NEFS Market Wrap-Up
2
Contents Macro Review 3 United Kingdom
United States Eurozone
Australia & New Zealand Canada
Japan
Emerging Markets
10
India China Africa
Russia and Eastern Europe Latin America
South East Asia Middle East
Equities
17
Financials Oil & Gas
Retail Technology
Pharmaceuticals Industrials & Basic Materials
Commodities
Energy Precious Metals
Agriculturals
23
Currencies 26
EUR, USD, GBP AUD, JPY & Other Asian
Week Ending 29th November 2015
3
THE WEEK IN BRIEF
Thanksgiving and
Black Friday
Thanksgiving was celebrated in the US on
Thursday, and with consumers flocking to the
shops over the four-day celebration, retail sales
are expected to receive a boost. The holiday
has had an impact on energy prices, with
increased demand for gasoline and natural gas
causing what most expect to be a short term
recovery in prices. Meanwhile, Black Friday has
also helped retail sales, with many benefiting
from bargains both in store an online: Amazon
has reported record one-day sales in the UK,
while popular card game, Cards Against
Humanity, having great success in selling
absolutely nothing for $5, making $71,000!
Unemployment
falls in Japan
Japanese unemployment, now at 3.1%, hit a
twenty year low in October, coming in
considerably better than forecasts. Meanwhile
inflation, excluding oil costs, showed a 1.2%
annual increase. The news comes as a
confidence boost for Prime Minister Abe’s
government, and makes the potential for
quantitative easing much less likely than it
appeared last week.
Autumn Statement
spells out new cuts
This week George Osborne announced a
number of changes to government spending,
with major cuts to the budgets for Transport,
Business, Environment, Energy, and Culture
and Media, while spending on the NHS,
Education, International Aid and policing have
been maintained. The cuts come as the
chancellor hopes to cut the deficit, which has
repeatedly missed targets set by the
conservative government. However, following
the severe pressure on Osborne over his
planned tax credit cuts, in this week’s statement
the chancellor decided to scrap the proposed
changes completely. This means that the
government will almost certainly miss its target
for the level of welfare spending, for this, and
most likely for the next, fiscal year. With the UK
economy continuing to take time to recover, it
seems fair to expect the government to
continue to miss targets for the coming years,
heaping yet more pressure on Osborne to make
further cuts. It is clear that the government will
have to substantially increase tax revenue or
reduce government spending, or both, if it
wants to achieve a £10 billion budget surplus,
as targeted by the chancellor.
Jack Millar
NEFS Market Wrap-Up
4
MACRO REVIEW
United Kingdom
This week’s headline regards the release of the
Autumn Statement and Spending Review by
the Chancellor. The Autumn Statement is an
annual update on the government’s plan on
spending and taxation based on the economic
projections provided by the Office for Budget
Responsibility (OBR). The spending review
sets out the government’s spending plan for the
rest of this parliament, including spending on
infrastructure and governmental departments.
The key point is how the planned £20 billion of
cuts are distributed across government
departments. These cuts are necessary in
order to achieve the Chancellor’s promise of
eliminating the public sector deficit by 2020,
however the NHS, education and international
aid are protected from cuts. Also, due to
security concerns following the Paris attacks,
the police budget will not be reduced. The
summary of the main spending cuts include
Transport (-37%), Business (-17%),
Environment (-15%), Energy (-22%) Culture
and Media (-22%). Importantly the Chancellor
has scrapped his planned reduction in tax
credits following its defeat in the House of Lords
and the backlash from the public. The cuts
follow this government’s ongoing favour of
austerity to balance the books. All in all these
cuts are aimed to improve public finances and
achieve the Chancellor’s target of a budget
surplus of £10 billion by 2020. However, the
chart below illustrates that the Chancellor is
relying more on increasing tax receipts and
welfare cuts than cuts in public spending.
In other news, revisions by the Office of
National Statistics show that a widening trade
gap has had a record negative effect on third
quarter growth. While growth remained
unchanged at 0.5%, net trade knocked 1.5% of
main growth rate, with a 0.9% increase in
exports overshadowed by a 5.5% decrease in
imports, the most since records began in 1997.
This further highlights the imbalance in the
economy, and the UK’s reliance on domestic
consumption. Fortunately domestic spending is
experiencing robust growth due to zero inflation
and rising real wages. While this provides a
positive short term outlook it does highlight
inherent weaknesses in the UK economy and
competitiveness abroad.
Matteo Graziosi
Week Ending 29th November 2015
5
United States
It’s the annual Thanksgiving holiday this
weekend in the US. About 138.5 million
Americans will throng to the shops over the
four-day weekend (including online shoppers)
to take advantage of heavily discounted
consumer goods. Robust growth in the US
economy, especially on the consumer side,
should be reflected in sales figures.
The preliminary release of the real GDP growth
rate from the Bureau of Economic Analysis beat
forecasts of 2.0% to reach an annualised rate
of 2.1% for the third quarter. This was higher
than the initial estimated growth of 1.5% made
in the previous month. This GDP figure is the
second of three for the quarter, with the final
release in December when more information
can be incorporated. It is worth noting that it is
the first release, advance GDP growth data,
which has the biggest impact. Revisions for
third-quarter GDP resulted from the smaller
than previously estimated decrease in private
inventory investment.
Continuing on from strong macroeconomic
data, the US Census Bureau released data
showing durable goods orders rose by 3.0%
month-on-month, almost double forecasts of
1.6%. This is significantly higher than last
month’s decline of 0.8%. Durable goods orders
represent the total value of new purchase
orders placed with manufacturers for durable
goods (hard goods that have a life expectancy
of more than three years). It is a leading
indicator of production as rising purchase
orders signal that manufacturers will increase
activity as they work to fill the orders. Core
durable goods orders rose in line with forecasts
by 0.5% month-on-month. This is higher than
last month’s decline of 0.1%, shown in the
graph below. Orders for aircraft are volatile and
can severely distort the underlying trend and as
such are removed for core data. The core data
is therefore thought to be a better gauge of
purchase order trends. The aforementioned
strength in the US economy may be driving
companies to invest more in new equipment
following years of underinvestment due to
economic uncertainty.
Encouraging economic signs point towards an
interest rate rise in December to avoid potential
above-target inflation problems. Positive results
from next week’s data releases on the
unemployment rate, average hourly earnings
and non-farm payrolls should all but confirm the
imminent rate hike in December that the
markets have been predicting.
Sai Ming Liew
NEFS Market Wrap-Up
6
Eurozone
Consumer confidence in the EU has increased
from the revised figure of -7.5 last month to -5.9
for November, which measures the amount of
optimism consumers have about the economy.
This is shown on the graph of EU consumer
confidence below. Conversely, this increase in
consumer confidence in the Euro Area was
offset by a decline in EU business confidence.
