Weekly Thoughts

Weekly Thoughts by Mirabaud Securities - 23 August 2019

Every Friday, some insights on the most notable events of the week and their impact on the market, analyzed by the specialists of Mirabaud Securities.

INDICES: All about Jackson Hole

All eyes were on a small resort in Wyoming this week, when Federal Reserve Chairman Jerome Powell will speak for the first time since bond markets hit the recession alarm bells. His words at the Kansas Fed’s annual Jackson Hole gathering will be closely watched for clues on what U.S. policy-makers will do next. A quarter-point interest rate cut is fully priced in for September, but it’s not clear what it would take to push officials to restart quantitative easing. Over the week, the main American indices ended up sharply. The same positive trend for European indices with an increase of nearly 3% for the Italian MIB despite the resignation of the Prime Minister. In Asia, most of the indices were fueled by hope that central bankers will send a positive message at Jackson Hole.

CURRENCY: Argentinian peso

Argentina's peso regained almost 1.5 percent of its value against the dollar this week following several days of sharp declines as President Mauricio Macri grappled with a crushing political defeat. The rebound came after both Macri and the center-left opposition candidate who trounced him in an important vote, Alberto Fernandez, called for calm. Still in emerging markets, there were also notable increases in the Colombian peso and the Russian ruble. At the G10 level, most of the members' currencies (against the dollar) experienced declines over the week with a significant underperformance for the New Zealand dollar. Only the Norwegian krone managed to finish in green.

SECTOR: Banking

When Paul Volcker, the former U.S. Federal Reserve chairman, in 2009 proposed banning many forms of short-term trading by federally insured banks to reduce risk to taxpayers and the world economy, he did it in one paragraph. Four years later, regulators issued a final rule, based on Volcker’s proposal that limited banks’ ability to buy and sell stocks, bonds, currencies and risky derivative instruments for their own accounts. It ran close to 100 pages, with hundreds more in supporting material. Today, US Banks are on the verge of getting some relief from Volcker-rule limits on speculative trading, one of the industry’s priorities in amending the regulations put in place after the financial crisis. Two financial regulators on Tuesday approved changes relaxing trading restrictions for midsize banks and easing compliance for the biggest banks. While watchdogs haven’t ripped up the post-crisis rule book, critics argue that taken together, the changes will insert renewed risk into the financial system…

COUNTRY: South Korea 

South Korea’s exports could fall for a ninth straight month in August as slowing global growth and a downturn in the semiconductor industry continue to take a toll on Asia’s fourth-largest economy, a leading indicator for global trade. Shipments fell 12% during the first 20 days of August. Semiconductor exports, which Samsung Electronics Co. and SK Hynix Inc. lead, plunged 30%, according to the Korea Customs Service. The deepening U.S.-China trade war and Brexit uncertainties have had a negative influence on South Korea’s exports that have been on the path of recovery since February. South Korea’s 20-day trade data is closely watched as an indicator for global demand, due to their early release and Korean companies’ deep integration into the global supply chain.

STOCK: Target

Mid 2018, Target was back to its ‘cheap chic’ roots, but the retailer had to keep the momentum going. Today, the success is back and the share price at all time high. Target Corp beat Wall Street estimates for quarterly same-store sales on Wednesday, as the big box retailer benefited from higher online sales and an increase in shoppers at its stores.

The retailer has been adding muscle to its same-day services with initiatives like Shipt, in-store pickup and Drive-up as customers increasingly get used to faster deliveries from rivals Amazon.com Inc and Walmart Inc. These services allow shoppers to pull into a store and pick-up their orders within minutes of placing them through the mobile app or website. The company said one out of five customers, who used its same-day service in the second quarter, were new. Faster services also drove more than three fourths of the 34% increase in comparable digital sales. The robust online sales accounted for more than half of the 3.4% growth in same-store sales.

Earlier this week, the company said it was starting a new grocery brand, Good & Gather, that would hit stores in September.

THE SUBJECTS

Several hot topics were discussed this week, including:

Jackson Hole / 100-year sovereign (American) bonds / No recovery expected in Germany / Fed minutes / South Korea is a leading indicator / Escaping the Volcker Rule

Please feel free to ask for more information if interested.

CHART OF THE WEEK: Lower rates

SWOT: On the cliff 

“Hard and Soft Brexit” (Opportunities & Threats) is on the cliff this week after the Brexit was postponed to 31 October.

“Effect of the US fiscal reform” (Opportunities) as we expect a fading fiscal stimulus in the coming months.

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.

Author

Mirabaud Securities