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Week Ending 1st November 2015
1
NEFS Research Division Presents:
The Weekly Market
Wrap-Up
NEFS Market Wrap-Up
2
Contents Macro Review 3
Eurozone United Kingdom
United States Japan
Australia & New Zealand Canada
Emerging Markets
10
China India
Russia and Eastern Europe Latin America
Africa South East Asia
Middle East
Equities
17
Retail Financials Oil & Gas
Technology Pharmaceuticals
Industrials & Basic Materials
Commodities
Energy Precious Metals
Agriculturals
23
Currencies 26
EUR, USD, GBP AUD, JPY & Other Asian
Week Ending 1st November 2015
3
THE WEEK IN BRIEF
Interest rate cut for
China
Following last week’s news that economic
growth for China fell below 7% for the first time
since 2009, the People’s Bank of China chose
to cut interest rates for the sixth time in the last
year. The Chinese government have set a goal
to maintain economic growth above 7%, and so
the interest rate cut is hardly surprising given
last week’s growth figures. Yet, as China’s
economy becomes more developed, lower
growth rates are inevitable, as diminishing
returns to investment set in. Perhaps this
prompted Premier Li Keqiang to admit that this
goal may be unrealistic this week.
Mixed fortunes for
Equities
On the whole, this has been a rocky week for
many firms’ shareholders. Coal producers have
suffered, with falling share prices amid falling
global demand, whilst fears of growing
fraudulent practices within have caused share
price falls within the Pharmaceutical sector.
Moreover, with low US consumer spending, the
Retail sector is continuing to struggle as the
Christmas holiday season fast approaches.
Indeed, the coming two months will be crucial
for the sector. One notable exception to this
trend is the price of Apple’s shares, which rose
sharply at the end of last week, and have
continued to rise throughout this week.
Slowing growth in the
US and Canada
This week we learned that US GDP growth fell
to 1.5% in the third quarter of 2015, down from
3.9% in the previous quarter. This news was
preceded by the Fed Reserve’s decision to
keep interest rates held at their current level at
this week’s meeting, but surprised many, by
suggesting that interest rates could rise as early
as December. This prompted a significant fall in
the price of gold this week, as well as causing a
further fall in the EUR/USD. The Fed’s
confidence in the domestic strength of the US
economy is reassuring – perhaps the slowing
growth in Q3 is merely a blip in the recovery of
economy, which has been showing increased
strength in recent times. Meanwhile, growth in
Canada is also dwindling, as the economy
narrowly sustaining positive GDP growth in the
third quarter. With 0.1% expansion for the
period, the Bank of Canada also chose to hold
interest rates at the same level, which have now
stood at 0.5% since 2011.
Jack Millar
NEFS Market Wrap-Up
4
MACROREVIEW
Eurozone
The unemployment rate of the Eurozone, as
measured by the number of people who are
actively looking for work as a percentage of the
workforce, was released by Eurostat this week.
The level of unemployment within the 19
countries of the Euro area fell slightly from 10.9
in September 2015 to 10.8% this month, as you
can see on the graph below that illustrates
unemployment rate over the past year. This is
the lowest the unemployment has been since
January 2012. Unemployment had been
forecasted to rise to 11.0%, so this news came
as a pleasant surprise for many.
More specifically, the country with the lowest
level of unemployment within the Euro area was
Germany, who recorded a low unemployment
rate of 4.5%. The largest decrease in the
unemployment rate was in Spain where the
unemployment rate fell from 24% to 21.4%, a
decline of 2.6%. It is of importance to note that
not all countries experienced a fall in the level
of unemployment in their economy. In France
for example, the unemployment rate increased
from 10.4 to 10.7. However the overall
downward trend of unemployment is promising,
hinting at a strengthening of the Eurozone’s
economy.
In other news, the forecasted inflation rate for
October 2015 has been published. The level of
inflation amongst countries within the Eurozone
is calculated using the Harmonised Index of
Consumer Prices (HICP). It has been reported
that the level of inflation in October 2015 will be
0% - it is expected that there will be no change
in average prices overall. We can compare this
to the inflation rate from September 2015 which
was -0.1%, so the Euro area is no longer
experiencing negative inflation. However, the
change in the inflation rate between September
and October 2015 has only been small, and
inflation is still well below the ECB’s target of
2%. Energy costs for consumers fell by 8.7%.
According to the forecast for ‘core inflation’,
which excludes energy prices, consumer prices
in the 19 countries of the Eurozone are forecast
to have risen by 1.0% for October.
Kelly Wiles
Week Ending 1st November 2015
5
United Kingdom
Contractions in manufacturing and construction
this week present a further strain to the
rebalance of the economy. GDP growth for the
third quarter has slowed to 0.5%, down from
0.7% in the previous quarter. The
manufacturing sector has now had three
consecutive quarters of contraction, falling by
0.5%. In addition construction output fell by
2.2%, its biggest fall in three years. Weakening
demand from emerging nations have been
exacerbated by the strong pound to weaken an
already fragile sector. This goes against
government’s pledge to rebalance the economy
away from its reliance on household spending.
Indeed of all the main sectors of the economy –
services, manufacturing, construction – only
services has surpassed its pre-crisis levels.
However manufacturing and construction only
account for a quarter of the UK economy. The
dominant service sector, making up nearly
three quarters of GDP, has grown by 0.7%.
Boosts in the retail and finance sector have
solely driven the economy this quarter. The
concern with this is that, following the
recession, economic growth has been heavily
dependent on domestic consumption.
Consumer spending continues to steer the
economy, as illustrated below, with zero
inflation and real wage growth continuing to
support further spending. While this spells good
news for the general economic outlook, not all
areas of the economy are benefitting equally.
This week’s figures are likely to delay any
interest rate rise as it presents doubts to
whether the economy, now completely
dependent on the service sector, will be able to
support a rise, especially in the long run.
Nevertheless it does mark the 11th consecutive
quarter of growth and the GDP is set to grow at
an annualised rate of 2.6%.
In other news this week the US has stated it
would not be interested in a trade agreement
with a single nation like the UK. The US has
openly expressed desire for UK to remain within
the EU and have stated that the UK will then be
subject to tariffs and lose out on any benefit
from trade talks. This follows talks of a
proposed free trade agreement between the US
and Europe, known as Transatlantic Trade and
Investment Partnership (TTIP). This aims to
eliminate the majority of tariffs and trade
barriers between the two continents, following
similar agreements between emerging nations.
This is a major blow to the “out” campaign, as
one of its key arguments was that leaving the
EU will allow Britain it to negotiate its own trade
agreements with the likes of the US.
Matteo Graziosi
NEFS Market Wrap-Up
6
United States
The big economic headlines in the US this week
concerned third quarter GDP growth falling
sharply and the Fed keeping interests rates
close to zero.
