Weekly Thoughts by Mirabaud Securities - 22 March 2019
INDICES : Sky is the limit
The indices have risen almost discontinuously since Christmas 2018 and very clever who will be able to predict when market consolidation will take place. Because a consolidation will occur. The outcome of the Brexit or new complications in trade relations between Washington and Beijing could cause this break. Unless it’s the latest Feds dovish message “It may be some time before the outlook for jobs and inflation calls clearly for a change in interest rate policy"…
This week the S&P 500 broke above a very important key technical resistance level (2’815 points). US Equity markets were panic bid all day after the fed meeting, short-squeezes, and Apple sent stocks soaring near year high. In Europe, most of the European markets were up this week with the EuroStoxx50 gaining almost 1 percent (in local currency). The FTSE had a nice performance, thanks to the decline of the British pound. Finally, in Asia, Chinese indices gain more than 3% on the week.
CURRENCY: The Swiss Franc is back
In the G10 environment (against the dollar), the Canadian Dollar and the British Pound were the only losers against the dollar. We saw some rebound for the Norwegian Krona, the Swedish krona and the Swiss Franc. In emerging markets (against the dollar) the Argentine Peso, the Turkish Lira and the Philippine Peso suffered the most this week. On the other hand, the Mexican Peso, the Russian Rubble and the Colombian Peso rebounded against the dollar. Finally, investors bought the Euro to US Dollar (after the fed meeting).
It's long been conventional wisdom that the retail industry is dying. We've seen unprecedented store closings and bankruptcies at major chains such as Toys R US, Sears and Rite Aid and even successful chains are trimming locations. It seems that in a digital world, physical stores have become a thing of the past. Over the last ten years, e-commerce has more than doubled its share of the retail market from just over 5% to 13% of total sales. That growth has meant that digitally native firms need to cater to more demanding mainstream customers. Amazon's purchase of Whole Foods has gotten the most fanfare and sent shock waves through the retail industry. One aspect that is often overlooked, however, is the advantage that a large network of physical stores gives Amazon online. Each location can serve as a distribution point for its Amazon Fresh and Prime Now services. However, we strongly believe that the sector is not “dead” and could benefit from new trends in the coming semesters (concept / experience stores, fast fashion’s speedy supply or new products (bio)). Adapt to survive…
CENTRAL BANK: Federal Reserve
The U.S. Federal Reserve on Wednesday brought its three-year drive to tighten monetary policy to an abrupt end, abandoning projections for any interest rate hikes this year amid signs of an economic slowdown, and saying it would halt the steady decline of its balance sheet in September. Rates are now seen peaking at 2.6 percent, sometime in 2020. The economic projections released on Wednesday showed policymakers at the median see the U.S. economy growing only 2.1 percent in 2019, a full percentage point below the roughly 3 percent growth that was seen in 2018 and which the Trump administration contends will continue. If we now take the dot plot at face value, then it seems the Fed will hold rates steady this year before raising one more time in 2020. If this occurs, it would be unprecedented. Since the 1970s, there have been three times when the Fed held rates steady for more than a year after raising them in the previous three months: 2006, 2000 and 1997. Invariably, the next move was a … rate cut!
Shares in Germany's Bayer's fell almost 12 percent (biggest intraday loss in 16 years, wiping some 8 billion euros off its valuation) on Wednesday after a second U.S. jury ruled its Roundup weed killer caused cancer. Tuesday's unanimous jury decision in San Francisco federal court was not a finding of Bayer's liability for the cancer of a plaintiff. Liability and damages will be decided by the same jury in a second trial phase. This case was only the second of some … 11’200 Roundup lawsuits to go to trial in the United States (another California man was awarded $78 million after a state court jury found Roundup caused his cancer). Brokerage Warburg lowered its recommendation to "Hold" from "Buy", arguing that the with the renewed setback upcoming glyphosate court cases would remain a drag on the share price. Pain might not be over for Bayer…
Several hot topics were discussed this week, including:
How to invest in artificial intelligence in 2019? / The retail sector is not dead / Beware of the blackout period / The Fed meeting / Answering fundamental market questions
Please feel free to ask for more information if interested.
CHART OF THE WEEK: Bank revival?
SWOT: On the cliff
“(US) Inflation target is met" (STRENGHTS). The CPI, a key measure of underlying U.S. inflation unexpectedly eased in February amid falling prices for autos and prescription drugs, giving the Federal Reserve more room to stick to its plan for being patient on raising interest rates. “
“(US) Level of confidence fade” (WEAKNESSES) is on the cliff this week. Consumer confidence surged in February and rose for the first time in four months, a sign that Americans have regained optimism after the recovery in the U.S. stock market, the end of the government shutdown and diminished worries about recession.
SWOT stands for Strengths, Weaknesses, Opportunities and Threats, the French equivalent of FFOM analysis (Forces, Faiblesses, Opportunités et Menaces). While SWOT analysis can be used to develop a company's marketing strategy and evaluate the success of a project (by studying data sets such as company's strengths and weaknesses, but also competition or potential markets), I decided several years ago to adapt it as a way to analyse financial markets. SWOT analysis allows a general development of markets by crossing two types of data: internal and external. The internal information taken into account will be the strengths and weaknesses of the market. The external data will focus on threats and opportunities in the vicinity. Finally, and most interestingly, there is a table that will evolve according to current events, which will allow it to reflect the underlying trend in the financial markets on a weekly basis.