The European commission announced this
week that the Business Climate Indicator, which
measures the level of confidence of the
businesses located in the Eurozone, fell from
0.44 in October to 0.36 in November 2015.
While it was expected that business confidence
would rise in November to 0.45, this was not the
case. The European commission advised that
these figures were collected prior to the Paris
attacks this month - it is expected that the
attacks will greatly reduce consumer and
business confidence within France and the
Euro area as a whole.
The largest increases in economic sentiment
about businesses were in services, which rose
from 12.3 in October to 12.8 in November, and
the construction sector, which increased from -
20.7 to -17.8 this month. German consumer
confidence declined for the sixth month in a row
from 9.4 to 9.3, which is the lowest figure
recorded since February 2015, but it still
managed to stay above the expectations of the
market. The cause for this fall in German
consumer confidence is mainly due to worries
about the German unemployment figures due
to be released, which are predicted to rise.
In other news, the European Commission this
week has advised the Eurozone, particularly
Germany and the Netherlands, to invest more
money in order to help increase the GDP
growth and the inflation rate in the Eurozone.
Both indicators have been disappointing over
the last few months, with negative inflation
being present alongside low GDP growth
figures. These two countries were singled out
due to the large current account surpluses they
possess: it is believed that, because they both
have a surpluses, they have the finance to
invest more. For example, in 2014 Germany
had a current account surplus as a percentage
of GDP of 7.8% - the commission rates a
surplus larger than 7% as excessive. The
European Commission stated that economies
such as Germany and the Netherlands need to
rebalance their economies away from their
reliance on exports. They believe that they
should invest more and encourage consumer
spending.
Kelly Wiles
Week Ending 29th November 2015
7
Australia & New
Zealand
This week we learned that Australia’s Private
Capital Expenditure depreciated significantly to
-9.2%, down from -4.0% in the previous quarter.
This came as a shock for forecasters who
predicted a -2.3% change. The Australian
Bureau of Statistics announced that total new
private capital expenditure had fallen to AUD
31.4 billion. The data pointed out that
investment in buildings and structures fell by
9.8% (at AUD 19.8 billion), while spending on
equipment, plant and machinery was down by
8.2% (at AUD 11.5 billion).
Capex (the money invested by a company to
upgrade or purchase physical, non-consumable
assets such as properties) is expected to be
21% lower in 2015-16 than it was in 2014-15.
Senior economist at RBC capital markets Su-
Lin Ong pointed out there’s “weakness across
the board, in services and capex”, as spending
on production plants haven’t changed a great
deal. As a result, such depreciations in
spending on key equipment may cause
downward expectations on growth figures, as
less capital expenditure may inhibit growth.
However, the downward pressure on Capex is
also believed to have been contributed to by the
sharp reductions in mining investment, as many
projects are reaching completion and therefore
recent investment has been low in the industry.
The Capex indicator is particularly useful as it is
helping to show how well the Australian
economy is transitioning from a mining to non-
mining economy.
Meanwhile, New Zealand’s trade balance came
in with promising prospects. Improving from the
NZD 1140 million deficit in September, the
trade balance came in at NZD -963 million in
October, as shown in the graph below. The
trade balance during this period tends to be its
lowest around this time of year.
A decline in imports by 2.2% was led by
reductions in petrol, avgas (aviation gasoline),
and capital goods. There were fewer large
plane imports during October, a potential
contributor to the decline. However, exports
also fell by 4.5%, owing to reductions in dairy
imports such as milk powder, butter and
cheese. Despite the reduction in the deficit for
the October months, compared to last year, the
deficit had widened slightly, up from -892
million.
China has been a key player in this. China’s
demand for dairy products spurred the changed
in dairy exports. The amount of milk powder
exported to China fell by 65%, but still remains
the most-exported commodity.
Meera Jadeja
NEFS Market Wrap-Up
8
Canada
“Going forward, the risks to the Canadian
outlook remain tilted to the downside” according
to Bill Morneau, Canada’s new Finance
Minister, who spoke at a press conference, also
noting that other G-20 countries face similar
conditions. According to the Bank of Canada
(BoC), real GDP is expected to grow by 2% in
2016, and 2.5% in 2017. The central bank’s
view is that slow growth in Canada is due to
weaknesses in the global economy. Reiterating
this in a presentation this week, Lynn Patterson,
the BoC’s Deputy Governor, stated that the
forecast increase in growth is likely to be due to
increases in non-energy exports and
investment. The chart below shows the
forecasted takeover of energy exports by non-
energy and non-commodity exports.
Weakness in the global economy is particularly
significant for Canada, as Canada is reliant on
trade in two senses: firstly, commodity exports,
of which prices are largely driven by growth in
China, and secondly, exports to the US. The
recovery of oil prices is expected to be slow,
with forecasts estimating that it is unlikely that
prices will reach USD 60 per barrel even by
2018. Last week, the Canadian Dollar fell below
USD 0.75 on the same day that the price of
crude oil dropped below USD 40 per barrel.
A report by CIBC World Markets has
highlighted that in order to stimulate growth
over the next decade, Canada will need to
produce high-value products and improve skills,
thereby diversifying its economy. Improving
skills is particularly important, as highlighted in
a report by Capital Economics that the number
of high-paying jobs in Canada has been
declining for the first time since the 2008
financial crisis. Unemployment has been high in
energy-reliant provinces such as Alberta and
recent employment creation has mostly been in
temporary or part-time work.
There may be some good news however.
Increasing speculation that the US Federal
Reserve will raise interest rates soon is a sign
of an improving US economy, and as Canada’s
biggest trading partner, US growth should help
Canadian exports. Next week the Bank of
Canada’s Governing Council will meet to
decide whether to change the current interest
rate of 0.5%. Low interest rates alongside a
weak Canadian dollar are helping to keep
growth going at the moment, however this is yet
to spur the much-needed surge in private
investment.
Shamima Manzoor
Week Ending 29th November 2015
9
Japan
The latest unemployment rate for October,
released on Thursday, indicates that the labour
market remains tighter than ever, at 3.1%.
Below the 3.4% previously forecast, this is the
lowest jobless rate Japan has seen since July
of 1995, as shown on the graph below. The
strength of Japanese manufacturing has been
at the forefront of this. The preliminary
Purchasing Managers’ Index (PMI) reading of
52.8 indicates an expansion of the sector at its
fastest pace in over 18 months, boosting
employment. In theory, a buoyant labour
market would lead firms to increase wages for
workers but Japanese firms remain cautious in
the midst of the slowing emerging markets and
weak export growth.