Real GDP fell from an annualised 3.9% to 1.5%
in the July-September period. This was mainly
due to a fall in inventory accumulation by
companies, contributing to 1.4% of the drop.
Nevertheless, the GDP headline is not
indicative of solid consumer and business
spending in the US. GDP, excluding the trade
and inventory categories, rose at an annualised
rate of 2.9% compared with last quarter’s 3.7%
figure. Household purchases, which account for
70% of the US economy, rose at an annualised
3.2%. The economy is expanding at a
“moderate” pace according to the Federal
Reserve.
Earlier this week, the Federal Reserve left
interest rates unchanged within the 0-0.25%
target range. It presented a hawkish statement
stating that it will consider a rate hike at its
December 15-16 meeting. The markets have
priced in a 50:50 chance of a rate hike in
December, possibly what the Fed was hoping
for in case data presented at the next meeting
does merit a rate rise. From the Fed’s
perspective, the loosening of monetary policy
by the European Central Bank and the People’s
Bank of China is positive as it contributes to
global growth. However, there are ramifications
for the US dollar. Furthermore, The Fed will be
relieved that the Senate passed a bill raising the
debt ceiling for the last time during Barack
Obama’s presidency, eliminating risk of a
government shutdown or fiscal crisis in
December.
Robust domestic spending and weakening
global growth leaves the Fed with a dilemma.
According to Janet Yellen, the head of the
Federal Reserve, the decision to raise rates will
depend significantly on the status of the labour
market. Next week we have data on the US
unemployment rate for the month of October.
Unemployment data is a key metric in the Fed’s
decision-making process. The unemployment
rate is currently at 5.1% with policymakers
estimating full employment at an
unemployment rate of 4.9%. We also have data
on the US trade balance which should
demonstrate the consequences of the strength
of the dollar, as exports become more
expensive and imports cheaper, and
weakening global growth, lowering exports.
Sai Ming Liew
Week Ending 1st November 2015
7
Japan
Last Friday, after much anticipation and
uncertainty from economists, the Bank of Japan
(BoJ) decided to keep monetary policy
unchanged. Governor Kuroda announced that
the pace of government bond purchases in the
economy will continue at a rate of ¥80tn per
annum, signalling the Bank’s continued
confidence in the current momentum of the
economy to achieve its inflation target. The final
decision came despite the BoJ simultaneously
slashing inflation and economic growth
forecasts for the year to 0.1% and 1.2%,
respectively.
Core inflation data for September, which
excludes food prices, showed that prices fell by
0.1% compared to the previous year. This
marks the second consecutive fall in the core
consumer price index (as shown on the graph
below) which has yet again faced downward
pressure from oil prices falls. In light of this the
central bank also announced it will delay
achieving the 2% inflation target by 6 months to
March 2017, a goal many analysts still consider
to be too optimistic.
Japan’s labour market conditions continue to
remain tight, with the unemployment rate
announced this week remaining at the expected
3.4% rate, as well as a slight rise in the
participation rate to 60.2%. The latest job-
applicant ratio of 1.24 jobs for each jobseeker
indicates the nation may be at full employment.
In theory, this would induce a wage-price spiral
and increase inflation. However, with many
firms hiring part-time workers to minimise
additional labour costs, wage growth has been
slow in a time when many companies are
seeing record profits.
Unexpected output growth in the manufacturing
sector confirmed this week has reduced the
likelihood of Japan falling into technical
recession, but has also been overshadowed by
lacklustre household spending data released
on Thursday. Latest figures show that
consumer expenditure fell by 0.4%, much lower
than the anticipated 1.2% growth in household
spending. It remains clear that boosting weak
consumer confidence continues to be key in
reflating the economy. In this respect,
Abenomics so far has been unsuccessful, and
is losing credibility quickly.
The mixed signals in economic data this week,
have become typical for Japan, and continues
to make it difficult to assess the sustainability of
its recovery. The speculation surrounding
central bank action – expected as soon as mid-
November – however, remains strong and kept
alive by recent BoJ hints at reactive action in
the future.
Loy Chen
NEFS Market Wrap-Up
8
Australia & New
Zealand
A lower than expected CPI rate may be just
what is needed to prompt the RBA to raise the
cash rate. On 27th October, CPI, forecasted at
0.7% for the third quarter of 2015, came in
below expectations at 0.5%. The rate predicted
over the year also failed to meet expectations,
coming in at 1.5% instead of the 1.7%
forecasted.
Causes of the change include significant
reductions in prices of vegetables,
telecommunication equipment and services,
and automotive fuel by -5.9%, -2.0% and -1.7%
respectively. These changes offset jumps in the
prices of international holiday travel and
accommodation (4.6%), fruit (8.2%) and
property rates and charges (4.6%).
What does this mean for Australia’s all time low
cash rates? “The number (CPI) is much lower
than expected and presents absolute no
obstacle for the Reserve Bank of Australia to
lower rates,” said senior trader, Stephen Innes,
of the OANDS Australia and Asia Pacific. The
RBA was already contemplating lowering rates
in order to counter the recent increase of
variable rates by “The Big Four” which notably
lowered consumer confidence. It is therefore no
surprise that the news of lower CPI raised
speculation over a further reduction, especially
as Australia is far from its 2-3 percent CPI
target.
Elsewhere, New Zealand’s trade deficit
increased from NZD 1079 million in November
to NZD 1222 million, as shown by the graph
below, much larger than the NZD 822 million
forecast. Since July, when the nation
experienced its first monthly trade deficit of
2015 and its biggest 12 month deficit in six
years, New Zealand has continued to witness a
rise in the trade deficit over the preceding
months.
New Zealand is heavily dependent on
international trade and is famous for exporting
agricultural goods, due to its efficient operations
in meat, dairy product, fruits and vegetables,
fish and wool. The country relies on importing
physical capital such as machinery and
equipment as well as vehicles, aircrafts, textiles
and plastic. This month exports fell by 8.3%
(seasonally adjusted) with dairy exports falling
by 12%. This was enough to offset the rise in
exports of meat, wool and oil exports, while
imports of petroleum, machinery and
electronics remained strong.
Despite the monthly fall, the trade gap is
actually smaller now than it was at the same
point in 2014 (NZD 1350 million). Over this time,
imports have fallen by 1.3% as transport
equipment fell 55%, (led by aircraft imports) and
exports have risen over the year by 2.0%,
mainly led by beef.
Meera Jadeja
Week Ending 1st November 2015
9
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-0.1
0
0.1
0.2
0.3
0.4
0.5
Sep-14 Oct-14 Nov-14 Dec-14 Jan-15 Feb-15 Mar-15 Apr-15 May-15 Jun-15 Jul-15 Aug-15
Canada GDP ratePer cent
Canada
Latest figures reveal that Canada has just about
managed to sustain positive economic, with a
GDP rate of 0.1% in August, as shown in the
chart below. Although this matched
economist’s expectations, there is a risk of
growth falling negative, particularly as
Canada’s economy is still delicate, recovering
from recession.
