nefs market wrap up week 2

Week Ending 1st November 2015

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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


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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


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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


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


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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


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


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


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


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

http://www.ft.com/cms/s/0/bf3c56d2-7d71-11e5-a1fe-567b37f80b64.html#axzz3pyBJECFp


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


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


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


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


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

28

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

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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

mailto:[email protected]

mailto:[email protected]

nefs market wrap up week 2

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