Japan’s lacklustre wage growth has become
very visible in the latest household spending
figures. Falling by 2.4% compared to last year,
weak household expenditure in an economy
with 1.24 applicants for every job, is a clear sign
that it is domestic consumption is a significant
drag for growth and the reflation of the
economy. On Wednesday Prime Minister
Shinzo Abe called for a 3% increase to the
minimum wage, which he hopes will increase
wage growth, stimulate consumer spending
and create inflation.
Inflation data released this week, as measured
by the core CPI, shows a 0.1% reduction of the
price level annually. However, an alternative
indicator of inflation released by the Bank of
Japan, which strips out the effect of lower oil
costs, shows a 1.2% increase in the price level.
In addition to the optimism expressed by the
Bank in recent months, this gives further
indication that the BoJ is unlikely to change their
monetary policy in the short-term, as their
measure supports an improving underlying
inflation trend since 2013. A recent poll by
Reuters shows that economists are split on
whether more quantitative easing will follow at
the start of next year.
On Friday PM Abe called on his Cabinet to
compile a budget for additional fiscal spending.
The extra budget for April 2016 will aim to tackle
the effects of both the declining population and
the impact of trade diversion on sectors
affected by the Trans-Pacific Partnership free
trade agreement.
No longer considering deflation as a top priority,
the Japanese government seems be focused
on the wider revitalisation of the economy.
Given the diminishing returns of QE this could
mean a permanent shift toward fiscal policy and
structural reforms.
Loy Chen
NEFS Market Wrap-Up
10
EMERGING MARKETS
China
China’s slowing economic performance is
becoming more and more of a problem for the
world economy. At the end of the week, the
stock index in Shanghai dropped by 5.5%, as
shown by the graph below, while the index in
Hong Kong dropped by 1.6%. This downturn is
the result of several factors. The difficulties of
the industrial sector in October, published
earlier this month, increased the concerns
about the situation of China’s economy. Hence,
higher costs and especially the rough-and-
ready performance of the Oil, Steel, Coal and
Mining sectors are the main reason for the
stagnation.
However, the far more important cause of the
retracement of China’s stock indices are
investigations against the brokerage houses
Citic Securities and its smaller rival Guosen.
The stock prices of both of them dropped by
10%, which is the daily limit. This is a first.
Recently, China’s government has been
investigating individual managers, but now, the
state is turning against whole companies.
Furthermore, it became public that China’s
stock exchange regulator CSRC supposedly
forced brokerage houses not to sell specific
products anymore.
This is a desperate try by the Chinese
government to find a culprit for “Black
Monday’s” stock market crash in August this
year. After officials said that this was due to
“foreign forces intentionally [unsettling] the
market”, they now focus on domestic players.
However, the true reasons for the stock market
crash in China lies in the combination of a
weakening outlook for Chinese growth and a
slip in the Yuan’s value, which was initialised by
the PBoC itself. So, China’s government seems
to be blaming everybody but itself.
Nonetheless, a key question to ask is whether
the 8.5% downturn of Chinese Equities really
that worrying. Perhaps the 8.5% fall does not
seem hugely more unusual than the 4.61%
downturn of the Nikkei, the 4.67% decrease of
the FTSE or the 3.95% downturn of the S&P
500. Normally, I would say that, as China’s
financial markets show a steady progress, the
volatility of China’s stock markets will become
less extensive. However, the investigations
against brokerage houses and individual
managers is a huge step back in China’s
financial development and comes as proof that
China’s capital markets are not “free”, and are
instead driven by the political will of the
Communist Party. Perhaps this should be a
reason for the IMF to rethink their decision to
include the RMB into the basket for the SDR.
Alexander Baxmann
Figure 1 - Shanghai Stock Exchange November
Week Ending 29th November 2015
11
India
Prime Minister Modi was once again on his
travels this week, gracing Singapore with his
presence in light of fifty years of relations
between the two countries. During his visit Modi
stressed the importance of making
improvements to India’s business environment
for foreign investors via a number of different
reforms. However, a report released this week
by Moody’s, a global ratings agency,
encouraged the government to push more
aggressively for domestic economic reforms,
warning that a loss of momentum as a result of
delays could hamper investment amid weak
global growth.
Since Modi took office 18 months ago, he has
been on a mission to improve the country’s
economy, as well as create a business friendly
economic climate. It would be unfair to say that
he has not succeeded in doing so, relaxing
foreign direct investment (FDI) norms in 15
sectors and seeing a 40% increase in FDI since
he was elected. However, attention must now
shift to domestic reform, which has been a
cause for frustration for the government all
year. The report released by Moody’s said “The
Modi administration so far this year has been
unable to enact legislation on key reforms,
including a unified goods and services tax
(GST) and the Land Acquisition Bill.”
Implementing GST is crucial for India, not just
to garner higher taxes, but also to restore its
brand amid losing investor sentiment owing to
slacking reforms. By triggering higher
consumption through a unified tax system, India
will also see industrial investments rise in order
to meet demand. Some economists estimate
that the combination of these two components
could promote a 1.5 to 2% increase in GDP
growth, but only timely implementation of the
bill will allow it to become a reality.
The loss of momentum as a result of delays
referred to by Moody’s can in part be seen in
the results of a recent survey of 400 businesses
taken by the MNI Indicators Business
Sentiment index. Not even Diwali could boost
business sentiment, as it dropped from 62.3%
to 60.9% in October. This is about 12% down
from a year earlier, as the graph shows, and is
at the lowest level since February 2014.
Talking about reforms has proven effective to a
certain extent, but now is the time to implement
them on a vast scale. Whilst Modi has no issue
selling reforms to the rest of the world,
persuading Parliament to adopt them is
something he is yet to master.
Homairah Ginwalla
NEFS Market Wrap-Up
12
Africa
In a controversial turn of events, South Africa
has decided to lift its 2009 domestic rhino horn
trade ban. Many South African rhino breeders
argue that, since the ban, costs to protect herds
from poachers have increased massively,
hence destroying all profits and leading many to
sell their rhinos at huge costs. Those in favour
of lifting the ban argue that local rhino
businesses and their workers will be protected,
thus helping the economy. Moreover there is
evidence to suggest that the recent surge is
rhino poaching is directly related to the ban,
with the ban having created an underground
market with augmented prices and therefore
increased poacher incentives. From 2005 to
2009, 36 rhinos were killed on average per
year, whereas in 2014 alone, 1,215 rhinos were
killed. It is hoped that, by removing the ban,
prices will fall and poaching will decrease. This
will also be achieved through selling the vast
government stockpile of obtained rhino horns.
Finally, if the trade is legalised, the authorities
will be able to monitor poaching and ensure it is
carried out to legal standards. As a result, it is
hoped that legalisation will instead act to protect
rhino numbers.