The Bank of Canada’s overnight rate of interest,
known as its key policy rate, has been at its
lowest level since 2011. Last week the Bank of
Canada’s Governing Council made the decision
to hold the rate at 0.5%. Justin Trudeau, the
new Prime Minister, plans to take advantage of
this by increasing government expenditure on
infrastructure. Although this would increase the
country’s budget deficit over the next three
years, the aim is to boost growth and to also
increase employment, with Canada’s
unemployment rate having increased over the
past year to 7.1% in September. Targeted
areas for investment include social
infrastructure, public transport, and green
projects such as clean energy. Trudeau also
plans to adjust income tax thresholds to make it
more progressive. Expansionary fiscal policy
could help to stimulate growth both in the short-
and long-run, and this also means that further
interest rate cuts may not be needed.
Nonetheless, high level policy decisions may
not be sufficient to revive Canada’s economy.
The Bank of Canada’s Autumn Business
Outlook Survey reveals that more needs to be
done. A key message from the survey is that
there is a heavy reliance on foreign demand.
The bulk of companies reported that they
expected to see an increase in sales due to the
improving US economy, and that they expected
very little from domestic demand. At the time
the survey was carried out, US GDP had
sharply increased from 0.6% to 3.9% from Q1
to Q2 this year. However this week’s figures
reveal that US GDP growth dropped to 1.5% in
Q3. Although this is likely to be temporary and
growth is expected to pick up in Q4, it highlights
the variability of Canadian business’
expectations and hence the volatility of
Canadian economic growth. Furthermore,
prospects for resource based sectors are likely
to remain subdued, as weaker commodity
prices is an external headwind which Canada is
yet to adjust to.
Shamima Manzoor
NEFS Market Wrap-Up
10
EMERGING MARKETS
China
At the end of last week, the People’s Bank of
China (PBOC) cut the interest rates for the sixth
time in the last twelve months to support the
economy, after growth slowed down to under
7%. Chinese Premier Li Keqiang said
afterwards that China’s government won’t
“defend to the death” its goal of an annual
growth of 7% - just before the Communist Party
gathered to discuss the 13th five-year-plan on
Monday. However, while some Western
newspapers already claimed China would join
the Quantitative Easing policy, the PBOC states
that the latest rate cuts were “conventional and
normal monetary policy measures”, as such
cuts could help boosting the real economy by
lowering financing costs for enterprises and
providing incentives for higher consumption.
However, while the Chinese Central Committee
held their meeting this week, one change has
been announced already. After three decades,
China’s government finally decided to abandon
the One-Child-Policy and to allow each family
to have two children. This policy was introduced
in 1979 to stop the high population growth
which could have led to overpopulation and
food shortage. Amid an emerging demographic
change that China is undergoing, loosening one
of the most notorious interferences into
Chinese lives seems logical for a few reasons.
Firstly, the One-Child-Policy led to social and
demographic problems as a dismal male
female ratio and an aging population, which
eventually leads to higher healthcare costs.
Traditionally, Chinese parents stay with their
children when they get old, which puts
enormous pressure on the individual as it has
to pay for the living costs of at least three
people. Secondly, China has begun to lose its
comparative advantage in the production of
labour-intensive commodities as it has
transitioned towards becoming a middle-
income economy. Yet a higher birth rate, which
is expected to follow the relaxation of the policy,
leads to a larger pool of cheap labour as wages
will eventually drop in the face of bigger supply
of workforce. The projection for Chinese
population composition and growth is shown on
the graph below.
Additionally, a higher birth rate will eventually
enliven domestic consumption. Professor Liang
Jianzhang states that domestic consumption
could grow to RMB75 billion. In fact, the
producers of baby products could register a
small upturn in sales very quickly. C&C Paper,
a diaper manufacturer, and Beingmate, a
company producing baby food, could note rises
of 10 % each at the Shenzhen Stock Exchange.
However, even an average of two children per
family would hardly meet the replacement rate
of China, which lies at 2.1. Therefore, the fear
of enormous population growth in China is
highly unrealistic.
Alexander Baxmmann
Week Ending 1st November 2015
11
India
In a report released on Thursday, India Ratings
and Research (Ind-Ra) revised downwards its
forecast for GDP growth, expecting India’s
economy to now grow by 7.5% during the 2016
fiscal year instead of by 7.7%. The primary
cause of this has been cited as weak
agricultural growth as a result of a disappointing
monsoon season. However the report is more
positive about other sectors, suggesting that a
surge in investment will support growth instead.
Despite the agricultural sector becoming more
resilient to monsoon shocks, a large number of
producers are still dependent on rains which
has resulted in sluggish growth for the sector,
predicted at 0.9% for this fiscal year. Growth will
instead be led by the industrial sector with Ind-
Ra expecting growth at 6.8% this year, 0.2
percentage points higher than its earlier
forecast. This revival has been supported by a
fall in the interest and inflation rate, coupled with
early signs of recovery in the investment-
consumption cycle. The RBI lowered the
interest rate just last month by an unexpected
50 basis points, the fourth adjustment this year,
and the rate now stands at 6.75%. Although this
has played a role in encouraging investment,
India Ratings believes that the central bank has
almost ‘shut the door on further rate cuts’, which
has led to them predicting that the average 10
year yield will be traded in the range of 7.2-
7.3%. Further cuts in the interest rate actually
seem likely, although it is doubtful that they will
be anywhere near as sizeable as this year.
The inflation rate was recorded at 4.41% in
September and as the figure below shows,
which is a lot lower than in September 2014,
when prices increased by 5.63%. This was
surely a satisfying figure for Raghuram Rajan,
Governor of the RBI, who has previously stated
that his main objective is to control inflation. The
steadying rate is correlated with soft global
commodity prices, including that of oil, along
with the government’s commitment to lowering
its fiscal deficit. Ind-Ra expects inflation to
remain ‘benign’ for the rest of the year and is
also positive that the 2016 deficit target of 3.9%
is achievable. Data released on Friday shows
that the fiscal deficit has already reached 68%
of the year’s target but this reflects that
spending is typically front loaded while
revenues peak late in the year.
Homairah Ginwalla
ERGI
NEFS Market Wrap-Up
12
Russia and Eastern
Europe
Any form of hope for the Russian economy that
was conveyed at the end of last week’s article
has been promptly quashed this week with
Anton Siluanov’s concern over still-declining oil
prices.
