Risk assets consolidated across all geographical zones, and especially emerging countries, due to a rise in the US
dollar. This followed the release of the latest FOMC minutes which reinforced expectations of a rate hike in December.
Most committee members said that views were evenly divided over a September hike but the camp in favour of a move
in December now looked stronger.
China’s export data weighed on sentiment but inflation figures were unexpectedly good. Economic data released over
the week were generally encouraging with better industrial production figures for Europe in August. Germany’s ZEW
investor confidence index improved sharply both as concerned the current situation as well as expectations. And in the
final inflation figures for eurozone inflation in September, France was up 0.4% and Germany up 0.7%, providing
confirmation of a return to levels seen in May 2015.
Oil price moves also influenced markets following contradictory messages from Moscow. Last Tuesday, the energy
minister talked about a possible production freeze rather than the cut Vladimir Putin had referred to the day before.
The oil price promptly reversed course and dipped briefly below USD 50, dragging down oil and commodity stocks.
Both sectors were also hit by Alcoa’s poor results which kicked off the third quarter earnings season.
Earnings expectations as a whole had been broadly revised down and analysts are now looking for close to zero growth
for US and European companies over the next 12 months. However, expectations have stabilised since the summer,
especially in Europe. This adds weight to our decision to remain invested in eurozone risk assets.
In fixed income, we have maintained positions after last week’s move to increase duration slightly in eurozone
government debt. We believe worries that the ECB will reduce its asset purchasing programme have been overdone.
We expect rates to stay low and the ECB to remain active.
European equity markets recovered at the end of the
period after being hit by a mixed start to the US
quarterly earnings season (Alcoa) and China’s
disappointing export data.
LVMH released reassuring results which confirmed
that its brand portfolio was of high quality and wellbalanced.
Results looked robust compared to rivals.
Sales at Louis Vuitton rose 7% in the third quarter
despite a difficult trading environment and Sephora
continued to enjoy strong growth. Cognac and
champagne both advanced.
Elsewhere, Unilever's figures were slightly better than
expected but of questionable quality. A 3.6% price increase effect managed to offset lower volumes for
most of its product categories. The group eventually
reached an agreement with Tesco in the UK after a
public stand-off over pricing. Tesco was threatening
not to stock Unilever products after the Anglo-Dutch
group said it wanted to increase prices by 10% to
compensate for the drop in sterling.
In less positive news, telecommunications equipment
maker Ericsson issued a profit warning, hitting its
rival Nokia and also pulling down the semiconductor
sector. Ericsson said demand was soft in Europe and in
emerging countries like Brazil and Russia but the
recent departure of its CEO is no doubt partly
responsible for the situation. Casino’s results were a
contrast between strong international performance,
with Brazil up 6% like for like, and sluggish trading in
France, especially at Leader Price and Monoprix. Even
so, the group is sticking with its annual targets.
Edenred also released upbeat figures for Latin
America, where like-for-like growth accelerated to 14%
in the third quarter, but the company also enjoyed
robust sales in France.
In this week’s capital transactions, Italy’s UniCredit sold 20% of Fineco, taking its stake down from 55% to
35% and improving its solvency ratio by 12bp.
Shareholders of Russian auto manufacturer Avtovaz are expected to approve the increase of capital.
Renault will also subscribe, reinforcing its position as
the largest shareholder with 72% of the equity. Vincent
Bolloré has increased his stake in Vivendi and now
holds over 20% and around 29% of the voting rights.
US markets fell with the S&P down 1% and the Dow
Jones 0.8% lower. There was little macroeconomic
news but the earnings season kicked off with Alcoa following the trend established by negative
preannouncements from Dover and Honeywell. The
other factor behind profit taking came from China
which saw exports fall 10% in September, the biggest
drop in 7 months.
US 10-year Treasury yields rose further to 1.76%
compared to 1.55% on September 30. The move was
prompted by the FOMC minutes which confirmed that
a rate hike was coming. Markets now see a 66%
probability of the Fed making a move in December.
However, bond proxy and long duration sectors like
utilities, property and telecoms all ended the period in
positive territory while financials and commodities lost
The Japanese stock market edged lower with the
TOPIX down 0.9% as global stocks stumbled. While
the yen stayed within an established range against the
US dollar around 103, weighing Japan’s export stocks,
it fell to 114 against the euro.
This week’s top gaining sector was Mining (+3.2%).
Fishery, Agriculture & Forestry also enjoyed a 2.5%
advance while Iron & Steel dropped over 5%.
Japan’s leading auto makers Toyota and Suzuki announced a strategic partnership. Toyota ended the
week 1% lower, while Suzuki gained 0.6%. Surviving
and establishing competitive edge in the automotive
industry appears to be driving major changes.
Murata Manufacturing, a company which provides
Apple with electric components, rose 6.4% after some
Samsung Galaxy Note 7 phones caught fire.
On a negative note, Seven & I Holdings, which
operates superstores and convenience stores, plunged
9% on concerns over limited industry growth after a
rival convenience store company reported a decline in
Emerging market stocks fell to their lowest level in a
month and currencies weakened after data showed a
decline in Chinese exports and speculation grew over
an imminent increase in US interest rates.
