Market Summary 13/12/18

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Market Summary 13/12/18

Market Summary

Cong Minh Nyugen

13th December 2018

 

The US’s favourable labour market condition and falling import prices put upward pressure on the interest rate:

On Thursday, the Labour Department stated a decrease in the number of Americans applying for unemployment benefit to the 49-year-low at the same time when import prices plunges the most among the last three years due to lower cost of Petroleum products and stronger dollars. As a result of the stronger economic conditions, economists are expecting the Federal Reserve to raise interest rates at its Dec 18-19 meeting [1].

 

The expansion of the 2.6bn Quantitative Easing (QE) programme is halted by the ECB:

On Thursday, Mario Draghi, ECB president, announced to hail the impact of its bond-buying programme this month to restore the economic health of the Eurozone after its long financial economic crisis, worrying QE at times had been “the only driver of this recovery”. The overall economic performance is still unclear due to the effects of many factors of geopolitics, financial market’s volatility and protectionist fears. As extra bond purchases are ended, investors’ focus is shifted to the timing of interest rate rises to make the final judgement [2].

 

Pound hit highs after 50% of Conservative MPs publicly back May:

It is a 1% increase in the Pound’s value against the Dollar to 1.2612 as Conservative MPs come together to protect their leaders against the vote of no confidence. This is at least a positive news in the chaos of Brexit as the uncertainty of leadership challenge is being cleared after the tremendous rebellion of May’s parliamentary colleagues recently [3].

 

Brexit continues with its doom and gloom:

Facing the vote of no confidence, Theresa May manages to maintain her position as PM, but inherently, such a position is weakened than ever. She now has to go back to Brussels, knowing there is no “immediate breakthrough” for Brexit, but there are hesitations to renegotiate from Eu leaders. Macron himself cautions that it will be hard to give legal assurances the US seeks on backstop [4].

 

US Stocks are kept on up-track thanks to trade optimism:

The S&P 500 is up 0.5% as optimism about US-China trade relations increases. As more concrete proposals on auto tariffs are embraced at the G20 summit, the initial scepticism about whether President Xi and Donald Trump can find a common ground is gradually cleared [5].

 

US investors are pulling back from bonds backed by lower-rated corporate credits:

As investors signals their concerns with leveraged loans, highly indebted companies, who have gained easy access to the $1.3tn leveraged loan market of recent years, are being put under pressure. Overall, The S&P/LSTA Leveraged Loan Price index loses 2 per cent in 2018 to be at its lowest level since 2016. Accordingly, investors pulled $1bn out of the asset class for the week ending Dec 5 to drive outflows since mid-November to $4bn [6].

 

China continues to import US’s soybeans:

Indeed, China has long been the biggest customer of American soybeans, accounting for 60% last year at $12bn. During the two countries’ 90-day truce on trade, interestingly, for the last 24 hours, between 1.5m and 2m of US’ soybeans were sold to China by private exporters, being confirmed by the US Department of Agriculture. This move of China will soothe a vital constituency for Trump during the détente [7].

 

After dividend cut and profit warnings, GAM’s shares collapse to 20-year low:

After suspending its dividend, the Swiss fund announced a full year loss of $933m due to under-expectation performance. As a result, its shares sunk by 30% today to the lowest since 1997 of SFr3.20 compared to SFr18 at the beginning of 2018 [8].

 

Bibliography:

[1] U.S. labor market tightening; inflation pressures muted. [online] Available at: https://uk.reuters.com/article/us-usa-economy/u-s-weekly-jobless-claims-near-49-year-low-import-prices-fall-idUKKBN1OC1UV [Accessed 13 Dec. 2018].

[2] ECB to halt expansion of €2.6tn QE programme | Financial Times. [online] Available at: https://www.ft.com/content/4b478964-fecd-11e8-aebf-99e208d3e521 [Accessed 13 Dec. 2018].

[3] Pound rallies after 50% of Conservative MPs publicly back May | Financial Times. [online] Available at: https://www.ft.com/content/7d62afe2-fde1-11e8-aebf-99e208d3e521 [Accessed 13 Dec. 2018].

[4]Theresa May warns no ‘immediate breakthrough’ expected on Brexit | Financial Times. [online] Available at: https://www.ft.com/content/470c1cc2-feda-11e8-ac00-57a2a826423e [Accessed 13 Dec. 2018].

[5] Trade optimism keeps US stocks on upward track | Financial Times. [online] Available at: https://www.ft.com/content/445ce47a-fe71-11e8-ac00-57a2a826423e [Accessed 13 Dec. 2018].

[6] Investors signal concerns with leveraged loans | Financial Times. [online] Available at: https://www.ft.com/content/9b254ce8-fd90-11e8-ac00-57a2a826423e [Accessed 13 Dec. 2018].

[7] Chinese importers resume purchases of US soyabeans | Financial Times. [online] Available at: https://www.ft.com/content/f418b1ea-fe6d-11e8-aebf-99e208d3e521 [Accessed 13 Dec. 2018].

[8] GAM shares hit 20-year low after profit warning and dividend cut | Financial Times. [online] Available at: https://www.ft.com/content/6ee70662-fea3-11e8-aebf-99e208d3e521 [Accessed 13 Dec. 2018].

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