The Russian Finance Minister announced this
week his predictions that Russia’s reserve fund
will fall by 2.6 trillion Ruble by the end of the
year. To put that in perspective, the fund was
valued at ₽4.67 trillion and, thus, the fall will
represent more than half of it. Undoubtedly, this
would pose a threat to Russia – depriving them
of the safety that a large reserve fund has
afforded them thus far. Siluanov recognises this
threat, admitting to parliament this week that
“we lose stability without reserves”.
It is no mystery where this prediction is coming
from. The global slump in oil prices has hit
Russia hard, with the economy struggling to
foster growth elsewhere (the graph below
shows how Russian exports have been affected
recently). Previously, Russia has enjoyed its
spot as one of the largest economies,
accumulating its budget revenues from the
production and subsequent exportation of oil
and natural gas; this in turn has been used to
cover any shortfall. The forever slipping oil
prices – now at just under $50/barrel – then
alienate Russia of any method to cover the
shortfalls and leaves no other option but to dip
into the reserve fund.
The real issue here is that constantly dipping
into the fund is simply not sustainable. Siluanov
announced this week that Russia had spent ₽
402.2 bn of reserve fund money on covering the
deficit this month; this is 2 times the amount
spent in July and August combined. Reserve
funds were also used to buy foreign currency in
May to prevent the Ruble strengthening against
the dollar – to little effect there as the currency
continued to fall to its present level at 63.9 to
the dollar.
This news only further pressures Russia and
has sparked a wide range of forecasts and
predictions from analysts. Former deputy
energy minister Vladmir Milov has gone so far
as to say that the crisis facing Russia is much
deeper and much longer-term than the 1998
crash which was massively helped by a
devaluing Ruble, boosting exports and leading
to a quick recovery. This time, however, real
wages are down 10%, only 0.3% growth is
predicted in the third quarter of 2016 and
consumers are starting to see a decline in living
standards.
While the Ruble is devaluing this time too, it is
doing little to help improve the economic
situation which, to put bluntly, is pretty dire for
Russia and Eastern Europe.
Tom Dooner
Week Ending 1st November 2015
13
Latin America
It’s all to play for in Argentina’s Presidential
election. This may come as a shock to some,
as at the beginning of campaigning Daniel
Scioli of the centre left Peronist Party,
successor to the incumbent President
Fernandez was set to be a clear winner. The
opinion poll of first-round voting intentions
published in the newspaper ‘Página 12’ on 25
September put Daniel Scioli first (on 41.6%)
and Mauricio Macri in second place (on 29.2%).
Even in the exit polls Mr Scioli looked set to
edge over the finish line. In order to win outright
in the first round, a candidate needed 45% of
the vote or a minimum of 40% as well as a 10-
point lead over the nearest rival. However
neither Mr Scioli nor the next best contender Mr
Macri of the Centre Right Republican Proposal
Party could achieve the outright win in the first
round.
The run-off election on the 22nd November will
be the first time an Argentine election will be
decided by a second round. Such political
turmoil is not what the country needs at this
moment in time. Although Argentina is the third-
largest economy in Latin America, growth has
slowed in recent years, with GDP growing by
only 0.5% last year. Further downsides to their
current economic woes are that the IMF has
predicted that the economy will shrink by 0.7%
in 2016, although of course this is disputed by
the Argentinean Government. Further clashes
with significant organisations have occurred in
recent years as the ‘official’ level of inflation
announced by the government is 14.5%, yet in
2014 the World Bank calculated the economy’s
inflation at 28.2%. It seems astonishing that in
a one year period that inflation could have
dropped by 13.7%. (The graph below shows the
disputed inflation figures, as produced by
INDEC).
This situation is all the more worrying for
Argentina as the high level of inflation has come
as a result of pervious miss-management short
term economic policy, rather than being caused
by strong demand from consumers. So I think
fair to say whoever wins the Presidential
election is set to face significant economic
problems.
The uncertain outlook for the future of
Argentina’s economy may be here to stay.
President Fernandez is set to stand down from
the post on the 10th December, and it will be
interesting to see how the election plays out. In
my opinion, Mr Macri could just edge it if he can
gain the support of Sergio Massa (third place
and ex-Peronista).
Max Brewer
NEFS Market Wrap-Up
14
Africa
This week the African Standby Force (ASF)
went through its final joint exercise in the South
African bush, comprised of the united efforts of
5,400 African soldiers. Seen as one of the most
ambitious military unions in history, 25,000
African troops will be deployed across the
continent from January 2016. The aims of the
ASF, as envisioned by African leaders over a
decade ago, is to unite the continent with one
military force and reduce Africa’s reliance on
Western nations by handling border disputes,
rebellions and genocide threats with an internal
force. However the ASF still faces difficulties. It
requires all 54 members to dispatch troops
exactly when they are needed. It also requires
adequate funding. £650million is still needed for
the next few years before Africa can find it itself.
European economists however predict that if
the ASF is successful, Western powers will be
able to minimise external involvement and
instead invest the money elsewhere. A stable
Africa will increase the likelihood of
democratisation, leading to greater trade
prospects and global economic growth.
Additionally, investment into a large military will
be greatly beneficial for the continent, in
generating GDP and providing jobs for
unemployed young men.
In a recent India-Africa summit, India made
clear its intention to deepen political and
economic partnerships with over 40 African
countries by pledging $10 billion to support
Africa’s development. This will hopefully
encourage trade between Africa and India, from
which both can benefit greatly. Whilst many
applaud India, others suggest that it is merely
trying to compete with China, which has
ploughed billions of dollars into the African
economy, and whose trade with Africa numbers
$200 billion. However politically, India and
Africa are both very keen to reform the UN, in
regards to fairer trade laws and the Security
Council.
There has been a large amount of optimism
about the recent Tanzanian elections, which
saw John Magufuli (CCM party) come to power.
A former farmer known as ‘The Bulldozer’, he is
popular for building numerous roads across the
country, amongst other infrastructural projects.
He has spent many years fighting corruption,
particularly in the police force, and will focus his
presidency on reducing unemployment and
fighting power shortages. Overall many view his
victory as a long-term economic success for the
historically peaceful country.
Charlotte Alder
Week Ending 1st November 2015
15
South East Asia
In recent times, Indonesia, South East Asia’s
largest economy, has been notorious for its
strict protectionist policies, which refers to high
levels of quotas and tariffs on imports from
other countries. As of October 2015,
Indonesian President Joko Widodo fears
Indonesia will be left behind and has declared
his intention to join the TPP (Trans-Pacific
Partnership), a proposed trade agreement
consisting of countries such as Singapore and
the US, which seeks to promote economic
growth and living standards.