In Rwanda, an 8.5 megawatt solar-power plant
has been completed in under a year,
consequently deeming it Africa’s fastest solar-
power project. It is clear evidence of Rwanda’s
successful economic growth, in being able to
quickly raise funds for projects. The $23.7m
solar field is 20% more efficient than normal, by
using computers that allow the panels to follow
the sun’s path. The construction of the plant
provided 350 local jobs and currently powers
over 15,000 homes in a 9km radius, increasing
Rwanda’s generating capacity by 6%. In
Rwanda’s rapidly expanding economy, as
shown in the graph below, increasing civilian
access to power and investment in
infrastructure is considered crucial for further
expansion. Politicians hope that by storing the
energy and selling it to other countries, as seen
already with Oslo, it will further boost the
economy and kick-start the creation of other
solar-power plants, to meet global
consumption. This will utilise a valuable African
asset - solar-power. However, critics argue that
the energy will eventually end up going only to
rich Western economies, and not to African
civilians. Furthermore, if more solar-power
plants are created, this will take up valuable
land needed to grow crops.
Charlotte Alder
Week Ending 29th November 2015
13
Russia and Eastern
Europe
Less of a focus on Russia this week and more
on Eastern Europe as a whole, after the
controversy surrounding the Turkish downing of
a Russian jet.
The Russian reaction to the downing of a
military jet allegedly over Turkish airspace has
dominated news this week, highlighting the
current worldwide political tension permeating
our households. Unsurprisingly, this event is
likely to carry with it substantial economic
effects. The Russian Prime Minister,
Medvedev, announced that Russia would be
imposing sanctions aimed at thwarting Turkey’s
economy. Supported by Putin, the sanctions
will target trade, tourism and joint investment
projects between the two countries in response
to what Russia is calling, “an act of aggression”.
The announced plans include bans on Turkish
business in Russia, a halt on the construction of
a sub-Black Sea natural gas pipeline and the
removal of Russian funds in the building of a
nuclear power station in Turkey. These seem
harsh and one might expect the Turkish to
respond apologetically, however the retort has
been one of defiance, with Mr Erdogan,
President of Turkey, claiming that Turkey can
find help elsewhere.
Russia and Turkey have engaged in $28 billion
worth of trade with each other from January to
September of this year. Consequently, the
economic ailments that these sanctions will
carry are bound to have an effect on the Turkish
economy. Erdogan had planned to triple trade
volumes to $100 billion by 2020 – an unlikely
reality, it would now seem. In addition, Russia
had been instrumental to Turkey’s economic
growth in her provision of numerous investment
opportunities, all of which were burgeoning, and
now at risk. It is estimated that Turkey could
lose $12 billion from the sanctions. To underline
the severity of this loss, we must realise that it
would amount to 2.6% of annual GDP.
Putin has advised Russians in Turkey to leave,
and for those planning a trip to change their
schedules. For those who do not take heed of
his warnings, he has tightened control on the
Russia-Turkey border, making it extremely
difficult for exchange of persons across. This is
of great significance when we consider that
Russians account for one tenth of tourism in
Turkey (worth $2.7 billion). Tourism revenues
(shown in the graph below) are likely to
substantially decrease.
The measures seem harsh but defiant, and
Turkey’s resilience is inspiring. One might note,
however, that the current economic climate
cannot afford to have two major economies
going head to head.
Tom Dooner
NEFS Market Wrap-Up
14
Latin America
Luis Diaz, head of the Democratic Action party
in the town of Altagracia de Orituco in central
Venezuela, was shot while he was meeting with
locals on Wednesday. Opposition leaders
blamed militias supporting the governing United
Socialist Party of Venezuela (PSUV). Yet the
current President Nicolas Maduro has so far
made no public comment.
Democratic Action is part of the opposition
Democratic Unity coalition about to contest a
December 6 election for a new National
Assembly in Venezuela. So this controversy
comes at a time when tensions are running high
- polls show the coalition has a good chance of
wresting the legislature from the ruling
socialists for the first time in 16 years.
Support for the Socialist Party is dwindling, as
poor economic policy and increasing homicide
rates (see graph featured at bottom of page)
have led to increased poverty and public unrest.
At first Maduro used the country’s vast oil funds
to provide public services and subsidised fuel,
which helped him to gain the public’s support.
However, economic mishandling has made
society poorer, widening the gap between the
rich and the poor, causing many to be driven
towards crime. At the institutional level, the
police force is underfunded and suffers from
high levels of corruption. Furthermore the
judicial system is poor and again shrouded in
corruption, there aren’t as many courts and
judges as there should be and the correct
decisions are not being made. As a result,
violent crime reigns. For example, look at
Caracas, the capital of Venezuela - it has a
homicide rate of 82 per 100,000, more than ten
times the global average.
Venezuela continually tries to shift blame to
neighbouring Colombia - one can only assume
that the reason behind Maduro’s activity is to
boost patriotic sentiment in order to increase
confidence in his party. However, for the
emerging economy to truly prosper, it must
address its current issues at the core through
economic reforms instead of turning to others
for an excuse. Furthermore, with an annual
GDP growth rate of -4% and the last recorded
inflationary figure at 68.5%, whichever party
wins the election has major economic and
crime issues to solve.
This also comes at a time when in his first press
conference as Argentinean President last
Monday, the centre-right Mr Macri said that he
would seek Venezuela’s suspension from
regional Mercosur trade bloc over rights abuses
committed by President Maduro’s
administration.
Max Brewer
Week Ending 29th November 2015
15
South East Asia
Amando Tetangco, the current governor of the
Philippine Central Bank for the past 11 years,
has been criticised for his inattention to detail
and devotion to a particular hobby - video
games. However, whether down to a
combination of skilful economic analysis and
common sense, or just luck, Tetangco
continues to take a prudent approach which has
led to the emergence of Philippines as South
East Asia’s fifth largest economy.
Tetango has recently announced that the
macroeconomic policies and structural reforms
in the Philippines are carefully considered and
approached cautiously. Perhaps Tetango’s
greatest achievement is his implementation of
sensible policies with huge long-term benefits,
whilst working with two governments over the
past 11 years. He states that this approach will
not change even when there will be a change in
government next year.
In the past 5 years, Aquino’s reign has seen
spending on education and infrastructure
double, whilst healthcare tripled, surpassing
competing Asian countries such as Singapore
and Malaysia. This highlights the Philippines’
commitment to its young population, with the
expected population to reach 140 million in the
next thirty years which shows that country has
the potential for its services sector to expand
massively. Additionally, the construction sector
has also picked up, due increases in
government spending on infrastructure - more
jobs will lead to further rises in consumer
spending.
However, it seems that the Philippines still has
a long way to go, as it has been revealed that
the poor infrastructure cost to the economy is
$60 million a day, which will certainly deter
multinational companies from outsourcing to
the Philippines: poor roads and airport
developments will lead to high costs, impacting
on profits. Moreover, an average journey on the
road takes around 45 minutes due to the heavy
congestion which creates further problems,
particularly if the Philippines want to compete
with the world’s fastest growing foreign direct
investment location, Vietnam.
