13 August 2018Monday Report

Economy Markets

Swiss Market Equities

Sentiment of traders

PerformancesToday’s graph

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Bonds

ALPHABET/GOOGLE (US Core Holdings) is in discussions with Tencent, Inspur Electronic Information and other Chinese compa-nies with a view to offering its cloud services in mainland China. Google has recently been trying to regain a foothold in China, with a format designed to suit the country’s authorities – an approach that is seemingly not receiving unanimous approval inside the US group. Watch this space.

HENKEL (Core Holdings) is due to report its Q2 2018 results this Thursday. The consensus is for organic sales growth of 3.2%, buoyed by solid momentum in Adhesives (up 5.2%), an upturn in Laundry & Home Care (up 2.2%) and continuing moderate growth in Beauty (up 0.3%). The EBIT margin should improve 40 bps to 18.3%, helped by lower advertising expenditure and shipping/logistics costs (Q1 problems resolved).

VODAFONE (Satellites) still has limited exposure to Turkey. In the current economic and political environment, Turkey’s currency is under heavy pressure. For the telecoms group, the Turkish market accounts for around 5.2% of sales and 4.4% of adjusted EBITDA. Note that, over the past two years, Vodafone’s Turkish business has posted the fastest organic growth of any of the group’s businesses, up 22% in 2017-18 and 29% in 2016-17.

WIRECARD (Core Holdings) has entered into a partnership with the Viessmann Group, a global leader in the manufacture of boil-ers and refrigeration systems. Wirecard is to help the group break into the e-commerce space (notably sales of spares) by handling alternative payment methods, first in Canada and then in Germany and Belgium, before rolling this out to Italy and other countries.

To be monitored this week: Flughafen Zürich July statistics and FSO July producer and import prices.The following companies are due to report results: Orascom, Straumann, Tornos, Arbonia, Geberit, Swiss Life, Basilea, Kudelski, VZ Holding, Comet, Ascom, Bell, Meyer Burger, Phoenix Mecano, Swisscom, Schweiter, Schindler, Cham Group, Gurit and PSP Swiss Property.

Stock marketThis could prove to be a complicated week. With quarterly results becoming fewer and farther between, investors might – as at the end of last week – take advantage of high market levels to take some profits. After the latest verbal and fiscal onslaught by the occupant of the White House, this time against Turkey, one cannot blame them.CurrenciesTRY has lost 16.4% against USD (USD/TRY: 3.79 at the beginning of the year, vs. 7.02 at the open this morning and 6.85 at 09:35). Turkey’s central bank says it will provide unlimited liquidity but has refused to raise interest rates. CHF continues to rise (safe haven levels – EUR/CHF: 1.13). We expect USD/CHF to be stable/strong at 0.986-1.006. The Turkish and Iranian crises are both bad for EUR. Upcoming support: EUR/CHF: 1.126, 1.099, 1.083; EUR/USD: 1.137, 1.131, 1.112; GBP/USD: 1.26, 1.236, 1.214. Very strong sup-port for gold at $1,195-1,204/oz.

Markets were badly affected by the worsening crisis in Turkey and fresh US sanctions against Russia (details to be specified). Global equities lost 0.6% and emerging equities 1%. Spreads on EM sovereign debt (local currency) widened 50 bps, while those on USD EM debt held steady. This risk-off episode favoured the US dollar (up 1.3%) and safe sovereign bonds (with US, DE, FR and CH 10-year bonds down 7-9 bps). To be monitored this week: SME confidence (NFIB index), retail sales, leading economic indicators (Empire Manufacturing and Philadelphia), industrial production, housing starts, building permits, confidence among homebuilders (NAHB), and consumer confidence in the US; industrial production, trade balance and ZEW confidence indicator in the eurozone; and retail sales, industrial production and investment in China.

There was little in the way of US statistical releases. However, core inflation rose slightly faster than expected in July (up 0.2% MoM; up 2.4% YoY). Meanwhile, producer price inflation was slightly weaker than expected (3.3% YoY). In the eurozone, the Sentix confidence indicator has surged to a higher than expected 14.7 in August (up from 12.1 in July). Lastly, in China, currency reserves rose very slightly to $3,118bn, while the July trade sur-plus was lower than expected (at $28.05bn), mainly as a result of stronger than expected imports (up 27.3% YoY); exports also grew faster than expected (up 12.2% YoY). Consumer price infla-tion, while rising (2.1% YoY in July), remained under control.

As at 10.08.2018 03.08.2018 31.12.2017SMI 9 031.33 -1.38% -3.74%

Europe Stoxx 600 385.86 -0.85% -0.85%MSCI USA 2 702.11 -0.20% 6.19%

MSCI Emerging 1 062.37 -1.02% -8.29%Nikkei 225 22 298.08 -1.01% -2.05%

As at 10.08.2018CHF vs. USD 0.9935 -0.04% -1.91%EUR vs. USD 1.1433 -1.36% -4.79%

10-year yield CHF (level) -0.11% -0.03% -0.13%10-year yield EUR (level) 0.32% 0.41% 0.42%10-year yield USD (level) 2.87% 2.95% 2.41%

Gold (USD/per once) 1 214.99 -0.38% -6.79%Brent (USD/bl) 72.84 -0.75% 9.35%

Source: Datastream

Since

One of last week’s biggest worries was the decline in the Turkish lira, which pushed the CDS to 2008 levels. Turkish sovereign yields fell 5.9% in the week, outdone only by Argentinian sovereign yields, which fell 6.9% in US dollars. US sovereign debt outperformed in spite of the increase in Fed issues, with the US central bank issuing $78bn over three, ten and 30 years to finance a growing US deficit.