The turnaround comes after the central bank of
Indonesia cut its 2016 forecast GDP growth for
the second time this year and now expects
yearly growth of 5.2%-5.6%, with Trading
Economics predicting that the slowdown could
be far greater, estimating that growth could
reach a decade low of 4.1% in 2016, shown in
the graph below. President Widodo, who took
power a year ago amid promises of change, has
certainly stumbled in recent months, and joining
the TPP will certainly give the citizens of
Indonesia greater optimism for their future
economy.
To date in 2015, Indonesia retained its top-
three position in Asian manufacturing behind
China and Vietnam. Competition in enticing
multinationals to set up in Asian countries more
quickly than ever before; Indonesia received
155 foreign direct investment (FDI) projects last
year in comparison to a staggering 241 FDI
projects for Vietnam, who are proving to be one
of the world’s best performing FDI locations
recently.
However, Indonesia must consider which
countries will be their major trading partners in
the future. In particular, Mr Widodo’s trip to
Washington has been in the public eye, after it
was announced in September that the US was
the leading destination for non-oil and gas
exports, with trade of 1.28bn, overtaking China.
On the other hand, there have been signs
Indonesia will put China as their driving force to
revive growth, after they put Japanese
investors to one side and agreed a $5 billion
contract for a high speed rail link to China. With
their five year economic plan and released
estimated figures of 7% growth, China seems
to be a world leader missing in the TPP, so
whether this trade deal will be enough to pick
up the slack, is questionable.
Alex Lam
NEFS Market Wrap-Up
16
Middle East
This week started off with Klaus Schwab
unveiling the 2015 global summit of the World
Economic Forum in Abu Dhabi. He predicted
the imminent fourth industrial revolution, urging
an enthusiastic audience at Abu Dhabi to show
agility and entrepreneurship to survive the
changes coming.
The downward trend of oil prices has
complicated matters for the GCC countries.
Though the current low oil price environment
has posed strategic challenges, it has also
provided opportunities. The key challenge lies
in rebalancing government spending to match a
lower oil price. Regional governments need to
continue to spend on development projects and
infrastructure, however the reality of lower oil
revenue needs to be aligned with lower
government spending and increased non-oil
GDP growth. Several of the major Arabian Gulf
oil producers have slashed their November
prices for Asian buyers in response to a
weakening prompt crude demand and as
competition in an oversupplied market heats
up. In one clear sign of stiffening competition,
Kuwait, Iraq and Iran all cut their official selling
prices by steeper amounts than Saudi Arabia.
In the UAE, business borrowers are steeled for
a tough year ahead following a slew of warnings
from banks over a looming credit squeeze. As
the funding pool shrinks small firms are already
struggling. The reduction of government
deposits in regional banks is drying up the
liquidity normally available to businesses, thus
a tighter credit environment is affecting their
small business sector.
Kuwait’s ruler phoned officials in the oil-rich
state to seek alternative revenue sources and
reduce public expenditure after state income
dropped 60 per cent due to a sharp slide in
crude prices, while spending remained the
same without any reduction leading to huge
deficits. Falling prices of oil has reduced
Oman’s government’s revenues, causing a
deficit over the first 8 months as compared to
last year's surplus. Nevertheless, the executive
president of the Central Bank of Oman told the
Reuters Summit that Oman will continue to
invest in strengthening its economy.
Tarek Amer, Egypt’s elected central bank
governor takes up his post amidst another flare-
up of the country’s never-ending currency
crisis. As the chairman of NBE, he entirely
covered NBE’s provisions for non-performing
loans and almost tripled net income. It is to be
seen if he can turn the economic tide of the
country in the new political arena and prepare
for the approaching fourth industrial revolution.
Sreya Ram
RKETS
Week Ending 1st November 2015
17
EQUITIES
Retail
Diminishing levels of consumer expenditure
growth, compounded by the apparent
disconnect between falling oil prices and
increased consumer spending, resulted in a
bleak outlook for retail equities this week. This
comes at a particularly tumultuous time for the
sector, given the ongoing concern following
Walmart’s disappointing predictions for the
coming years.
According to the US commerce department,
consumer spending has remained almost flat in
the month of September, rising only 0.1%, less
than the 0.2 % expected from analysts. As a
result, retail stocks have floundered. The low
inflation environment currently being
experienced by Western economies has
resulted in what Citigroup analysts have
dubbed a “ stormy time “ for the sector, which is
likely to experience continued fluctuations in the
coming months due to the holiday season.
The increase in consumer spending from the
holiday season may not, however, be enough
to ameliorate the fall across the consumer
sector following the aforementioned Walmart
fiasco. At the time of writing, Walmart shares
are down 14% following their revised
predictions, with target and Best-Buy down 4%
and 6% respectively. Whilst, in all actuality,
Walmart’s weaker than expected predictions for
2017-18 have little bearing on the viability of the
company as a whole, this does not necessarily
mean that Walmart, or the retail sector as a
whole, offers value for prospective investors.
This view is largely contingent on an analysis of
the Earnings Before Interest and Tax (EBIT)
ratios of leading retailers, which may not be
achievable in coming years for a number of
reasons. According to analyst Seth Sigman of
JP Morgan, modern retailers face a
considerable number of cost pressures on their
business, as perfectly exemplified by Walmart,
Amazon, and Nike (WAN). WAN, like an
abundance of other retailers, have been
investing heavily in order to retain a competitive
edge in a tough market, with billions having
been ploughed into schemes such as employee
training and online modernisation.
As such, with downwards pressure on margins,
a flat economy which displays little to no
inflation, and the failure of lower commodity
prices to translate into retail sales growth, the
outlook for retail equities remains bleak.
Jack Blake
NEFS Market Wrap-Up
18
Oil and Gas
Oil prices closed higher on Friday after the US
oil rig count fell for a ninth straight week,
indicating crude production could decline in
coming months. In the latest session, Brent
crude (LCOZ5: ICE EU) was up $1.05 at $49.85
a barrel. West Texas Intermediate crude
(CLZ5: NYMEX) closed up 56 cents at $46.59
a barrel, posting its first positive weekly gain in
three. Other energy’s equities have also shown
similar gains, as shown below.
However, The FTSE 100 oil and gas group on
Friday capped a difficult week for Europe’s
biggest energy companies, reporting a sharp
decline in underlying earnings during the third
quarter, following crude’s collapse.
The slide in oil prices since June last year, from
a peak of $115 a barrel to less than $50 now,
has battered revenues and profits across the
energy industry, with US and European
companies this week all reporting steep falls in
profits or losses for the third quarter.