Overall, the real question is whether the
Philippines can continue to take this long-term
approach, which has seen annual GDP exceed
China’s in recent cases, or whether the next
year’s new government will make radical
changes (that Tetangco will certainly not be
content with). Whatever happens, it is clear the
Philippines do not want to return back to the
dark days when it was branded ‘the sick man of
Asia’ by many economists, riddled with
corruption and bureaucracy.
Alex Lam
NEFS Market Wrap-Up
16
Middle East
A week after the prediction of an 8% growth rate
by the Iranian Central Bank governor in 5 years’
time, many claim the view to be unrealistic,
given the 2% current annual GDP growth in
Iran. Growth is expected to stall again, thanks
to low oil prices and rising unemployment. The
unemployment rate is moving in the wrong
direction, rising to 10.9% in the last quarter, and
is expected to maintain the upward trend in
2016.
Iran's Statistics Centre has announced the
inflation rate in Iran's urban areas for this month
to be 13.1%, 0.2% less than the preceding
month. The centre said that the consumer price
index (CPI) in Iran's urban areas is 0.7% more
than in the previous month. Scrutinising the
different sectors, the index for foods, drinks and
tobacco products has shown an increase of
0.3% compared to the month before, and a
growth of 7.9% when compared to the same
time last year - the index for services and non-
edible goods hit 209.7. According to the revised
estimates of Trading Economics, the inflation
rate in Iran is forecasted to be near 14% in the
last quarter of 2015 before it falls, and then
fluctuates between 9% and 10% in 2016.
Meanwhile, this week Dubai was confirmed to
host the world expo 2020, thus entering the
phase of increased activity. There has been an
upward revision of the growth forecasts of the
country: GDP Growth Rate in the UAE is
expected to be 3.88% by the end of this quarter,
while by 2020, the UAE GDP Growth Rate is
projected to trend around 4.94%. This growth is
expected to come along with an improvement in
infrastructure and a fall in the unemployment
rates. In the next few years, 275,000 jobs are
estimated to be created in and around the
region to service the Expo, across sectors.
Overall the positive halo effect of the Expo 2020
Dubai will leave behind a strong transformative
social and economic legacy across the region.
However, there is a growing fear of the debt led
growth of the economy whose reduced prices
of Oil and diesel are now taking a huge toll on
government revenues. The Country has
witnessed a 2% increase in the Debt to GDP
ratio in the last quarter of 2015. This trend could
hamper the long run growth prospects of the
economy.
Sreya Ram
Week Ending 29th November 2015
17
EQUITIES
Financials
This week in the financial industry saw four
senior partners of KMPG arrested in their
Belfast office after allegedly evading tax. This
was a blow for the company’s reputation in
Northern Ireland after they supposedly moved
from Dublin so the staff could “better perform
day-to-day tasks”. Elsewhere, Spanish BBVA
has bought a 30% stake in the British
challenger bank, Atom. BBVA believe there is a
gap in the market for a bank with few legacy
cost structures or systems to grow. The market
reacted well to the news with BBVA’s share
price increasing 3.2% this week.
Brazil’s biggest investment bank, BTG Pactual,
showed this week how an unpredictable shock
can cause a large shift in the market. The
bank’s chief executive and multibillionaire,
André Esteves was arrested in connection with
a corruption scandal involving Brazilian oil firm,
Petrobras. There were large negative reactions
as Mr Esteves has been the mastermind behind
the success of the bank and has a 20% share
in the business, thus there is mass uncertainty
surrounding the future of the bank. Rating
agencies, Fitch and Moody’s have suggested
they may have to downgrade the credit rating of
the bank, even in light of the interim CEO
announcing the bank will be increasing liquidity
in order to reduce the risk. The markets have
reacted badly, with the share price falling 40%
on Wednesday, as shown by the graph below.
German insurance giant and asset manager,
Allianz, has announced it will be launching a
joint venture with the Chinese search engine
group, Baidu, and investment group, Hillhouse
Capital. This is the company’s attempt to
expand in the Chinese market, as demand for
insurance in China continues to grow at a
considerable rate. The move is also intended to
help Allianz achieve their target of 13% return
on equity by 2018 whilst boosting revenues to
€6.5bn. In my opinion, this is a logical idea as it
will enable Allinaz to grab a share of the
Chinese market, however, whilst the Chinese
economy is still unstable following the stock
market crash this summer, the move could
prove costly.
Sam Ewing
NEFS Market Wrap-Up
18
Oil and Gas
This week, oil futures (CLF6: NYMEX) further
dropped 2.7% to $41.89 pressured by a strong
dollar and concerns over excessive global
supply. This triggered a selloff in energy US
stocks on Friday’s short session: Southern
Energy Company (SWN: NYSE) fell by 7.22%,
making it the biggest decliner among the S&P
500 stocks, while Consol Energy Inc. (CNX:
NYSE) followed closely with a decline of 6.5%.
On Wednesday, billionaire financier Andrè
Esteves was arrested under a new set of
investigation into a vast bribes-for contracts
scheme at Petrobras (PETR4: SAO). The
allegations are that former executives
conspired with construction bosses, black
market money dealers and politicians to extract
an estimated R$6bn through fraudulent
contracts. Petroleo Brasileiro SA Petrobras is
Brazil’s state-run oil giant, and with its discovery
of giant offshore oil reserves in 2007, has
transformed into one of the world’s most
promising oil companies and a symbol of a
resurgent Brazil, raising $70bn in its share
sales in 2010, one of the biggest in history.
Overall, the negative implications for the
financial sector of any association with the
Petrobras scandal were immediate, moving
Brazil’s economy on its track to one of its worst
recession since the Great Depression. The
graph below showcases the plummeting of
Petrobras’ share price since Wednesday, from
$5.58 to $4.94, an 11.5% decrease so far.
Meanwhile, the two former heads of BP and
Royal Dutch Shell, Europe’s two largest oil
companies, have argued that the two groups
failed to act fast enough to respond to the
implications of climate change for their
businesses. Their professed concern is not
matching the sweeping actions needed to
address the problem, and the consequences of
it are likely to be reflected in the stock market in
future weeks. Due to the ongoing
investigations, Petrobras was obliged to
announce that it would have to delay the
publication of its third quarter results, which will
likely have an enormous impact on the value of
the company. Morgan Stanley, for instance,
estimates the company’s assets to be slashed
by $8.1bn, while UBS put the damage estimate
to something between $10bn and $15bn.
