Weekly Thoughts by Mirabaud Securities - 5 April 2019
INDICES : Stress, what stress?
It is difficult to see any weaknesses on the horizon since most world indices have returned to their highs of September 2018. Today, who really cares about questions regarding the future of Brexit, trade relations between Washington and Beijing or the German economic weakness? It is a question that is worth asking. However, we believe that tactically, an interesting approach is to take profits from the sectors that have performed the best while buying out those sectors sensitive to low interest rates (utilities, real estate in Europe or telecoms). Regardless, the S&P 500 rose by nearly 1.5% last week and the Nasdaq by 2.5%.
In Europe, the S&P 500 experienced a new momentum with an increase of nearly 3%. However, the DAX was the best in class (+4%) despite worrying economic statistics. In Asia, the Nikkei benefited from the decline of the Yen, as did the Shanghai Composite due to hopes of a trade settlement with the United States.
In the G10 universe (in dollars), it is the New Zealand dollar and the Yen that have suffered the most this week. Despite the high volatility of the British pound and a big decline on Thursday, results were ultimately slightly positive. The strongest increase, however, came from the Norwegian Krone. It is interesting to notice that the Euro has not changed overall against the dollar after 7 days.
In emerging markets (still in dollars), the South African Rand grew by more than 2.5%, ahead of the Chilean Peso and the Colombian Peso. The only significant decrease was the Turkish lira after local elections in the country.
The tension over 5G technology between Chinese telecommunications company Huawei and the United States has reached a variety of low points over the first part of 2019. President Trump most recently called for the U.S.’s allies to not roll out Huawei’s 5G network, citing potential security and data privacy concerns, which allies have not heeded.
5G is the next generation of mobile broadband, which will replace or augment its 4G/LTE predecessor and will set the stage for 6G service. The company that can get ahead in 5G will be able to have more market control over 6G service in the future. The benefits of 5G faster download and upload speeds, and other measures of network efficiency like latency. These faster download and upload speeds will be essential for processing and moving large amounts of data for services like autonomous vehicles.
The issue of this fantastic development could be the impact on health. Yet over 240 scientists and doctors from 41 nations who have published research in the field have appealed to the United Nations calling for urgent action to reduce these ever-growing wireless exposures and they wrote the FCC for a moratorium on the roll-out of 5G citing the serious risks that to human health and the environment.
Turkish President Recep Tayyip Erdogan has suffered a heavy blow after his ruling AK Party lost control of the capital Ankara for the first time in nearly two decades and is on course to lose the commercial hub Istanbul in a local election. There has been a tense standoff in Istanbul as both the opposition and the AK Party claimed victory in the polls due to a narrow margin.
Turkey's economy has been declining following a currency crisis last year when the lira lost more than 30% of its value. Sunday's vote showed some voters appeared to punish the president for the economic woes. Unemployment is on the rise and inflation is close to 20%, forcing prices up, making the cost of living more difficult for many.
Erdogan said he would now turn his attention to fixing the economy without compromising free market rules ahead of a national election scheduled for 2023. Within European 50 banks, 5 groups list Turkey as a meaningful exposure according to the transparency data published by the European Banking Authority (EBA): Intesa San Paolo, BNP Paribas, ING, Unicredit and BBVA.
Tesla thought it was getting one over on the world Wednesday night when it waited until the close of extended hours trading before releasing its awful Q1 delivery numbers. But Wednesday night's timing didn't the stop reality from taking hold Thursday morning, when Tesla stock crashed $26, down a little over 9% with further downside expected as exasperated mutual funds start dumping at the open.
Feeding the dismal mood, even formerly bullish analysts have come out swinging at Tesla this morning, throwing up all over its disastrous delivery numbers with RBC's Joseph Spak saying that the delivery miss could wind up turning into a $1 billion revenue miss. Spak was previously looking for 52,500 Model 3 deliveries, down from his previous estimate of 57,000. Analysts at JP Morgan and Morgan Stanley followed the move… Finally, Goldman Sachs also reiterated their "sell" rating on the company Thursday morning.
Several hot topics were discussed this week, including:
March Report / Is Turkey a game changer? / 5G, danger or opportunity? / Let's be tactical: Invest! / Wave of consolidation in the banking sector
Please feel free to ask for more information if interested.
CHART OF THE WEEK: Inflation, really?
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.