Royal Dutch Shell (RDSA:LSE), decided to axe
a Canadian oil sand project this week, one that
was already well under way; the sites were
being cleared, major equipment procured,
accommodation for staff was being build and
work was being started on wells. But Shell is not
alone - it might have made the biggest U-turn
on a new project since the market rout, but the
oil slump has been brutal to companies around
the world, forcing them to slash spending, lay
off employees and delay projects. Eni SpA
(ENI: MIL), Italy’s largest oil producer, also
reported a net loss for the third quarter on
Thursday. France’s Total SA (FP:PAR) posted
a profit of $1.08 billion, 69% lower than a year
earlier, as rising oil and gas production and
growing profits from its refining operations
helped to offset the slump in crude prices.
Amid the oil price rout, however, there are two
US oil and gas groups whose earnings have
exceed analysts’ expectations. ExxonMobil
(XON: NYQ) and Chevron (CVX: NYQ) on
Friday reported big falls in third-quarter profits,
with Chevron’s earnings per share for the third
quarter down 63% at $1.09, compared with a
47% drop at Exxon to $1.01. But this still came
as a surprise, as Analysts on average had
expected a profit of 89 cents per share for
Exxon, according to Thomson Reuters I/B/E/S.
They have been the only winners this week - in
New York, Chevron’s shares rose 1.1% to
$90.88 and Exxon’s shares were up 0.62 per
cent at $82.74.
Andrea Di Francia
Week Ending 1st November 2015
19
Financials
This week saw many financial institutions
release their third quarter results, including
three of the UK’s “big four” retail banks. Most
notably, the newly announced CEO of Barclays,
Jes Stanley, will face a challenge as the bank
reported a fall in pre-tax profits of 10% to £1.4bn
causing the share price to fall 7.5% on
Thursday. In the USA, the NASDAQ Financial
100 index reacted positively to the news that the
Fed will hold interest rates constant for another
quarter, with the index rising 2.7% on
Wednesday.
Deutsche Bank [DBK] had a particularly poor
week, posting a Q3 loss of $6bn. On top of this,
the bank announced it would not be releasing
any dividends for the next two fiscal years as it
executes its “2020 strategy”. As can be seen in
the graph below, Thursday’s news bought a
drop of 7% in the share price. The bank’s
recently appointed Co-Chief Chairman, John
Cryan, assured shareholders the bank will
continue with its strategy. This involves cutting
9,000 jobs, and shrinking the size of its
investment bank in order to focus on areas such
as asset management. These cuts will see the
company exit 10 countries and save around
$3.8bn in expenses. Although the short term
will see the bank struggling, this simplification
will improve long term profits at the bank,
perhaps making it one to watch in the future.
Insurance and asset management firm, AVIVA,
announced positive Q3 results. New business
for the life insurance division, the main revenue
stream of the company, increased by 25%.
Whilst, although the AIMS fund, the flagship
fund of the asset management department,
experienced flat returns for the quarter, the
FTSE 100 dropped 6.6% in the same time
period, showing a relative success for the fund.
Furthermore, any scepticism around the firm’s
acquisition of its rival, Friends Life, has been
dampened by the news the transaction is taking
place as expected. The market reacted
favourably with AVIVA’s share price rising 2%
on Wednesday. If the acquisition continues as
expected coupled with the company’s strong
capital position and the increasing demand for
insurance in China, I believe there are good
prospects for the business to grow in the future.
Sam Ewing
NEFS Market Wrap-Up
20
Technology
As markets closed on the 23rd of October,
Google shares bounced back by 12% to
$727.47, a huge recovery from a weaker
performance throughout that week. Meanwhile,
Infineon, a German semiconductor company,
saw a drop in share prices from $11.90 to
$11.20 – only a minor 5% fall.
On Thursday, Samsung Electronics announced
a $10 billion share buyback scheme for the
oncoming year – a value at 5% of the
company’s total market capitalisation. The
proposal arose as a result of heavy pressure
from shareholders over their unhappiness with
Samsung’s stalling profit growth, with the South
Korean company radically losing market share
in smartphones over the past two years. The
proposal will see Samsung buy their own
shares from investors who wish to sell, and then
cancel all these bought shares.
Through doing this the company will attain
fewer assets due to fewer shares in issuance,
resulting in investors holding a larger slice of the
equity, and thus boosting their per-share
earnings and dividends. Furthermore,
Samsung promises to return around 30 to 50
percent of free cash flow to shareholders over
a three year period, primarily through these
dividends. The news was well met by appeased
investors, with share prices jumping 4% upon
announcement.
In complete contrast, their rivalling company,
Apple, had shareholders agitated at the
beginning of this week, with news of the
German chipmaker Dialog taking a loss of 20%
in stocks as a result of their recent financial
report revealing weak performance. Being a
key supplier to Apple, it undoubtedly had an
impact on the tech-titan, with shares closing
almost 3% lower on the day, as investors fretted
about the disappointing news. However, this
seemed only a temporary fall for Apple, with the
support of a huge boost of 10.5% in share
prices over the last weekend, from $671.70 to
$742.70, asserting strong performance
throughout the week, with Apple’s shares
closing at a solid $120.6 on the 30th October.
This places Apple in a position where iPhone
sales numbers in this final quarter will be critical
to their yearly performance. In July, the
company posted a 35% increase in unit sales of
the product, to a total of 47.5 million devices,
ensuring shareholders with certainty over
Apple’s prime product. With upcoming
increases in spending over this last quarter, it
can surely be said that this trend will carry.
Daniel Land
Week Ending 1st November 2015
21
Pharmaceuticals
There have been multiple scandals over the
past few months in the Pharmaceutical industry
as price-gauging and fears of growing
fraudulent practises have surfaced. Growing
speculation over behaviour by Canadian
Pharma giant Valeant Pharmaceuticals caused
a 47.13% fall in its share price in just two weeks
as shown by the graph below. On the 21st of
October, Citron Research exposed fraudulent
revenue boosting tactics used by Valeant with
partner company 'Philidor'. Reportedly, they
inflated their orders and inventories in order to
boost reimbursement payments by insurers and
mislead investors, leading to subsequent
investigations into the company's activities.
Another clever accounting tactic called 'tax
inversions' have recently caught the attention of
the Obama administration. Inversions are a
growing trend that allows US companies to do
merger deals with foreign businesses in order
to move their tax base overseas and escape the
high tax rates and global reach of the US tax
system. This comes as a result of the US's
unusually high worldwide taxes on profits; even
if they are only taxed when brought home.
Yesterday Dublin-based Botox-maker,
Allergen, confirmed suspicions of a takeover by
Pfizer, who famously failed in their hostile bid
over AstraZeneca in 2014. A move which
increased its shares by more than 6% in an
afternoon, the seemingly premium acquisition
will not only call for lower taxes but also result
in profitable synergies. Such a move would
echo the activity at the start of the year by
Medtronic, one of the world's biggest medical
technology companies, who spent $49.9bn in
their take-over of Ireland-based Covidien,
which meant that they could slash their tax bills
by re-domiciling overseas.