Andrea Di Francia
Week Ending 29th November 2015
19
Retail
Analysts’ forecasts pertaining to retail equities
were this week dominated by “Black Friday”,
the ubiquitous lowering of prices for retail goods
to consumers, now commonplace for large
retail chains. Black Friday, when viewed simply
as a day of increased retail spending from
consumers, will ultimately have a tangible,
albeit small, impact on the year results of
retailers. However, Black Friday results could
potentially be viewed as an indication of holiday
season performance for retailers, and thus
could potentially have a significant impact on
retailers and their behaviour. As such, strong
sales could improve a retailer’s share price, and
weak sales could have an adverse impact.
This theory, however, disregards the plethora of
convoluted metrics which impact a retailer’s
share price and overall performance, and
overestimates the importance of Black Friday
when viewed from a stock or sector analyst’s
perspective. Whilst black Friday can, on
occasion, have a significant impact on the stock
market, with the DJIA showing a 300 point
increase in 2011 after stronger than expected
Black Friday consumer spending, analysis
indicates a very disparate depiction of black
Friday’s significance. Despite consumer
spending comprising around 60% of GDP in the
UK, financial analyst Mark Hulbert states that
Black Friday performance, when viewed in a
long term historical perspective, has absolutely
no correlation to a retailer’s performance across
the year, whether that performance be
profitability, turnover, or share price.
There are an abundance of reasons that Black
Friday is not a good indicator of overall retail
sector performance. For example, given the
prevalence of discounting throughout the
holiday period as retailers compete on price,
Black Friday will have a small impact on a
retailer’s profitability throughout the year.
Furthermore, given the arguably fickle nature of
retail sales, with intangible and unpredictable
variables such as weather affecting whether or
not consumers will travel out to stores, Black
Friday is not, by any means, indicative of the
overall strength of a retailer’s business,
especially given the changing nature of retail,
with approximately 15% year on year sales
growth online, exacerbating the impact of
“Cyber Monday “, and, by extension, lowering
the impact of black Friday.
Jack Blake
NEFS Market Wrap-Up
20
Technology
Reviewing the Technology industry this week,
we see some variation in performance levels,
with Intel Corporation perceiving a rise in share
prices by 4.1% to $34.56, whilst Hewlett-
Packard experienced a fall from $14.28 to
$12.56. This 12% drop, combined with what
has been a poor annual performance, with a
sharp yearly decline of 26.01% in share prices,
could prove disastrous for the American-based
Information Technology Company and the
confidence of its shareholders.
After reporting on the huge boost in share
prices last week, a further increase has been
spectated by Infineon Technology over this
week. The German semiconductor company
announced its recent expected fourth-quarter
income figures, with a net value predicted at
€322 million – an 80% rise on last year’s value.
Such excellent news saw Infineon’s share price
soar 15% higher on the Thursday. This success
comes down to numerous factors, with one
being the €131 million tax fillip, and another
being its €3 billion acquisition of International
Rectifier last year. This California-based
corporation operated at a greater margin than
Infineon itself, boosting the overall group’s
margin and performance. Infineon has
maintained this success throughout the year,
with share prices being up 16.9% to €13.48
from €11.20, demonstrated by the graph below
– excellent news for shareholders, with huge
prospects for further successful investments.
Reflecting upon last week’s news regarding
Google Plus, the huge tech-firm is now
revealing its plans to instigate app streaming
into its devices. Google plans to remove
barriers surrounding apps, allowing for a more
integrated service between its apps and the
World Wide Web, which in turn allows for easier
access to information from all devices. Google
went ahead with an app-streaming experiment
recently, testing the outcome of such a change,
and it was proven that such a movement would
indeed open up the possibilities of Google’s
search business, enhancing the digital world.
But this service comes at the cost of shifting
how Google’s services interact with information,
and the technological changes required may
result in the loss of consumer-valuable
features. Despite this ambitious
announcement, share prices fell from a weekly
high of $782.90 to $770 - though only a minor
drop.
These two firms continually progress their
respective equities, whilst consistently boosting
their own market capitalisation, resulting in
quality satisfaction from their shareholders with
future expectations at the highest; making
these shares definitely worth an investment.
Daniel Land
Infineon’s share prices this week
Week Ending 29th November 2015
21
Pharmaceuticals
Pharmaceuticals have remained relatively
stable this week amidst the announcement of a
historically large acquisition taking place within
the sector. The NASDAQ Biotechnology Index
rose by 1.92% and the FTSE 350
Pharmaceuticals & Biotechnology Index rose a
mere 0.13% over the course of the week.
Marking the biggest healthcare deal in history,
among an active year of mergers and
acquisitions, Pfizer announced a $160bn
takeover of Dublin-based Allergan last Monday
which (if finalised) will create the world's largest
pharmaceuticals group. Despite paying a
premium for the stock, which had a market
capitalisation of only $123bn ahead of the deal
confirmation, Pfizer's share had risen 1.1% over
the course of the week as hopeful analysts such
as Cowen & company and SunTrust upgraded
the stock due to the deal making strategic
sense. Although analysts fear that Pfizer has
undervalued its synergy cost budget (estimated
to cost $2bn) since it is likely to face significant
difficulties, they cite the increase in US to Ex-
US sales mix, from 44:56 percent to 61:39
percent as an optimistic re-enforcement that the
new firm will have considerable pricing power.
Yet, the deal is still to be completed. It is now
seeking approval from Washington - political
power plays will be an important factor. This
deal finally enables Pfizer to move its domicile
to a lower tax jurisdiction in Ireland which is
expected to cut its tax rate by roughly 7%. This
activity, which has been replicated across other
Big Pharma, confirms the importance of clever
accounting over research triumphs, as Pfizer's
clever accountant-turned-CEO Ian Read, who
strongly pushes for shareholder value, has
increased Pfizer 's share price by almost double
since his appointment.
In other news, Turing Pharmaceuticals, one of
the main reported companies accused of drug
price hikes (Daraprim increased by 5,455%),
has abandoned its price cut promise. Despite
not being a publicly traded company, this
highlights the industry’s reliance on high prices.
Yet, its competitor, Imprimis Pharmaceuticals,
which responded by offering alternative
compounded substitutes, has reported strong
earnings growth by undercutting price hikes.
Rating increases have helped its share price to
rocket by 28% in the past week as seen below.
Along with the fact that the promise of resulting
R&D growth from mergers rarely materialises,
continual market density and thus competition
shrinkage due to recent M&A is likely to
disadvantage patients in the long run. Perhaps
Pharmaceutical companies will soon feel a
wrath from the market for morphing into
marketing rather than research enterprises in
the long run, or maybe this is just becoming an
inevitable trend.
Sam Hillman
NEFS Market Wrap-Up
22
Industrials & Basic
Materials
China, the fastest growing economy in the last
decade, has seen its industrial production grow
5.6% year-on-year. This is the slowest pace
since April 2015, as a result of lower capacity
utilization in the industrial sector with weak
demand from local and foreign consumers.
