Weekly market update : The first stock market month ends with a major rebound

Monday January 21

Weekly market update

Despite the return of uncertainties in Europe - mainly due to the massive rejection of the Brexit project - European markets rebounded strongly in the past week following upbeat results from US banks and hopes of easing trade tensions between the US and China.

Indexes With the exception of China, which recorded an almost stable performance (Shanghai Composite at +0.2%), all financial centres recovered their momentum over the week. In Asia, the Nikkei rose by 1.5% on Friday while the Hang Seng gained 1.7%. In the United States, the Dow Jones posted a weekly performance of 2.5%, the S&P500 returned 2.6% and the Nasdaq100 2.9%. In Europe, the CAC40 gained 1.9%, the Dax 2.4% and the Footsie 0.8%. For the peripheral countries of the euro zone, Portugal won 2.2%, Italy 2.1% and Spain 2.3%. Note the iBovespa index, which still reaps 2.6%, a fourth consecutive week of increase, accumulating a gain of 9.4% since the first of January (see graph). Brazilian index sets new historical records

Commodities Oil prices ended the week on the rise, as traders welcomed OPEC's efforts to balance the market. The weekly sequence was driven by a further decline in oil stocks (to -2.7M versus a consensus of -1.4M). Brent crude oil rose by 2.1% to $62 per barrel on Friday. Precious metals are subject to profit taking after a significant upward trend. Gold and silver are trading at 1285 and $16.45 per ounce respectively. Only palladium kept a positive score over the week at $1409. Base metal prices traded on the London Metal Exchange remained stable over the past week in an uncertain market as the release of China's GDP approached. Copper is now trading near $6020, while nickel is trading at $11610.

Equities markets Goldman Sachs A spectacular start for the American investment bank, which dominates the Dow Jones ranking, with a 17.8% increase since the beginning of the year, a record increase in such a short period of time. This euphoria around the banking institution is at the opposite end of the scale from the climate that weighed heavily throughout 2018, when the share of the firm had lost 33%. The bank's share, created in 1869 by Marcus Goldman, gained 9.6%, its strongest daily increase in seven years, following the publication of its fourth quarter. The increase in commissions related to the M&A activity more than offset the low trading income. The bank generated a net income of $2.5 billion in the last three months of 2018, 8% higher than the 2017 results. Evolution of the Goldman Sachs share price

Bond market The bond market remains calm despite the strong uncertainties associated with Brexit. The Gilt (British 10-year-old) remains in a narrow yield range even though at 1.36% (as of Friday) it is at a one-month high. This slight pressure is isolated over a sliding week as the much sought-after German bund stabilises on its lower bound at 0.26%, as well as the French OAT at 0.66%. Sovereign borrowing by peripheral countries such as Italy and Spain also fell to 2.72% (-11 basis points) and 1.34% (-7 basis points) respectively. Concerning the American market, the 10-year Tbond has a weekly high of 2.76% (+6 points), confirming some temporary arbitrages in favour of riskier assets.

Forex market After the result of the vote of no confidence that allows Theresa May to remain at the helm of the government, the British pound is back on the rise. The cable is trading at $1.30 (+300 basis points) and the British currency is also soaring against the Swiss franc at CHF 1.29. The euro is suffering from the wave of redemptions in the UK currency and is trading at GBP 0.878, a drop in parity of more than 200 basis points. The European currency stabilized against the yen at JPY 124 and against the dollar at $1.14. The most traded pair among traders has been relatively stable for the past three months, with the main fluctuation range being 1.13/1.14 USD (see graph). The greenback is taking advantage of rising equities to gain ground against the Japanese safe-haven currency at JPY 109. EUR/USD parity within a horizontal channel

Economic data This past week in the euro zone, we have seen industrial production and the consumer price index (1.6%) below expectations. The trade balance, on the other hand, was above expectations and above the previous publication. In the United States, the producer price index (-0.2%) and the New York Fed manufacturing index published below the consensus, unlike import prices, the NAHB index in real estate and the PhillyFed index. Crude oil inventories fell by 2.7 million barrels against an expected -1.4M and weekly jobless claims were pleasantly surprising (213K against 216K). Finally, the capacity utilisation rate and industrial production were higher than analysts' estimates. This week in the euro zone, the PMI indices, consumer confidence and the IFO business climate index for Germany will be published. In addition, the ECB will hold its monetary policy meeting on Thursday and will reveal the level of its (expected stable) interest rates. The Wall Street Stock Exchange remains closed on Monday to celebrate Martin Luther King's Day. It is only from Tuesday that we will be able to see the economic statistics: sales of existing homes, the Richmond Fed manufacturing index, as well as the Conference Board index. Then, as every week, crude oil inventories and unemployment registrations will be released. It should also be noted that the Davos Economic Forum will start on Tuesday and last all week.

The first stock market month ends with a major rebound Friday was the day of the three witches, confirming the good start to the year. Very often the last session of the month ratifies the monthly trend and this is confirmed once again for this month of January. It is therefore not surprising to note a new advance in equities for the liquidation of global derivative positions. Investors expect trade tensions with China to ease, leading to an upward adjustment in equity prices. Some had reached attractive levels of valuation that, if the general climate eased, could lead to timely purchases. These pullback-shaped rebounds (graphic resistance tests) should quickly give the market direction for the second stock market month. An extension of the current takeovers seems more likely but it will have to be implemented quickly or risk seeing the return of the sales consensus. One thing is certain, there will be plenty of catalysts to generate volatility.