It hasn't always been so easy though and US
crackdowns on such deals have managed to
scupper such moves. Attempts last year by the
treasury resulted in anti-inversion measures
that sought to make deals less profitable. It
forced AbbVie in October of last year to
abandon its proposed £32bn takeover of
Jersey-registered drug maker: Shire.
However, recent endeavours to stop tax
inversions are likely to fail as the republicans
may veto the next proposal which Obama, the
democrats and the US treasury are trying to
push through congress. Confirmation in July by
the senate that up to 25 more US groups are
considering inversions confirms that it is
perhaps a great time to invest in non-US small-
cap Pharma.
Sam Hillman
Valeant Pharmaceuticals International Inc
NEFS Market Wrap-Up
22
Industrials & Basic
Materials
The slowdown across global economies is
aggravating a coal glut that has driven prices for
the fuel to the lowest level in eight years, with
the Dow Jones Coal Index losing 33.6% in the
past week. Coal prices have collapsed amid a
broader slump in commodities, where the
current oversupply of coal has been
compounded by ongoing global economic
uncertainty. Weak power consumption growth
across Asia and subdued global trade flows are
undermining prices. Goldman Sachs and
Morgan Stanley have cut their coal price
forecasts from 2016 to 2018, citing soft demand
and ample supply.
Some of the firms whose business are heavily
exposed to coal have faced a substantial drop
in their share price, such as Arch Coal Inc (-
22.9%), Peabody Energy Corp (-21.8%) and
Consol Energy (-21.2%).
We will be focusing on Consol Energy where
they are looking to sell up to $2.3bn in Coal and
Natural Gas Assets. The company hopes any
sales can raise more cash and help de-
leverage its balance sheet as the company
continued to weather the commodities
downturn in the third quarter. The proceeds will
also pay down debt and accelerate the
separation of its coal and natural gas divisions.
Consol reported their financial results early this
week, and net income came in at $119 million
for the quarter compared to a net loss of $2
million for the same quarter last year, and
EBITDA at $374 million, exceeding the $201
million for same period a year ago. Going
forward, the CEO of Consol remains focused on
achieving free cash flow base plan over the next
15 months through additional gas hedges and
multi-year coal contracts which have
significantly reduced operating costs, corporate
overhead, legacy liabilities, and accelerated
Consol’s asset sale monetization program.
Consol hopes its growing position in the Utica
Shale will become the primary focus of the
development plan and a greater and greater
contributor to production growth.
The industry is cyclical and commodities are
taking a huge beating now. Could the share
prices of companies like Arch Coal and Consol
be attractive for one to accumulate? There is
still a lot of uncertainty in the industry and the
global economy as a whole, and until there are
signs of improvement to the whole landscape, I
believe there will be opportunity to accumulate
for cheaper.
Erwin Low
Week Ending 1st November 2015
23
COMMODITIES
Energy
The Energy Information Administration (EIA)
reported on Wednesday 28th a fifth straight
weekly increase in crude supplies, but also
stated that supplies of gasoline and distillates
declined, as many energy commodities made a
resurgence this week.
Colin Cieszynski, a chief market strategist at
CMC Markets (a UK-based financial derivatives
dealer) stated that “[traders are] still responding
mainly to changes in the supply and demand
outlook”. WTI Crude Oil prices had rallied by
6.3% on Wednesday, and “coincided with a
second increase in a row in implied demand,”
he said. That helped offset losses seen earlier
in the week, following news that the US
government will sell oil from its Strategic
Petroleum Reserve starting in 2018.
However Crude Oil futures - contracts in which
the buyer agrees to take delivery of a specific
quantity of crude oil at a predetermined price on
a future delivery date – slipped this Friday as
economic data has raised worries about US
energy demand, but US prices were still poised
to post gains for the week and month on
growing expectations that crude production will
soon decline.
December Brent crude (LCOZ5), on London’s
ICE Futures exchange edged up by 22 cents,
or 0.5%, to $49.02 a barrel. Tracking the most-
active contracts, prices were trading around
2.2% higher for the week, up 1.4% for the
month. Moreover, while December West Texas
Intermediate crude (CLZ5) traded down 16
cents on the New York Mercantile Exchange, its
most-active contracts also traded up around 3%
for the week.
There were also some solid indications this
week that oil companies are taking a hit from
the low prices. BP plc (NYSE:BP) declared a
quarterly dividend on Tuesday 27th October,
with Investors of record on being given a
dividend of $0.60 per share on Friday 6th
November. Royal Dutch Shell PLC (RDSB.L)
also announced a $0.47 dividend per share on
October 28th. The fact that these oil companies
have shown low dividend yields clearly reflects
sharp declines in upstream profits – profits from
the exploration and production of oil and gas -
as low energy prices take hold in the balance
sheets of major firms.
Harry Butterworth
NEFS Market Wrap-Up
24
Precious Metals
This week saw China cut its one year bench
mark interest rate by 25 basis points to 4.35%.
We have also seen European Central Bank
(ECB) President Mario Draghi announce that
the central bank would not cut rates, but at the
same time, he strongly hinted at that they would
act later this year. This has led to gold price
channelling within a range building higher
peaks and lower troughs, but assumes an
increasing trend.
As mentioned last week, gold is seen as a
reserve and as a store for value during
economic uncertainty and with the increased
possibility of an interest rate hike at the end of
the year in the US, gold prices have taken a
tumble from 1180.46USD/oz. to 1145.43
USD/oz., a 3% drop in 24 hours, the lowest
price in the last two weeks, as shown in the
chart below. Higher interest rates curb the
appeal for gold as the shiny metal does not pay
interest or give returns on assets such as bonds
or equities. Gold’s sensitivity to the US data
releases is likely to continue and its path from
here is heavily linked to the decision by the
Fed’s on the pending rate hike.
A stockpiling demand for gold in China during
this period ahead of the peak consumption
season, Chinese New Year, can be attributed
to the already attractive prices, looser monetary
policies and the devaluation of the Yuan earlier
this year. This has seen the net import of gold
from Hong Kong increase for the third
successive month in September, as looser
monetary policies and inventory holding have
spurred buying. The slowdown in China should
make the precious metal more attractive for
Chinese investors.
In other news, prices of platinum and palladium
fell on the 26th Oct, platinum falling 0.42% and
palladium falling 1.4%. All of the precious
metals have seen a decline on a five-day trailing
basis and this can be attributed to a stronger
outlook of the US economy and the
strengthening of the dollar.
Given the uncertainty in the Fed’s decision and
the growing demand for gold in China and
Russia due to financial and political instability, it
is likely that gold prices will continue to remain
bullish and would expect to rebound.