The slowdown in the Chinese Industrials and
Manufacturing sector is prevalent where China
has repeatedly lowered its growth forecast over
the years.
China metal producers are finally feeling the
heat where they have requested for the
Chinese authorities to purchase surplus metal
reserves to ease pressure in the market. The
state-controlled metals industry body, China
Nonferrous Metals Industry Association,
proposed on Monday that the government
scoop up aluminium, nickel and minor metals
including cobalt and indium. The Association
had suggested that state buys 900,000 tonnes
of aluminium, 30,000 tonnes of refined nickel,
40 tonnes of indium, and 400,000 tonnes of
zinc.
While it is unclear if the authorities will agree to
the proposal, the approach underlines the
extent to which smelters in the world’s top
producer and consumer are suffering from
prices at or near multi-year lows. This also
wouldn’t be the first time something like this has
taken place - back in 2009, the authorities
purchased up to 700,000 tonnes of copper to
arrest sliding copper prices. At that time, copper
was trading at USD3000/tonne and with the
State Reserve Bureau’s help, copper prices
stabilised, and many believe that this was the
key factor in helping push prices up to
USD10000/tonne by 2011.
The direction of the State Reserve Bureau is
still unclear, as China has not been able to
consume as much metals as they produce
amidst the slowing economic growth in the
country. Metal prices are arguably in worse
shape today than in 2009. Aluminium is down
by almost 30% the past year. Nickel is at 12-
year lows, falling to USD8145/tonne this week.
The last time it dropped below this level was in
2003. Hence, it would be a large bill to foot
should the SRB step in to stabilise the market.
The share price of Aluminium Corp. of China
Limited has declined by 27.05% since March
2015 and has also underperformed the S&P500
by a whopping 27.28%. The negative earnings
of the company alongside the oversupply in the
industry will prove to be challenging times
ahead for the company.
Erwin Low
Week Ending 29th November 2015
23
COMMODITIES
Precious Metals
This week we have seen the precious metals
sector prices continue to waiver around
historically low levels. Gold prices dropped by
13USD to 1072USD/oz., flirting with its lowest
level since February 2010 on the strength of the
US Dollar. The other metals prices have also
remained low over the week. Prices are stuck in
their worse rout since July as the Federal
Reserve officials continue to raise the
expectations of an interest rate hike in
December.
The Gold prices this week have been pushed
down further from 1085.67.24 USD/oz. to
1072.10 USD/oz, as shown on the chart below.
This came after the dollar index, which
measures the currency against a basket of its
peers, was up 0.2% to 99.79%, leaving it less
than 1% below the 12-year high touched in
March. The prospects of a stronger dollar and a
deepened expectation of an interest rate
increase have sent investors fleeing from Gold
as prices of Gold continue to tumble. As I
mentioned last week, the higher the interest
rate, the lower the appeal for Gold as they lose
out to competitive assets that pay interest or
dividends such as bonds.
Silver has also continued to stay low, hovering
just above the 14USD/oz. mark, almost
reaching its lowest levels since 2009. Silver is
still considered as one of the most volatile
metals and its fluctuations tend to be large, and
follow similar trends as Gold. The strengthening
of the dollar has remained a negative on
precious metals prices as both industrial and
investor demand remain poor.
Platinum on the other hand, has a positive
outlook as analysts view it as an oversold metal.
As the prices of Platinum have hovered around
the 845USD to 850USD mark and because of
the Volkswagen scandal, prices of Platinum
have become very attractive. There would be a
substitution effect as Platinum would see
demand rise for industrial uses such as the
gasoline car market.
In other news, Palladium prices have continued
to linger around the 545USD to 550USD mark
this week as the overall outlook for Palladium
looks grim. Palladium is widely used in
production of catalytic converters for gasoline
engines.
With the strong US economic outlook, it must
be imminent that the Fed will eventually raise
the interest rates. Higher rates would mean an
increased probability of a slower growth and a
stronger US dollar coupled with a weak global
economy would be a negative for the overall
Precious Metals prices.
Samuel Tan
Gold Price
Trend
NEFS Market Wrap-Up
24
Energy
It’s been an eventful week in the energy market,
as many commodities make a strong
resurgence. Labelled as a market reaction to
the shooting down of a Russian jet by Turkish
forces, WTI and Brent Crude Oil have risen
4.0% and 1.6% respectively, while the biggest
mover came in the form of Gasoline which rose
dramatically climbing 8.5% for the week.
Oil prices climbed from Tuesday as fears of a
supply disruption after the Turkish military shot
down a Russian jet fighter along the Syrian
border. Many are therefore worried that supply
coming from Russia and the Middle East into
Europe will be halted as tensions rise between
the two nations. Although there appears to be
no clear signal of intent for war by either side,
President Putin has called the incident “a stab
in the back”. While this had a hand in the surge
in Gasoline prices, the main reason for the
increase in prices seems to stem from limited
supplies in North-eastern America ahead of
Thanksgiving, which took place on Thursday,
one of the biggest holidays of the year in the
US.
In other energy news, Natural Gas made a
surprising recovery after its heavy losses in the
previous week. Despite the US Energy
Information Administration (EIA) reporting that
US natural gas stocks increased by 9 billion
cubic feet for the week ending November 20,
prices rose 7.4% over the past seven days.
With supply increasing, the price increase can
therefore only be explained by an even greater
increase in demand. Forecasts for colder
temperatures over the coming days, released
on Monday and Wednesday, is the reason for
the demand increase according to energy-
advisory firm Gelber & Associates, stating that
“Domestic [US] weather models are calling for
a cold front to sweep through the country in the
next two days.” The graph below shows this
market reaction clearly, with a large surge on
Wednesday off the back of both the continuing
cold in the coming days and the Thanksgiving
holiday on Thursday, with many families in the
US traditionally eating (and thus heating) their
homes.
For the future, one would imagine gas prices to
fall once all the Thanksgiving festivities end. In
regards to the Oil price, the jury is still out; what
takes place between Russia and Turkey over
the coming weeks will play a role in the direction
of prices.
Harry Butterworth
Week Ending 29th November 2015
25
Agriculturals
Monday signified a turning point in the price of
cotton. While the production of cotton has
declined appreciably over the last year due to
decreased demand, the main driving force in
shifting prices back upwards is the decline in
high-quality supply.
During the period from 20th October to 20th
November, the price fell from 64.25 USD/lb to
60.05 USD/lb (a fall of 6.54%). The graph below
shows the price of cotton hitting a low point at
the end of last week, before rising 3.21% by
Wednesday, 25th November.
Pakistan, the 4th largest cotton supplier in the
world, concluded that these changes were a
consequence of heavy flooding and the
consequent harm caused by pests. The
projected amount of cotton to be produced in
2015/2016 cycle was 2325 million kilograms.
