shanghai Composite 2.6%. Hang Seng grabs 0.1%.

Commodities The price of WTI exceeded the symbolic USD 60 mark during the week, driven by the publication of the EIA's weekly report, which showed a sharp decline in crude oil stocks. At the same time, US exports jumped again, to close to their record of 3.6 mbpd. Nevertheless, fears about global growth resurfaced at the end of the week, partially blocking buying impulses. As a result, the WTI is trading around USD 59.2, compared to USD 66.8 for the European reference. Precious metals recorded a clearly positive weekly sequence, supported both by the Fed's change of tone, which was once again very accommodating, and by the resulting decline in the US dollar. Gold rose to USD 1312 per ounce, while silver stabilized at USD 15.42. In parallel, the palladium crossed a new level in its graphic ascent (USD 1565). Base metal prices traded on the London Metal Exchange are increasing on a weekly basis, in an uncertain market that closely monitors macroeconomic statistics. Only lead is losing ground at USD 2035 per metric tonne. Gold and Palladium

Equities markets A British leader in e-commerce Ocado Group is part of the retail sector in the Stoxx Europe 600. The English Internet distributor ranked first in the performance rankings in 2019, with a 55% increase over the reference period. In addition to good results, the London-based group has just signed a joint venture with Mark & Spencer to enable the latter to offer all food products, and Ocado to intensify its logistics delivery technology on the British continent. Created in 2000 by three former Goldman Sachs bankers, Ocado has grown both in the United Kingdom and internationally with quality partners such as French supermarkets Casino, Monoprix and the American Kroger. In commerce there are three stages: site, order preparation and delivery. Ocado is a specialist in the second stage, by reducing order preparation time, it can increase process profitability. Ocado Group

Bond market In a "dovish" environment, it is not surprising to see market rates falling. For some countries, yields are returning to historical levels. In Europe, the Bund is close to zero, while the French OAT is down to 0.37%. Even in the United Kingdom, helped by the postponement of Brexit, the ten-year rate falls to a two-year low of 1.06%. Italy and Spain benefit from the same conditions for their long-term debts, with yields of 2.44% and 1.07% respectively. Taking advantage of this original environment, Switzerland (-0.43%) and Japan (-0.08%) are increasing their negative returns. In the United States, the Tbond is trading on a 2.5% basis, in the climate made accommodating by the Fed.

Forex market The Euro is in trouble with the publication of declining European manufacturing SMIs. The single currency is trading at USD 1.13 against the greenback, a decline of 130 basis points since the opening. Forex traders also took their profits from the pound sterling. The British currency's declines are significant against the dollar (-100 basis points) and against the Swiss franc (-300 basis points). The greenback, on the other hand, is losing ground against the yen at JPY 110.5. A consolidation phase on the risk markets could benefit the Japanese currency, which has been relatively volatile for several months.

Economic data The euro area recorded a trade surplus of €17 billion in January (compared with €16 billion in December 2018). The ZEW index recovered from -13.4 in February to -3.6 in March. The only problem is that the PMI indices are falling more than expected, particularly at the manufacturing level (47.6 in the euro zone, 48.7 in France and 44.7 in Germany, at their lowest level since 2012). This week we will look at the Ifo Business Climate Index, as well as the Consumer Price Index (1st estimate for the month of March). In the United States, the PhillyFed index rose sharply to 13.7 from -4.1 previously. Weekly jobless claims, too, were pleasantly surprising (221K against 226K expected and 230K the previous week). In contrast, industrial orders increased by only 0.1% in January (consensus 0.3%). Oil inventories fell by 9.6 million barrels (+0.5M expected). Finally, the Fed has decided to leave the level of its rates unchanged (refi rate <2.50%) and finally does not expect any increase this year. This week, building permits, the Conference Board's consumer confidence index and the latest GDP growth estimate for Q4 2018 will be released. Then, to end the week, the Chicago PMI, household spending and the Michigan index will focus the attention of traders. Evolution of the German PMI manufacturing index

The market takes a wait-and-see approach Recent interventions by central bankers have highlighted a much more docile tone on their monetary policy expectations. In particular, the Fed has put in place its standardization tools to return to a state of patience, required by the uncertainty of the business outlook. Rates will remain low because the economic environment requires it (recent European manufacturing SMIs confirm this) but also, and this has been the case for years, with the increase in sovereign debt, which would no longer support an even gradual increase in rates. The yield curve will therefore remain flat for a long time. Throughout this rally on equities at the beginning of the year, the market was optimistic about the end of the crises (Brexit and trade conflict), in addition to the easing in the monetary field. It is now taking a wait-and-see approach.