Samuel Tan
Week Ending 1st November 2015
25
Agriculturals
Moving on from last week’s fluctuations in corn
and coffee, this week has been yet another
thorn in farming industry. The weather is
causing unpleasant surprises, leaving it near-
impossible for some of the growers to organise
irrigation or drainage and minimise reduction of
the yield. Also, the IARC findings stirred up the
cattle industry.
Last weekend was signified by dry weather in
most regions of US, Australia and central
Russia, while surprisingly, areas around Texas
secured some rainfall - heavy enough to wash
away newly planted seeds. The areas
concentrating on wheat growth provided a
significantly lower supply of the good and failed
to meet the regular demand by the beginning of
this week. As evident in the Figure below, the
prices didn’t take long to shift upwards from
$490.50/bu on 23rd October to $515.00/bu on
29th October. If the weather conditions remain
unfavourable in some regions for much longer
then a lower yield in spring will result, as dry soil
is a very hostile environment for newly planted
seeds to develop roots. However, we may soon
witness a decrease in demand and prices as
the weather stabilises.
Weather is by far not the only concern in today’s
agricultural market. On 26th October the
International Agency for Research on Cancer
(IARC) concluded that consumption of red meat
is ‘probably carcinogenic to humans’, while
processed meat is now referred to as
‘carcinogenic to humans’. The cattle prices
remained considerably stable over the last
week but beef price was influenced by the IARC
statement and slightly depreciated afterwards.
It is unlikely that there will be a great decline in
the cattle price over the next few weeks for a
number of reasons; the initial response to this
week’s information has not resulted in a sudden
decline in demand and, thus, is less unlikely to
accelerate with time as the consumer tends to
forget and belittle the ‘probably’ factor. Also,
the difficulty in finding a nutritious substitute for
red meat in the short term is another issue.
Recent market news illustrates this prognosis
as the price on 26th October declined by 1.62%
overnight and seems to be recovering again –
already up by 2.50% on 28th October (reflected
in the Figure).
Goda Paulauskaite
NEFS Market Wrap-Up
26
CURRENCIES
Major Currencies
As forecasted in last week, the euro has
continued to come under increasing pressure
against the dollar, and the short
recommendation for this pair came into fruition
during late Wednesday’s trading when the price
plummeted by over 1.5% in a matter of minutes.
Whilst the euro has now regained some ground,
I still have a bearish view on this currency and I
believe support levels are going to continue to
be tested. We have now seen the pair fall from
the 1.35 level to 1.1 in the last 2 weeks alone,
losing close to 20% of its value.
The EUR/USD price tumble was caused by the
Federal Reserve boosting the possibility of a
December rate lift off. Following a 2 day
meeting, policy makers voted to leave rates at
the 0-0.25% band, where they have been for
the 7 years since the financial crash. However,
the FOMC gave its clearest indication yet that
there is a serious possibility that an upward
move in short term interest rates will happen
soon, lending confidence to a December rate
hike. In its announcement, the FOMC said it
would look at incoming data in deciding whether
to raise rates at the ‘next meeting’. The last time
the Fed used this phrase in 1999 under then
Chairman Alan Greenspan, it then raised rates
at the next meeting. The market implied odds
for a December lift off are now just slightly better
than 50%.
Higher interest rates increase the value of a
country’s currency relative to countries offering
lower interest rates. This is achieved through
being able to attract foreign direct investment,
increasing demand for the currency in question,
thus increasing its value. The market reacted
quickly to the announcement and immediately
began selling off EUR/USD, where the pair
eventually found support at 1.092. The Euro
has gradually regained ground against the
dollar, boosted by better than expected German
unemployment rates on Thursday. Dollar bulls
also evidently became more cautious ahead of
next week’s key economic data releases, where
we will see the US manufacturing index,
unemployment rate and Non-farm payrolls
figures. These releases will give the FOMC its
first indication of how likely a December lift off
is, so we will continue to see increased volatility
in EUR/USD. The pair finished the week just
above 1.10, slightly below the week’s opening
price.
Adam Nelson
Week Ending 1st November 2015
27
Minor Currencies
The Japanese Yen has had a turbulent time the
past month, with lows against the dollar nearing
118.00 and highs around the 121.50 mark. This
week was no exception to the volatility.
The Yen started the week strongly with a clear
downward trend in the USD/JPY pair; this was
likely to be mainly correctional after a very
sharp uptick in last Friday’s trading. The price
movement then flat lined upon reaching the
120.25 support level, and the pair traded within
a tight range for 24 hours meeting resistance at
the 120.50 price, as shown in the graph below.
The Federal Reserve’s monetary policy
statement caused some excitement in the
market after claiming they will “consider
tightening policy” at December’s meeting. This
caused the Yen to weaken against the USD
dramatically at 6pm on Wednesday, which
meant the USD/JPY pair smashed through the
previous resistance line to close at over 121.20
at 7pm. However the excitement was short-
lived. The bears re-entered the market after
further scrutiny of the Fed statement realising
no credible promises had been made.
More importantly for the Yen, the Bank of Japan
(BoJ) released their Monetary Policy Statement
at 3am on Friday. They stated that they would
keep their current policy unchanged despite
massively missing their inflation target of 2%,
with prices rising only 0.1% this fiscal year. The
reason for adding no further stimulus was due
to concerns a weakened Yen could harm
consumers. This sentiment seemed to work
with traders causing the USD/JPY pair to fall
over the next few hours to reach lows of 120.27
before some minor correctional upward
movement.
I am expecting the Yen to strengthen further
next week given the clear signals sent out by
the BoJ this Friday. Given there is no big news
due out from the Fed next week, the downtrend
in the USD/JPY pair should continue and there
is fairly strong possibility the 120.00 support
level could be broken. If broken, there will be a
sharp downswing in this market as traders’
stops get hit.
Elsewhere in the currency market, the Swedish
Krona had an interesting week. Sweden’s
Riksbank expanded its quantitative easing
programme partially in an attempt to weaken
the Krona but the market didn’t deem it enough
to have any effect against any further European
Central Bank QE. The Krona in fact rose 0.7%
against the Euro due to the seeming lack of
credibility from Riksbank to keep their currency
down.
Will Norcliffe-Brown
USD/JPY 1 Hour Candlestick (Source: OANDA)
NEFS Market Wrap-Up
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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 Josh Martin at [email protected].
This Publication has been prepared solely for informational purposes, and is not an offer to buy or sell or a solicitation of an offer to buy or sell any security, product,
service or investment. The opinions expressed in this Publication do not constitute investment advice and independent advice should be sought where appropriate.
Whilst reasonable effort has been made to ensure the accuracy of the information contained in this Publication, this cannot be guaranteed and neither NEFS nor any
other related entity shall have any liability to any person or entity which relies on the information contained in this Publication, including incidental or consequential
damages arising from errors or omissions. Any such reliance is solely at the user’s risk.
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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