However at the moment, due to very late
sowing, the expected estimated output might be
as low as 1705 million kilograms, equivalent to
a 26.7% decline. The US Department of
Agriculture seems to be more optimistic,
forecasting a smaller drop in production – by
17%. Furthermore, the weather and pests
contributed to drastically lowered quality of the
cotton produced. It is believed that only around
40% will be of quality considered as high. Up
until mid-November, demand remained low as
the traders expected a higher supply. As this
prediction was not the case, traders rushed to
obtain more good-quality cotton..
The government of Zimbabwe has already
decided to introduce support to farmers and
initiatives for greater production. The
government is planning to spend $26 million on
distribution of necessities (such as seeds and
fertilisers) to farmers. AGRITEX, the national
agricultural extension service, is responsible for
the identification of affected farmers and
ensuring the support packages are distributed.
With regard to other commodities, soybean
prices began to pick up since 13th November
and rose from 855.25 USD/bu to 876.75
USD/bu by 27th November. Analysts concluded
that this outcome might have been influenced
by the Thanksgiving celebrations; traders
assumingly were more willing to complete
purchases beforehand. The sudden increase in
price might be well overestimated and shortly
return to the previous trend next week. Similar
comments were attributed to increased cotton
demand. According to Jordan Lea, co-owner of
Eastern Trading Company, closing a position
and having a 4-day weekend could have been
an additional short-term factor in price
fluctuations.
Goda Paulauskaite
NEFS Market Wrap-Up
26
CURRENCIES
Major Currencies
The euro remained near seven month lows
against the dollar after closing under 1.07 for
the sixth straight session. The dollar ended the
week with a three day winning streak against
the euro, having closed higher in five of the last
six trading sessions. The pair wavered between
1.0596 and 1.0683 before settling 1.0596, down
0.15% on Friday’s session.
EUR/USD gained support at 1.0591, the low
from November 23rd and was met with
resistance at 1.1096, the low from October 28th.
The euro could fall even further later next week
if the ECB's Governing Council institutes further
easing measures to stimulate the economy and
bolster inflation at its meeting in Frankfurt. Over
the last few weeks, ECB president Mario Draghi
has sent strong indications that the central bank
could increase the scope of its comprehensive
EUR 60 billion a month quantitative easing
program at the meeting. On Wednesday,
Reuters reported that the ECB could also
impose a two-tiered penalty next week for
banks that leave deposits at its facility. The
ECB's benchmark refinancing rate is at a record
low of 0.05%, while rates at the deposit facility
are already in negative territory at -0.20%.
Less than two weeks later, the Federal Open
Market Committee is expected to raise its
benchmark Federal Funds Rate for the first time
in more than nine years. The rate, which banks
charge on interbank overnight loans at the Fed,
has remained at a near-zero level since
December, 2008. The potential for sharp
divergence between monetary policies in the
US and the Eurozone has sent the dollar
soaring, as foreign investors look to pile into the
greenback in order to capitalise on
higher yields.
With volatility on the rise and many key events
ahead, the market is about to start, what could
be a historic December. After six months of
closing between 1.09 and 1.12, the pair broke
decisively to the downside and is about to post
the lowest monthly close since 2002. A
combination of more easing by the ECB and a
strong US jobs report could send EUR/USD
below 2015 lows located at 1.0460 and would
open the doors for a decline toward parity. The
pressure on EUR/USD could continue until after
the Fed’s decision when the pair could start to
stabilise.
Adam Nelson
Week Ending 29th November 2015
27
Minor Currencies
The Swiss Franc has been weakening long
term; the trend began in mid-October when
Mario Draghi committed the ECB to considering
further QE at their next monetary policy meeting
in December. This does not explicitly affect the
Franc, but because the EU is Switzerland’s
largest trading partner, the Swiss National bank
will need to take action to weaken their currency
to keep their exports competitive. This caused
the USD/CHF to rise significantly in mid-
October and break through the 0.980
resistance level, which had previously been
proven strong when the pair bounced off the
price multiple times in August and September.
Once the price was broken, a trend began
(highlighted in the graph below) averaging an
increase of 13 pips per day. This uptrend made
surprisingly swift work of the 1.000 price, which
one would have thought would have produced
substantial psychological resistance. Prices for
this pair haven’t reached this range in over 5
years, and so there is some uncertainty among
currency traders as what positions they should
be taking or where the significant price levels
will be. However, given the imminent rate hike
from the Fed, and with the Swiss National Bank
giving further considerations to actions they can
take to weaken the Franc, we can expect the
trend in USD/CHF to continue into the
foreseeable future.
The Australian dollar had an up and down week
against its US counterpart. The currency briefly
broke its October high but unfortunately for the
Aussie the gains were lost later on, ending the
week roughly even. However, against the Euro
and Pound Sterling the Aussie pushed forward.
General feeling around the Reserve Bank of
Australia has been negative in recent weeks,
but better than expected unemployment data
has meant odds of further RBA rates cuts have
lengthened. The ECB’s and the BoE’s recent
dovish behaviour has made speculators prefer
Aussie dollar in trading, gaining 0.5% against
GBP and 0.4% against EUR this week. The
coming week could bring some change in
sentiment around the Aussie dollar, if figures for
trade balance and quarterly growth are different
to forecasts.
Will Norcliffe-Brown
USD/CHF 1 day candlestick (Source: OANDA)
NEFS Market Wrap-Up
28
The Research Division was formed in early 2011 and is a part of the Nottingham Economics and Finance Society (NEFS, formerly known as NFS and UNIS). It consists of teams of analysts closely monitoring particular markets and providing insights into their developments, digested in our NEFS Weekly Market Wrap-Up. The goal of the division is both the development of the analysts’ writing skills and market knowledge, as well as providing NEFS members with quality analysis, keeping them up to date with the most important financial news. We would appreciate any feedback you may have as we strive to grow the quality and usefulness of weekly market wrap-ups.
For any queries, please contact Josh Martin at [email protected]. Sincerely Yours, Josh Martin, Director of the Nottingham Economics & Finance Society Research Division
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About the Research Division The Research Division was formed in early 2011 and is a part of the Nottingham Economics and Finance Society (NEFS, formerly known as NFS and UNIS). It consists of teams of analysts closely monitoring particular markets and providing insights into their developments, digested in our NEFS Weekly Market Wrap-Up. The goal of the division is both the development of the analysts’ writing skills and market knowledge, as well as providing NEFS members with quality analysis, keeping them up to date with the most important financial news. We would appreciate any feedback you may have as we strive to grow the quality and usefulness of weekly market wrap-ups. For any queries, please contact Jack Millar at [email protected] Sincerely Yours, Jack Millar, Director of the Nottingham Economics & Finance Society Research Division