We witnessed a week of moderate consolidation on the equity markets, with -0.6% on the Stoxx600NR, -0.3% for the S&P500 and a fall in the Nasdaq at the very end of the period, which led it to lose 1.6% over the week.
The highlight of the week was the U.K general elections, which saw Theresa May lose its bet by convening early elections to strengthen its power to the Chamber, and instead lost its absolute majority. In response, the pound fell 2% against the euro and the Dollar while the stock market indexes reacted little to the news, with no renewed volatility. This election could have an impact on Brexit negotiations, as this was a disavowal for Theresa May, a hard Brexit partisan.
In the United States, James Comey, former head of FBI, testified to the US Congress, confirming his accusations against Trump, but not providing new things, which is interpreted by the markets as a good news as a removal procedure seems to be moving away, at least in the short term.
The ECB seems to be in no hurry to normalise monetary policy as inflation remains well below 2%, which its main target, especially in a context of commodity weakness, coupled with very a progressive recovery.
Moreover, the European political cycle is not complete, with the German and probably Italian elections coming back. We believe the normalisation process, either a bond tapering or even a first hike in short-term rates, will not take place before 2018, as Mario Draghi will likely remain cautious before it is certain that the situation is thinning again. This should also allow for a more gradual appreciation of the euro against the Dollar, which is usually a drag for European markets.
Oil was again the star of the week with a drop of almost 4% for the WTI (-3.2% for Brent) following weekly US stocks datas , the largest increase since 2008. It seems that demand is also in question, coupled with the problem of the US shale oil that oversupply the market. WTI is now at a critical technical level of 45/$46, corresponding to the 46/$56 trading range, which has been valid since April 2016. In the event of a bearish breakout the immediate objective would be a $10 gap corresponding to the width of the previous congestion area. One can imagine that, as OPEC's agreement does not succeed in stabilizing prices, it becomes very tenuous. In the event of the agreement breaking, 1.8 million barrels would return to the market, which would be very complicated to absorb.
Lyxor Oil & Gas Europe (OIL) : weekly data
The crisis between Saudi Arabia and Quatar is an additional problem, as the breakup of the Arabian peninsula could affect negatively the OPEC agreement.
At currencies, apart from the Sterling’s decrease in the wake of general elections, we noticed few changes in the Euro/Dollar pair that remained around 1,12x, while European rates remain at very low level with a German 10-year bund at 0.25% and a 10-year OAT at 0.57%. Non-oil raw materials tended to stabilise this week, like copper, (see the JJC ETF, which is part of our Global macro portfolio), which has positively impacted emerging markets.
French legislative elections are widely anticipated, so a negative surprise (weak or no absolute majority for the President Macron) would likely have a negative impact on markets on Monday.
iShares Qatar (QAT) : weekly data
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We witnessed a week of moderate consolidation on the equity markets, with -0.6% on the Stoxx600NR, -0.3% for the S&P500 and a fall in the Nasdaq at the very end of the period, which led it to lose 1.6% over the week.
The highlight of the week was the U.K general elections, which saw Theresa May lose its bet by convening early elections to strengthen its power to the Chamber, and instead lost its absolute majority. In response, the pound fell 2% against the euro and the Dollar while the stock market indexes reacted little to the news, with no renewed volatility. This election could have an impact on Brexit negotiations, as this was a disavowal for Theresa May, a hard Brexit partisan.
In the United States, James Comey, former head of FBI, testified to the US Congress, confirming his accusations against Trump, but not providing new things, which is interpreted by the markets as a good news as a removal procedure seems to be moving away, at least in the short term.
The ECB seems to be in no hurry to normalise monetary policy as inflation remains well below 2%, which its main target, especially in a context of commodity weakness, coupled with very a progressive recovery.
Moreover, the European political cycle is not complete, with the German and probably Italian elections coming back. We believe the normalisation process, either a bond tapering or even a first hike in short-term rates, will not take place before 2018, as Mario Draghi will likely remain cautious before it is certain that the situation is thinning again. This should also allow for a more gradual appreciation of the euro against the Dollar, which is usually a drag for European markets.
Oil was again the star of the week with a drop of almost 4% for the WTI (-3.2% for Brent) following weekly US stocks datas , the largest increase since 2008. It seems that demand is also in question, coupled with the problem of the US shale oil that oversupply the market. WTI is now at a critical technical level of 45/$46, corresponding to the 46/$56 trading range, which has been valid since April 2016. In the event of a bearish breakout the immediate objective would be a $10 gap corresponding to the width of the previous congestion area. One can imagine that, as OPEC's agreement does not succeed in stabilizing prices, it becomes very tenuous. In the event of the agreement breaking, 1.8 million barrels would return to the market, which would be very complicated to absorb.
Lyxor Oil & Gas Europe (OIL) : weekly data
The crisis between Saudi Arabia and Quatar is an additional problem, as the breakup of the Arabian peninsula could affect negatively the OPEC agreement.
At currencies, apart from the Sterling’s decrease in the wake of general elections, we noticed few changes in the Euro/Dollar pair that remained around 1,12x, while European rates remain at very low level with a German 10-year bund at 0.25% and a 10-year OAT at 0.57%. Non-oil raw materials tended to stabilise this week, like copper, (see the JJC ETF, which is part of our Global macro portfolio), which has positively impacted emerging markets.
French legislative elections are widely anticipated, so a negative surprise (weak or no absolute majority for the President Macron) would likely have a negative impact on markets on Monday.
iShares Qatar (QAT) : weekly data