In Thailand, the Royal Palace announced that King
Bhumibol Adulyadej, the world’s longest reigning
monarch, had died aged 88. Crown Prince Maha
Vajiralongkorn, 64, is the heir apparent. The death of
the king has profound implications for Thailand’s
political and economic stability but so far the situation
After keeping its base rate unchanged at 1.25% the
Bank of Korea warned that Samsung's smartphone
crisis could hamper economic growth. The Suwonbased
company disclosed on Friday a negative impact
of approximately USD 3bn on operating profit through
March 2017, on top of an already announced USD
2.3bn cut for the preceding period. This will have a
limited impact of 5% and 3% on 2016 and 2017
In Brazil, the PT party lost 60% of its municipalities,
confirming the weakening of the Government’s
opposition party. This news was viewed positively as it
increases the probability of reform measure being
approved. Brazil’s lower House of Congress followed
on from this good news and approved a proposed
constitutional amendment to limit government
spending, a key economic reform put forward by
President Michel Temer. The amendment must still
clear several more legislative hurdles, including the
Senate. Brazil made positive returns this week.
Mexico’s market also benefited from its stronger
currency thanks to impressions that Donald Trump’s
Presidential campaign had lost some steam.
Oil stabilised above USD 50 although it dipped below
that level after US weekly crude inventories rose for the
first time in six weeks. The increase was, however,
normal for the season. Newsflow on oil remained
heavy. The IEA's monthly report revised demand in
2015 sharply higher and trimmed growth in demand
for 2016. At the same time, it noted that growth had
decelerated in the US and China but was still upbeat in
Europe and India. Non-OPEC supply was left
unchanged but the agency nevertheless highlighted a
further rise in OPEC production in September to 33.64
million b/d. This was due to Iraq's Kirkuk site
restarting and a resumption in Libyan exports. The rise
puts more pressure on OPEC countries to cement their
unofficial agreement to trim output. Some OPEC
members, along with Russia and Mexico, had another
meeting in Istanbul this week. No concrete details
emerged apart from Russia’s willingness to join in the
general effort although Moscow is waiting for OPEC to
make some tangible moves. The next meetings will
take place in Vienna at the end of October.
Elsewhere, China’s export data for September were
generally seen as disappointing. But the data contained
good news for commodities as oil imports rose by 18%
YoY to 33.1 million tonnes, or 1% MoM. China is now
the biggest oil importer ahead of the US. China is
facing a cut in production but has increased storage
capacity. Iron ore imports rose 8% YoY to 93 million
tonnes and 6% MoM. Only copper imports remained
weak; they fell 26% YoY and 4% MoM, taking them to a
19-month low and triggering a price correction. The
coal market remained very busy, and especially
metallurgical coal which traded at USD 220/t FOB
Australia compared to USD 90 at the beginning of
Peabody Energy and Nippon Steel have just
agreed on USD 200 a tonne for fourth quarter
contracts. This could serve as a benchmark but
discussions between other main sector players are still
After its sharp fall in October 4, gold stabilised at USD
1250-60 and failed to react to the FOMC minutes
which confirmed the probability
Trading was calm on credit markets due to religious and bank holidays. There were few data releases. Corporate bonds outperformed other asset classes. Credit indices were stable with the Main ending the period at 73bp and the Xover at 332bp.
CNP Assurances unveiled a new EUR 1bn subordinated Tier 3 issue, a new instrument on the European market. The deal was 7 times oversubscribed.
The new issues market was very busy. RCS & RDS raised EUR 350m with a 2023 maturity to refinance existing bond debt. Warner Music Group issued a double euro and US dollar-denominated bond. Verallia abandoned plans to place its EUR 500m PIK bond. Volf Dber Holding launched the James-AB Corp spin off, a deal that attracted a good deal of investor interest. Altice bought back 5.21% of its French subsidiary SFR in an off-market transaction and now holds 82.9%. According to sources cited by Reuters, Anglo American is expected soon to announce the sale for at least USD 1bn of its Australian coal assets to a consortium led by Apollo.
The convertible bond primary market had a small
pause for breath just before the third quarter earnings
season kicked off with reports from Alcoa and LVMH.
The only significant new issue was Haitong’s HKD
3.88bn zero coupon 2021 convertible. The IG-rated,
Hong-Kong listed broker is well known in the market
as it had already issued two convertibles.
In Asia, apart from Chinese data and the sell-off of
technology stocks after Samsung’s Galaxy Note 7
disaster, the focus was on Thailand. King Bhumibol’s
death saw the market plunge 10.5% over a couple of
days (with CP Food/CP All and Bangkok Dusit Medical
CBs all impacted). However, it stabilised late in the
week, supported by local fiscal stimulus which should
keep consumption healthy for the foreseeable future.
Elsewhere, Steinhoff continued its acquisition spree
by buying Australian-listed furniture retailer and
manufacturer, Fantastic Holdings, for AUD 361m.
In the US, eBay reduced its stake in Mercadolibre to
about 6% from roughly 18% and will use the proceeds
“in a manner consistent with [its] capital allocation
strategy”. MercadoLibre shares were down 8.4%
following the news.
In Europe, Vivendi’s COO announced that the group
was not planning to launch a hostile takeover bid for