This week was once again marked by the continuity of the previous trading range with low variations (Stoxx600: -0.2% and S&P500: + 0.2%), which extends the corrective episode that has started several weeks ago.
This week was marked by a further sharp drop in oil (-4.5%) despite positive US stocks datas (slightly down), while the market looks no more confident in OPEC’s ability to stabilise prices. The latter plans to increase again production cuts (700,000 additional barrels) later on, but this news/rumor has not had any effect on prices. The credibility of OPEC is at stake, and the fall in prices is eroding cohesion among members and some Non-Aligned countries (such as Russia), which could quickly dissociate themselves from those objectives if prices are not able to stabilise.
After the start of a correction’s phase in the technology sector (nervousness about valuations), the drop in the Food Retail sector following the acquisition of Whole Food Market by Amazon, the oil sector also weighted on the US and European market and most of emerging markets. However, the major indexes remained fairly stable this week, thanks in particular to the healthcare sector, which rallied sharply, while Trump would prepare a final decree that would be much more favourable to pharmaceutical laboratories, with the primary objective of lowering regulatory barriers to ultimately lower drug prices. This is of course an excellent news for the sector that rebounds in both the US and Europe.
US Biotech (XBI), weekly data :
At the same time, technology stocks did not continue the corrective movement of last week and saw a slight rebound. Financials are no longer a market driver, while the drop in crude oil prices pushed down inflation expectations and long yields on the same time (French 10-year OAT 0.60% and German 10-year yields at 0.25%).
Meanwhile, the ‘hard Brexit’ line is losing momentum in Britain, and Theresa May has just made concessions to align the rights of Europeans living sustainably in the United Kingdom. A sign, perhaps, that a negotiated and more flexible agreement could end up. China has just warned of large domestic companies that are too much leveraged in doing some acquisitions in the West, a signal that is no good news for European companies, particularly for the leisure & tourism sector, the most obvious target for Chinese companies. At the same time, the MSCI Emerging Markets index announced this week that it would include Chinese Renminbi denominated shares and listed on the Shanghai and Shenzhen stock exchanges from spring 2018. However, the 222 Chinese stocks selected represent only 0.7% of the index, but this is expected to increase as China begins to open to foreign investors.
Saudi Arabia also announced this week an event that was expected, but not so quickly : Mohammed bin Salman became Crown prince and vice Prime Minister, replacing King Mohammed Ben Naif's nephew. The young crown now has many powers, and its ambitions for reforms are immense. It remains to be seen whether the audace of the 31 years old Prince will also manifest itself in geopolitical matters against Iran, while it is perceived as the main initiator of the war waged in the Yemen against the Shia rebellion. In this case, the rebound in oil price becomes likely.
Saudi Arabia (KSA), weekly data :
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This week was once again marked by the continuity of the previous trading range with low variations (Stoxx600: -0.2% and S&P500: + 0.2%), which extends the corrective episode that has started several weeks ago.
This week was marked by a further sharp drop in oil (-4.5%) despite positive US stocks datas (slightly down), while the market looks no more confident in OPEC’s ability to stabilise prices. The latter plans to increase again production cuts (700,000 additional barrels) later on, but this news/rumor has not had any effect on prices. The credibility of OPEC is at stake, and the fall in prices is eroding cohesion among members and some Non-Aligned countries (such as Russia), which could quickly dissociate themselves from those objectives if prices are not able to stabilise.
After the start of a correction’s phase in the technology sector (nervousness about valuations), the drop in the Food Retail sector following the acquisition of Whole Food Market by Amazon, the oil sector also weighted on the US and European market and most of emerging markets. However, the major indexes remained fairly stable this week, thanks in particular to the healthcare sector, which rallied sharply, while Trump would prepare a final decree that would be much more favourable to pharmaceutical laboratories, with the primary objective of lowering regulatory barriers to ultimately lower drug prices. This is of course an excellent news for the sector that rebounds in both the US and Europe.
US Biotech (XBI), weekly data :
At the same time, technology stocks did not continue the corrective movement of last week and saw a slight rebound. Financials are no longer a market driver, while the drop in crude oil prices pushed down inflation expectations and long yields on the same time (French 10-year OAT 0.60% and German 10-year yields at 0.25%).
Meanwhile, the ‘hard Brexit’ line is losing momentum in Britain, and Theresa May has just made concessions to align the rights of Europeans living sustainably in the United Kingdom. A sign, perhaps, that a negotiated and more flexible agreement could end up. China has just warned of large domestic companies that are too much leveraged in doing some acquisitions in the West, a signal that is no good news for European companies, particularly for the leisure & tourism sector, the most obvious target for Chinese companies. At the same time, the MSCI Emerging Markets index announced this week that it would include Chinese Renminbi denominated shares and listed on the Shanghai and Shenzhen stock exchanges from spring 2018. However, the 222 Chinese stocks selected represent only 0.7% of the index, but this is expected to increase as China begins to open to foreign investors.
Saudi Arabia also announced this week an event that was expected, but not so quickly : Mohammed bin Salman became Crown prince and vice Prime Minister, replacing King Mohammed Ben Naif's nephew. The young crown now has many powers, and its ambitions for reforms are immense. It remains to be seen whether the audace of the 31 years old Prince will also manifest itself in geopolitical matters against Iran, while it is perceived as the main initiator of the war waged in the Yemen against the Shia rebellion. In this case, the rebound in oil price becomes likely.
Saudi Arabia (KSA), weekly data :