Weekly market update : Investors' focus is on central banks

Monday August 26

Weekly market update

After a positive start to the week before the European and American monetary policy reports, the financial markets suffered further setbacks following the Chinese trade response. Beijing announced its intention to raise import duties on about $75 billion worth of US goods, an announcement that came ahead of the Jackson Hole annual conference, which had previously attracted attention. Volatility will remain present for many more weeks.

Indexes Over the past week, however, the major indices have recorded positive performances. In the United States, the Dow Jones gained 0.3%, the S&P500 gained 0.1% and the Nasdaq100 lost 0.3%. In Europe, the CAC40 recorded a weekly performance of 0.7% (+2.6% at the highest). Dax is up 0.6% and Footsie is stable. For the peripheral countries of the euro zone, Portugal gained 0.1%, Spain 0.3% and Italy 1.4%, despite the political crisis (resignation of Giuseppe Conte and an attempt to form a new coalition government). In Asia, the Nikkei won 1.4%, the Hang Seng 1.7% and the Shanghai Composite 2.6%, the best weekly performance.

Commodities Oil prices have stagnated last week, initiatives remain limited by fears of accumulating excess supply in a context of slowing demand. The decline in oil stocks was also tempered by an increase in stocks of distilled products. In this context, Brent crude oil fluctuates around USD 60 per barrel while WTI is traded around USD 56. Neutrality also prevails over precious metals, which have changed little over this weekly sequence. The Dovish tone of central bankers remains one of the main factors supporting gold prices, along with trade tensions. It increased to USD 1526. Silver is around USD 17.4 per ounce. As for industrial metals, they ended the week in dispersed order. Copper and nickel lost ground at USD 5866 and USD 15780, while lead posted a positive performance at USD 2068.

Equities markets Adidas: gold medal of the Dax. The three-striped brand achieved a high-flying 2019 trading season in line with other years. The stock achieves the best performance of the Dax over the year (+45%), a nice gift to shareholders for the 70th anniversary of the German company founded in 1949 by Asi Dassler. Since 2000, the share has achieved a real feat, improving 15 times over the last 19 years, to achieve a cumulative performance of 1500%. This valuation stems from its dominant position on the sportswear market and its significant impact in the Lifestyle segment. The hyper-media coverage of sporting events, when the brand is ostentatiously displayed, also benefits Adidas' reputation. The inventor of the football shoe with crampons nowadays manufactures more than 10 million pairs of sneakers per year. Evolution of the Adidas stock since 2000

Bond market The Bund (-0.61%) and the OAT (0.32%) are undergoing a slight consolidation phase in response to improved economic data, including climate indicators in Europe. It should be noted that when issuing a 30-year loan, Germany invested only 40% of the €2 billion at a negative rate. In view of the current situation, future sessions should retain some volatility. The high level of expectations regarding U.S. monetary policy could generate further profit taking. The 10-year yield on Treasury bills (1.65%) has been rising since the recent lows. This is also the case for Spain, which has seen its rate rise to 0.18%. On the other hand, Italy maintains its reference on a historical threshold of 1.33% despite the political uncertainty. Switzerland at -0.94% and Japan at -0.24% benefit from the safe haven value of their respective currencies. Evolution of the 30-year-old German and Swiss bonds over the past 5 years

Forex market Forex traders have made massive headway on the British pound, which is establishing a technical rebound. This takeover follows comments from European leaders, including Mrs Merkel, on their willingness to find a solution within the framework of Brexit. The rise of the British currency is confirmed against all its major counterparts significantly against the Swiss franc at CHF 1,205 (+350 basis points) and against the dollar at USD 1.22 (+200 points). For its part, the euro remains under pressure in the face of continental policy challenges coupled with slower growth. The single currency is trading below 118 yen, a 2-year low as is the EUR/USD parity at USD 1,107. In Asia, the yen remains the big winner of this phase of stress on the markets, the Japanese currency is even rising against the Swiss franc, at JPY 0.925. Correlation of values

Economic data Against all odds, euro area services activity increased in August to 53.4 (after 53.2 in July). The PMI manufacturing index remained below the symbolic threshold of 50, which separates growth and contraction from activity, but also recovered to 47.0 (against 46.5 in July). The consumer price index was below consensus, at 1.0% year-on-year in July, after 1.3% in June. By contrast, in the United States, the PMI manufacturing and services indices were disappointing, at 49.9 and 50.9 respectively. As expected, sales of existing homes rose from 5.29M to 5.42M. Weekly unemployment claims decreased to 209K. The Conference Board's leading indicator rose by 0.5% last month, after -0.1% previously. Finally, oil inventories fell by 2.7 million barrels (-1.4M expected). This week in the euro zone, investors will be informed about the Ifo Business Climate Index, the Consumer Price Index and the unemployment rate. Across the Atlantic, durable goods orders, consumer confidence and the second release of quarterly GDP will be released. The PCE (inflation) index, household spending and income, as well as the Chicago PMI index will be on the agenda to close the weekly sequence.

Investors' focus is on central banks The trade dispute escalates with the new Chinese retaliatory measures against the United States. After the Jackson Hole and G7 symposium, this gesture takes on a particular resonance, thereby accentuating the degree of uncertainty about the global economic slowdown. In such a context where stress can reappear at any time, investors are looking to central banks to reposition themselves in "stimulus" mode. The Fed will remain flexible even if no forward guidance is given. Without taking radical action, it will have to operate skilfully between Trump's pressure for a 100 bp drop, fears of recession and market expectations. Not to mention that 1/3 of Western countries' debt stocks have negative yields at negative rates, helping to support a sharp increase in overall debt.